 (Photo: The Times of Malta)
The indictment was unsealed a year later, and the 38-year-old Sadr was arrested at Dulles International Airport in Virginia and brought back to New York.
According to the indictment, Sadr had helped establish a series of shell companies to hide the true nationality of a construction company hired by Petroleos de Venezuela S.A., the state-owned Venezuelan oil company, to build 7,000 apartments in the northwestern city of Ciudad Ojeda at a cost of $476 million.
The U.S. government, which had been investigating Sadr since 2014, said the fraud worked like this: Stratus Group, a major Iranian construction and consulting company controlled by Sadr’s father, created a subsidiary called the Iranian International Housing Corporation, which contracted with the Venezuelan company, known as PDVSA. The housing corporation then incorporated two holding companies, one in Turkey and the other in Switzerland, to receive payments on behalf of the Iranian parent company. Most of the $115 million in illegal payments, the government said, were dollar-denominated, and many of the payments passed through U.S. banks, in violation of the ban on direct commerce with Iran.
Nine days after his arrest, Sadr had his arraignment and bond hearing before U.S. Magistrate Judge Barbara Moses. After Sadr entered a plea of not guilty, prosecutors urged Moses not to grant him bond. They argued that Sadr was a flight risk even if he pledged substantial assets, because his father, Mohammad Sadr, whom they described as the Bill Gates of Iran, would not care about the loss of a few million dollars to help his son flee the United States and avoid prosecution.
Sadr’s attorneys pushed back. They noted that Sadr had gone to Cornell University as an undergraduate and for graduate school, and that he was married to a U.S. citizen and had a green card. In addition, his lawyers said that Sadr’s father was not aligned with or a member of the Iranian government; in fact, he was subject to constant harassment and constraints on his travel.
Sadr was released on May 31, 2018 after posting bond of $33.5 million, secured by cash, buildings, and real estate, including his interests in a pistachio farm in California.
Two months prior to the case going to trial, on January 22, 2020, government agents interviewed Bahram Karimi, the project manager for the construction project. He had signed many of the payment instructions that were part of the government’s exhibits. The interview took place in Canada, where Karimi was now living. The government indicted him on January 31, 2020, for conspiracy to commit bank fraud and making false statements, stating he had lied when he told agents that he believed that international sanctions against Iran did not apply to Iranian companies or persons, just the government.
After hearing of the arrest, Sadr’s attorneys quickly sent a letter to prosecutors, seeking the notes and recording from the interview, which was conducted in Farsi. The government turned over the agent’s notes, but the actual recording was not made available until after the trial ended.
Separately, Sadr’s attorneys moved to suppress much of the government’s evidence, specifically emails obtained from internet service providers through search warrants executed in 2014 and 2015. Judge Alison Nathan of U.S. District Court for the Southern District of New York ruled on January 28, 2020 that investigators had been overly broad in the execution of the warrants and suppressed 429 of the 2,798 pages that the government planned to use at trial.
Sadr’s jury trial began on March 6, 2020, with Judge Nathan presiding. Most of the government’s case involved walking jurors through emails, payment instructions, and other documents from Sadr and Karimi. The government said the documents showed clearly that Sadr was masking the true recipient of the funds from the construction project.
This was necessary, the government said, because the Stratus companies were being paid in dollars, and Sadr knew that these transactions ran afoul of the law.
“You will learn,” a prosecutor said during opening arguments, “that while the defendant’s scheme was complex, the rules are not. U.S. companies cannot do business with Iran.”
The government also introduced emails from Sadr criticizing employees for mentioning Iranian connections. They read:
“Why the hell do I see the name Iran in there?”
“No one is dealing with an Iranian entity.”
“Even if you have an invoice that only mentions IIHC,
then we are still fine; but if that invoice shows the name
Iranian anywhere, then we will have serious problems.”
The government’s witnesses included Ted Kim, an official with the Treasury Department’s Office of Financial Assets Control, or OFAC. He testified on March 6 about how the department had a strict liability policy that enforced restrictions on certain transactions by U.S. and foreign banks with offices in the United States.
