A Special Investigative Report
from the Western Journalism Center
with the assistance of the Iran Brief
Editor’s note: The Clinton administration is hoping to conclude a
“package deal” with the government of Iran in time for the November
elections that would resolve 20 years of hostility between the United
States and Iran, lead to renewed diplomatic relations, and give
President Clinton a much-sought-after “legacy” in foreign affairs,
according to intermediaries directly involved in the negotiations and
former U.S. officials.
reported in WorldNetDaily the deal, if successful, would restore complete commercial ties between the two countries, allowing U.S. oil companies to invest in Iran and to buy Iranian crude oil while allowing President Clinton and Vice President Gore to claim credit for “resolving” the current oil crisis, all in time for the elections.
WND reported how, in pursuing this mega-backroom deal, Clinton has become Iran’s best advocate in the United States, protecting Iran’s assets and shielding Iran’s leaders from prosecution — even at the expense of betraying the American family of a terrorism victim he once promised personally to help.
Today’s report documents how, despite the Iranian government’s extensive financial and real estate holdings in the United States, the Clinton administration has thwarted all efforts of the family to collect just compensation, as awarded by a U.S. court, for Iran’s role in the murder of 20-year-old Alisa Flatow by Iranian-backed terrorists.
By Kenneth R. Timmerman
© 2000, Western Journalism Center
In early October 1998, Secretary of State Madeleine Albright began calling members of the budget conference committee in Congress, warning them that President Clinton would shut down the government on the eve of the mid-term elections if they included an amendment to help the victims of terrorism.
The amendment, known as Section 117, was part of the FY 1999 Omnibus Appropriations Bill. It compelled the secretary of state and secretary of treasury to assist victims of terrorism in locating assets of terrorist states in the United States, to compensate the families for their losses.
Congress had drafted the legislation at the request of Stephen Flatow, the father of 20-year-old college student Alisa Flatow from New Jersey, who was
murdered in April 1995 in Gaza by Iranian-backed
terrorists. They were pushing for the law out of frustration, because the Clinton administration had been exploiting a loophole in a 1996 law passed for precisely the same purpose.
In the end, President Clinton never made good on the threat to close down the government. Yet again, he found a better way of circumventing the will of Congress. The appropriations bill — including the amendment that offended the White House — was passed by the House of Representatives on Oct. 20, 1998. President Clinton signed it into law the next day.
Before the ink was even dry, Clinton turned around and endorsed a separate
Presidential Determination prepared by his National Security Council staff. Within minutes, he simply vacated Section 117 in its entirety.
“I’m shocked. I’m very disappointed,” Stephen Flatow told the New York Post the next day.
In a recent interview, Flatow explained that the reason he was shocked was because President Clinton had just reassured him in person that the U.S. government would help the families seize non-diplomatic assets belonging to the Iranian government in the U.S. to satisfy the $247.5 million in damages awarded them by a U.S. District Court in Washington, D.C.
Shmoozing at the Hilton
Flatow had met the president and National Security Adviser Sandy Berger at a fund-raiser at the Washington Hilton earlier that month.
“He asked me lawyerly questions, and turned to Berger for confirmation of what I was saying,” Flatow recalls.
Two weeks later, Berger’s office called Flatow’s lawyers, telling them they could seize Iranian bank accounts and non-diplomatic assets. Diplomatic property — Iran’s embassy, consulates, and official residences — remained off-limits.
Among the properties Iran held in America that Berger’s office declared was fair game was a 36-story office complex at 52nd St. and Fifth Ave. in Manhattan, worth an estimated $135 million. Built in the 1970s with Iranian government money, today it is owned by the non-profit Alavi Foundation of New York, the successor of the Iranian government-controlled Pahlavi Foundation.
In addition to the skyscraper, the Alavi Foundation owns four “Islamic Education Centers” in Potomac, Md.; Queens, N.Y.; Houston, Texas; and Carmichael, Calif. The Maryland property alone is valued at more than $5.7 million, according to real estate records. The Houston property is worth an estimated $3.2 million.
In Queens, N.Y., the foundation has pumped more than
$10.4 million into its Imam Ali Islamic Education Center since March 1991. The foundation has an assortment of other real estate holdings around the country, including 20 acres of prime development land in Catharpin, Va., assessed at $1.9 million but potentially worth several times that amount to developers.
Several Iranian-Americans have attempted to gain control of the Alavi Foundation in the U.S. courts over the past decade. Who controls the foundation, established by the shah’s government in 1975 to provide scholarships to young Iranians studying in the United States, has become a cause celebre among Iranian-Americans.
“These properties belong to the people of Iran,” said Aryo Pirouznia, an Iranian-American activist who has spearheaded an
support group for the pro-democracy student movement that has rocked the ruling clerics with demonstrations over the past year. “These assets do not belong to the regime.”