March 6 was a Friday, and the parties broke for the weekend. On Saturday afternoon, prosecutors sent the defense attorneys an email stating that a witness was ill and might not be able to testify. They also included attachments of several exhibits.
Among them was an exhibit marked GX 411, which included a letter from an official at the New York office of the Swiss bank Commerzbank informing the OFAC that its transaction-monitoring system had received an alert over a payment to Stratus on April 4, 2011. The bank’s due diligence showed an Iranian address for Stratus but that a bank in Caracas had confirmed the Turkish registration. Because of the conflicting information, it was making regulators aware of the transaction.
The defense attorneys quickly responded to that exhibit, and in a series of emails over the weekend the two sides argued over the document’s importance and whether it should have been turned over earlier. The government first said it wasn’t exculpatory, and therefore didn’t meet the disclosure requirements. In addition, it said the failure to disclose was merely an oversight, that the document had been found in a file from a related investigation at the office of the District Attorney for New York.
During an exchange in court on Monday, March 9, 2020, prosecutors said their error was in viewing the document through the wrong lens and not deeming it to be so-called Brady material, exculpatory evidence that needed to be turned over to the defense.
“Candidly, your Honor, no there was not that discussion,” a prosecutor said. “The discussion was solely about how inculpatory the government viewed the document.” The prosecutor suggested it was due to “trial blinders,” to which Judge Nathan quickly shot back, “It is.”
Later, the judge would say, “This has a bit of a tip-of-the-iceberg feeling to it.”
After the government rested its case, prosecutors released more documents, including briefing material on the Sadr investigation that the U.S. Attorney’s office provided to OFAC in 2016 and 2017. The regulatory agency took no enforcement action after those briefings.
Based on these disclosures, Sadr agreed to a stipulation that said, in part, “OFAC did not open an investigation into the April 4 payment to determine, among other things, whether or not Stratus Turkey's association with Stratus Iran would have rendered the April 4 payment an export of U.S. services in violation of the Iran sanctions.” In addition, Judge Nathan would tell jurors to strike Kim’s testimony about OFAC’s strict enforcement policies, and that OFAC had chosen not to pursue enforcement after receiving a briefing from prosecutors.
Sadr took the stand in his own defense. Prosecutors had said he had scrubbed his personal life, company websites and related material of any mention of Iranian connections in a ruse to defraud banks and evade the sanctions law, but Sadr painted a different picture. He said he had gotten a passport from St. Kitts and Nevis to avoid the hassles of traveling under an Iranian passport, and that he minimized the Iranian roots of the Turkish subsidiary because of Iran’s pariah status in the financial world.
The defense also said that Sadr and his family wanted to get paid in dollars rather than Venezuelan bolivars because the dollar was a more stable currency. If Sadr had wanted to evade sanctions, they argued, he could have routed the transactions from Venezuela through European or Asian banks and been paid in euros.
In addition, Reid Weingarten, one of Sadr’s attorneys, reminded jurors in closing arguments that Sadr’s father, despite his prominence, was no friend of the Iranian regime. “It was revealed that his father had recently been arrested for the very same conduct that he is charged with in Iran, but under a very different theory. The Iranians have busted Mohammad Sadr for keeping the money out of Iran. The same money we are talking about.”
The jury convicted Sadr on March 16, 2020 of conspiracy to defraud the United States, conspiracy to violate the sanctions against Iran, bank fraud, conspiracy to commit bank fraud, and money laundering. He was found not guilty of one count of conspiracy to commit money laundering. Judge Nathan delayed his sentencing until August.
On May 1, 2020, Sadr’s attorneys filed a motion asking for either acquittal based on the insufficiency of the evidence or a new trial based on substantial disclosure violations by prosecutors.
After trial, prosecutors had turned over the tape recording and more complete notes of Karimi’s interview with federal agents in January. Together, they provided a more nuanced account of the interview. The earlier notes had simply said: “Karimi knew about the existence of sanctions against Iran – but did not know the details – did not think private companies or people were subject to sanctions at the time.”
But on the recording, he was significantly more forceful in stating his lack of knowledge, and he also said that he was constantly having to answer bank questions about the source of money. “When they realized that I was working for the private sector and that I was not related to the government, then the problem would be solved.”
The recording had been in the Federal Bureau of Investigation’s New York office since early February, but through a series of miscommunications and lack of follow-up, prosecutors didn’t know it was there and therefore didn’t disclose its presence until after trial.
Second, prosecutors had not disclosed that a senior official with PDVSA had given an interview to the FBI in 2016. Victor Aulur told the agents that the company’s legal counsel had reviewed the contract and payments to Stratus to ensure compliance with U.S. sanctions against Iran.
Third, the government had released additional information related to the Commerzbank transaction that showed the bank had successfully sorted out the question of whether Stratus was a Turkish or Iranian company. In addition, prosecutors had argued at trial that there was no evidence that OFAC had taken any action after being notified of the potential problem. It maintained that there was no record of the notification being received. That turned out to be false. A compliance officer with the agency had emailed the bank in 2011 and said it had reviewed the material and would follow up if further action was needed.
Sadr’s attorneys said that if they had known about this email, they would have subpoenaed the compliance officer to testify.
Prosecutors first filed a brief opposing Sadr’s motion, but then reversed course and filed a motion on June 5, 2020, to vacate the convictions and dismiss the charges. In an accompanying letter to Judge Nathan, prosecutors said that in light of the disclosure issues that had arisen and the resources needed to proceed with the case, it was no longer in the interests of justice to proceed.
Before granting the request, Judge Nathan wanted more information on the disclosure issues in the case, how they had happened, and what measures prosecutors were taking to prevent them from happening in future cases.
In its response, prosecutors said they had stumbled upon the GX411 document on the night of March 6, 2020 and had begun a series of internal email and voice conversations about what to do with the document after realizing it had not been disclosed. Their first proposal was to inform the defense right away, as it was Friday night and Sadr’s attorneys would have the weekend to review before the trial resumed.
But then Stephanie Lake, an Assistant U.S. Attorney said, “I'm wondering if we should wait until tomorrow and bury it in some other documents?” A colleague, Jane Kim, responded, “That’s fine – some of the FATF stuff,” referring to the Financial Action Task Force.
Prosecutors told Judge Nathan that the document wasn’t really buried, despite Lake’s language. It was produced promptly, and “it was completely justified to assume and expect that defense counsel here, highly attuned to the case, would immediately recognize GX 411 as a new document and inquire about it. As they did.”
That said, prosecutors had also misled Judge Nathan during trial after she had asked prosecutors for more information about the production of this exhibit. An earlier draft of that response, written by Lake, had correctly said the exhibit had not been marked as “New.” But her draft was changed before submission to say the exhibit was marked. The government blamed the mistake on human error, not a desire to deceive, although it was imprecise on how the error occurred.
“In sum,” it said, “we do not see any indication of any intent to mislead the Court here; rather, we think there was a last-minute effort Sunday night to get things right that unfortunately ended up getting things wrong.”
On July 8, Judge Nathan ordered an additional inquiry, “including the possibility of evidentiary hearings to assess whether the disclosure issues were the product of bad faith, knowing misrepresentations, or an intentional failure to comply with discovery obligations.” She noted that the government had agreed that the court had the authority to continue this investigation after the indictment was dismissed.
On July 17, 2020, Judge Nathan granted Sadr’s motion for a new trial, and she also granted the motion by prosecutors to dismiss the charges.
“The whole concept of violating sanctions is you’re acting contrary to the interests of the United States,” Weingarten told Bloomberg News after the government filed its motion to dismiss. “The overwhelming evidence is that this was a fellow who was utterly patriotic, was thrilled to live in the United States, wanted to live in the United States for the rest of his life and was incredibly hostile to the Iranian government.”
Judge Nathan said on February 17, 2021, that she was dropping her inquiry into prosecutorial misconduct. She said in an order that while she believed that the prosecutors' actions represented "grave derelictions of prosecutorial responsibility," she could not conclude that prosecutors knowingly withheld exculpatory evidence or intentionally misrepresented facts to the court. She urged the Department of Justice's Office of Professional Responsibility to investigate further.
– Ken Otterbourg
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