Attempts by the Flatow lawyers to attach the Alavi Foundation properties and other assets have been blocked by the Justice Department in Washington, D.C., at every step of the way, despite President Clinton’s repeated claims that he is helping the families. Separate lawsuits filed in Houston, Texas, and San Diego, Calif., to attach Iranian government properties and state-owned banks were also rejected, after Justice Department lawyers objected.
In February 1999, Sen. Frank Lautenberg of New Jersey set up another meeting for Flatow with the president on the sidelines of a National Prayer Breakfast. Despite having personally blocked Flatow’s efforts to attach Iran’s assets, Clinton oozed sympathy and continued to ask what he could do to help.
“We told him he could help by unfreezing the Nations Bank account where the rent from Iran’s diplomatic properties is being held,” Flatow said. “Clinton turned to Berger, and told him to get on it.”
Once again, Flatow says, he was tricked into believing he had the president’s support. When his lawyers filed a motion to attach the Nations Bank account, the Justice Department once again opposed them, filing a motion to quash. By November 1999, the Justice Department had assigned 14 government lawyers to the case.
“That’s more than they assigned to the Microsoft anti-trust suit,” said Flatow family attorney Thomas Fortune Fay.
Wheeling and dealing
It is widely believed that the Iranian government shut down its operations in the United States when President Carter froze Iran’s assets during the 1979-1981 Tehran hostage crisis.
In fact, once the hostages were released, President Reagan lifted the freeze on Iran’s bank accounts. The U.S. and Iran agreed to refer claims of liability stemming from the revolution to a newly created international tribunal in The Hague. These included claims by U.S. companies for compensation from Iran because their contracts were canceled or their property seized during the revolution, and claims by Iran for compensation for military equipment paid for by the Shah but never delivered.
Separate from The Hague tribunal, however, Iran was once again allowed to do business in the United States, and continued to make extensive use of the U.S. banking system until President Clinton once again imposed a total trade ban in May 1995.
Using leads provided by Iranian-Americans and by the Flatow attorneys, this reporter examined real estate records in Maryland, New York, Texas and California, as well as corporate records, lawsuit filings and bankruptcies over the past two years. The investigation found extensive holdings by the government of Iran and its legal agents in the United States, despite the 1995 trade embargo.
These holdings include:
- Three state-owned banks, which continue to maintain representative offices in the United States and have extensive financial operations and property holdings, directly and through subsidiary corporations;
- The Alavi Foundation of New York, a non-profit corporation considered by Iran as a subsidiary of the Bonyad-e Mostazafan va Janbazan (Foundation of the Oppressed), the Tehran-based repository for property seized from the Shah and his supporters in the wake of the revolution. Under Iranian law, the foundation is under the sole control of the supreme leader of the Islamic Republic of Iran, and is considered state property.
- Former diplomatic properties, now rented out by the U.S. State Department, with the monies going into blocked accounts
- Real estate and other property held through registered agents and front companies for the Iranian government.
The revolutionary government in Iran nationalized all Iranian banks in 1979. Even today, there are no private banks in Iran. Under the constitution of the Islamic republic, the banks have no independent legal existence; they are agencies of government, not corporations.
Three of Iran’s largest banks operate and own property in the United States: Bank Melli, Bank Saderat and Bank Sepah. As foreign banks, their activities are regulated by the Federal Reserve Bank.
All three were fined in 1994 for “filing of late and incomplete regulatory reports” to the Fed, according to Federal Reserve reports.
Bank Melli, which operates in New York and Los Angeles, was assessed a civil penalty of $60,000 by the Federal Reserve on Sept. 22, 1994, which it paid two months later.
Bank Saderat was fined $125,000 and Bank Sepah was fined $100,000 at the same time.
When President Clinton imposed the trade embargo banning financial transactions with Iran, all three were doing a booming business in the United States, according to reports submitted by the banks to federal regulators.
On April 21, 1995, the chief agent of Bank Melli Iran in California, Amir Ali Taghati, reported cash flows for the previous month on Bank Melli’s accounts with U.S. corespondent banks.
Account No. 12336 81030, which Bank Melli maintained with the Bank of America, showed credits of $1.3 million for the month. A separate account with the Wells Fargo Bank showed credits of $16 million. But the bulk of Bank Melli’s U.S. funds were held in Account No. 5512 11523 with the Sanwa Bank California. This account showed $191.2 million in credits during a one-month period in March 1995. For the most part, these accounts were used for time deposits and money market funds, with the monies transferred out at the end of each month (and in some cases, at the end of each banking day). But at the very least, the Iranian government was benefiting from the U.S. banking system and from U.S. financial instruments.
Like any other foreign investor, the government of Iran is making money on Wall Street. But the government of Iran is not like any foreign investor. The U.S. Department of State has made a legal determination that it is a terrorist state. So has the president, in numerous executive orders. And yet, the activities and investments of that state are being protected by President Clinton.
So beneficial was the U.S. banking system for Iran that it used U.S. banks for its offshore deposits as well. The Marine Midland Bank of New York maintained several accounts for Bank Melli and Bank Saderat on the books of its British subsidiary, Midland Bank plc, in London. Bank Melli’s account with Midland Bank showed 272 transactions in excess of $1 million each for the month of April 1995. The average daily balance on Bank Melli’s account was $268.2 million. For the month, a total of $5.2 billion transited through Bank Melli’s account with Midland Bank in London.
Were the Clinton administration to enforce the damages awarded U.S. victims of terrorism against the government of Iran, they could freeze the offshore accounts used by the Iranian government with U.S. banks, where the bulk of Iran’s oil income gets deposited.
A fourth Iranian bank, Bank Tejarat, also uses New York as its banking capital. Its U.S. correspondent bank, the Australian and New Zealand Banking Group Limited (ANZ Worldwide), booked transactions worth $6.8 million in April 1995. Citibank, Bank of New York and Chemical Bank also maintain accounts for the government of Iran in New York. Citibank’s account for the state-owned Bank Sepah showed debits of more than $11 million in April 1995. A separate Citibank account, in the name of Bank Melli, showed $79 million in debits that month.
Since the trade ban, the three main Iranian banks operating in the United States have all but closed their once highly-visible branch offices in Los Angeles and New York. But they have not stopped all banking activity. All three continue to manage letters of credit for purchases of industrial equipment and consumer goods, worth millions of dollars each month.
These purchases increased following President Clinton’s quiet decision in April 1999 to partially ease sanctions by allowing Iran to buy U.S. food products. U.S. Department of Agriculture statistics, released Oct. 21,1999, showed that Iran purchased nearly 400,000 tons of American corn since the U.S. lifted the embargo on food sales to Iran in April. Those purchases were financed through Iranian banks.
Letters of credit for grain purchases, oil sales and other trade could be seized under current U.S. law, if it weren’t for President Clinton’s efforts to protect Iran’s assets and its commercial activities in America, as part of his secret back-channel negotiations with Tehran.
The Alavi Foundation
The Pahlavi Foundation in New York and its parent, the Pahlavi Foundation in Tehran, were seized by the revolutionary government of Ayatollah Khomeini in a decree dated Feb. 28, 1979.
The Shah’s assets and those of his supporters were placed under the direct legal control of the supreme leader, in theory to be managed “in favor of the needy.” Today, the foundation is controlled by law by his successor, Ayatollah Ali Khamene’i, who appoints a chairman to manage its day-to-day affairs.
In Iran, the foundation controlled vast real estate holdings, factories and luxury resorts. It had share-holdings in major joint-venture corporations set up in Iran with foreign partners, including General Motors and Jeep.
In the United States, its main asset was the 36-story mid-town Manhattan office building. Back in 1979, it was valued at approximately $50 million. The revolutionaries forced the resignation of the foundation’s pro-Shah Board of Directors in 1979, replacing them with persons loyal to Ayatollah Khomeini. Top among them was Mohammad Hadi Nejad Hosseinian, who
assumed control of the Foundation on Aug. 27,
Nejad-Hosseinian today serves as the Islamic Republic’s ambassador to the United Nations, after 20 years in various government positions in Tehran. Under his leadership, the foundation proceeded to establish “Islamic Education” centers around the U.S., with the aim of spreading pro-regime propaganda.
In recent years, the centers have become a magnet for the Iranian community by offering Farsi-language primary school classes that are fully accredited with the Iranian national educational system. But they continue to spread virulent anti-American and anti-Semitic propaganda, including videotaped speeches of neo-Nazis such as Ahmed Huber, who praises Ayatollah Khomeini as the living embodiment of Adolf Hitler.
Over the past five years, the foundation has financed a Farsi-language satellite TV network in the United States known as Aftab television, which rebroadcasts state-run television programs from Tehran. Aftab is controlled through a New York agency, Cina Productions.
Despite the foundation’s clear ties to Tehran, the Treasury Department’s Office of Foreign Assets Control failed to include it in lists of Iranian government assets it published following President Clinton’s trade embargo in May 1995.
Officials at the Office of Foreign Assets Control said in interviews that they had not been able to establish Tehran’s “day-to-day control” over the foundation in a manner that would hold up in a U.S. court. A U.S. District Court in the Southern District of New York agreed, and in late 1995 rejected an effort by an Iranian-American to attach assets of the Alavi Foundation to satisfy a claim against the government of Iran.
These rulings came despite
a May 18, 1988, investigation by the New
York district office of the Internal Revenue Service. An IRS memo documenting the probe, obtained by this reporter, concluded that the Alavi Foundation was controlled by Tehran. (It was then called the Mostazafan Foundation, after its parent foundation in Tehran).
On page 1, the IRS notes that the entire capital of the original foundation, $42,000,000, was provided in 1975 by the Central Bank of Iran “on instructions from the Shah.” The money was used to construct the building at 650 Fifth Ave. The Central Bank “used another bank in Iran, Bank Melli, as its agent for transfer of funds to the United States.”
The report goes on: “The entire $42,000,000 was given interest-free to the Mostazafan Foundation and is secured by a mortgage on the property at 650 Fifth Avenue.” It was to be repaid in “15 annual installments of $2,800,000 each, commencing in December 1978 …”
After repeated defaults by the foundation following the revolution, they re-negotiated the repayment schedule with Bank Melli.
“The debtor-creditor relationship in this case is cloudy and does not appear to be an arms length relationship,” the IRS concluded. “Trustees of Mostazafan Foundation historically have been appointed by the government of Iran and it has been demonstrated that the Bank Melli is an instrument of the government of Iran. Therefore, Mostazafan Foundation and Bank Melli both may be controlled by the government of Iran.”
Despite this and numerous other documents presented to U.S. District Court in New York, the administration continues to allow the Alavi Foundation to finance propaganda activities in the United States with impunity.
The Iranian government still owns a 6-story Manhattan townhouse that used to serve as the residence of the Iranian ambassador to the United Nations. Located at 34 East 69th St., it was appraised for tax purposes at $5 million in 1995.
The Treasury Department has managed the property on behalf of the Iranian government since the 1979-81 hostage crisis. At one point, the Office of Foreign Assets Control rented the house to a criminal lawyer named Ivan Fisher for $50,000 per month. That money went into an escrow account for the Iranian government, which the Clinton administration has prevented the Flatow lawyers from attaching.
On April 14, 1997, the Alavi Foundation purchased land in Queens from the Korean Presbyterian Church for $405,000. That transfer occurred despite U.S. regulations banning financial transactions by the government of Iran in the United States.
In Croton-on-Hudson, N.Y., the Alavi Foundation purchased six separate lots located on Georgia Lane, in the Waldwoods subdivision. The foundation transferred ownership through an insiders deal to a private corporation, repurchased it, refinanced it, and flipped the properties in the early 1990s.
U.S. government investigators believe profits from this and numerous other real estate transactions were done as a means of financing undeclared activities by the Alavi Foundation and the Iranian government in the United States. Bank Melli and Bank Saderat — both agencies of the Iranian government — also engaged in a variety of real estate holdings across America. Bank Melli recently purchased property assessed at $694,000 at 135 Puritan Ave. in Flushing, N.Y. In Los Angeles, a 1995 court judgment against four rug and furniture companies gave it liens worth several million dollars.
Bank Saderat has won title to numerous properties in California over the past five years as a result of mortgage defaults. These include a $2 million villa located at
515 North Rodeo Drive in the center of Beverly Hills, condominiums, lots, a convenience store, and more.
In February 1995, just three months before President Clinton’s executive order, Bank Saderat established a separate corporation, the California Land Holding Corporation, to manage its real estate portfolio.
Bank Saderat’s New York agency director,
Ibrahim Bahmaie, was listed as the company’s president. Following the trade embargo, the company transferred its assets to a series of front companies, which have continued to shuffle them to throw investigators off the scent.
A preliminary review of corporate and real estate documents relating to these holdings shows that the California Land Holding Corporation may control as much as $10 million in property through various front companies. Because they are a direct subsidiary of Bank Saderat, their holdings are the property of the Government of Iran and could be seized under the anti-terrorism legislation — if President Clinton had not taken steps to protect them.
But the mother lode has been hiding beneath the noses of the Flatow attorneys since day one. And it makes all these other holdings — even the Fifth Ave. skyscraper — look like small potatoes by comparison.
Next — The mother lode:
The U.S. is protecting several billion dollars worth of Iranian military spare parts, and after 20 years is ready to release them. But Tehran is still not willing to make concessions to the U.S. In this election season, Tehran may win.
- Read Part 1:
Clinton, Iran plan election-eve coup.
- Read Part 2:
Secret spy deal: U.S., Iran, Israel.
- Read Part 3:
Clinton sought dirt on W’s dad.
- Read Part 4:
Clinton shields Iran from U.S. justice.
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Kenneth R. Timmerman is a veteran investigative reporter who has published three books on the arms trade and intelligence issues.