Mahmoud Reza Banki was convicted by the United States District Court for the Southern District of New York of multiple offenses, including conspiracy to violate the Iranian Transactions Regulations (ITR), operating an unlicensed money-transmitting business, and making false statements in response to government subpoenas. On appeal, Banki contended that the jury instructions regarding the conspiracy, ITR, and money-transmitting counts were erroneous, and he sought a new trial on the false statement counts due to alleged constructive amendment of the indictment by the government. He also claimed government misconduct during the rebuttal summation warranted a new trial for all counts and requested resentencing based on a miscalculation of the offense level. The Court of Appeals affirmed some aspects of the conviction, reversed others, and vacated and remanded parts of the judgment for further proceedings.
Banki, a naturalized U.S. citizen originally from Iran, had family in Iran who owned power and pharmaceutical companies. From May 2006, his family transferred approximately $3.4 million to the U.S. using a hawala system, which is a traditional method for transferring funds internationally without formal banking channels. The defense argued the transfers were necessary to safeguard family assets, with Banki's mother testifying that the funds were intended for purchasing an apartment in the U.S.
A hawala transaction initiates when Person A in Country A wishes to send $1,000 to Person B in Country B. Person A pays Hawaladar A in Country A, who then instructs Hawaladar B in Country B to pay Person B the equivalent amount in local currency, less fees. No physical money crosses borders; instead, the transaction relies on trust and credit between the hawaladars. If Hawaladar B later needs to send money back to Country A, he can settle the outstanding balance with Hawaladar A through further transactions, often resulting in a need for eventual formal settlement via wire transfer if accounts remain imbalanced.
In a specific case, Ali Bakhtiari, a Tehran hawaladar, facilitated money transfers for Banki's family to the U.S. using a "matching" hawala system. Bakhtiari sought U.S. contacts wanting to send similar amounts to Iran to create a balance. If he couldn't find a match, he consulted Iran-based brokers, who kept U.S. contacts’ identities confidential. Upon confirming a transfer to Banki's account from a U.S. contact, Bakhtiari would then pay the corresponding amount to the U.S. contact's recipient, splitting profits with the broker based on exchange rate differences.
From May 2006 to September 2009, Banki received 56 hawala-related deposits totaling approximately $3.4 million into his Bank of America account from at least 44 individuals and companies worldwide. Deposits varied in size, with some referencing contracts for goods like pistachios and tomato paste. Although most depositors were individuals, notable business entities from the Philippines, Kuwait, Russia, and Latvia were also involved. Banki utilized these funds for personal expenses, including purchasing a $2.4 million apartment in New York City, without having known the depositors personally.
Banki confirmed receipt of funds deposited into his account via e-mails, primarily to his father. Notably, on May 8, 2006, he received a wire transfer of $199,971 from a Kuwaiti bank and communicated this to his father. An August 2006 e-mail exchange revealed Banki's awareness of funds moving to Iran, specifically when his uncle facilitated a $6,000 transfer to Banki's account at the request of a friend. This transaction was supported by testimony from Ahmad Sheikholeslami, who clarified that Banki's uncle was helping him and that it was unrelated to Bakhtiari's hawala, corroborated by Bakhtiari's ledgers. The U.S. Treasury Department's Office of Foreign Asset Control (OFAC) issued two subpoenas to Banki in 2008 regarding these transfers, warning that falsifying information could lead to felony charges. Banki responded to both subpoenas, attributing the January 2007 $100,000 transfer to his cousin and denying any payments to Iran since 1994. In January 2010, Banki was indicted on five counts, including conspiracy to violate the Iranian Transactions Regulations (ITR) and making false representations in response to the subpoenas. After a 15-day jury trial in May 2010, he was convicted on all counts, specifically as an aider and abettor on Counts Two and Three. Following the denial of his motion for a new trial, Banki was sentenced in August 2010 to 30 months in prison, below the recommended Guidelines range. He is now appealing the conviction.
Jury instructions are reviewed de novo, and a conviction can be overturned only if there is prejudicial error when considering the instructions as a whole. Instructions must be evaluated in the context of the entire trial, and while defendants are entitled to accurate instructions, they cannot dictate the specific language used. If the court conveys the essence of the requested instruction, the defendant cannot complain.
Regarding the International Emergency Economic Powers Act (IEEPA), the President has broad authority to restrict international trade during a declared national emergency. The trade restrictions relevant to this case originate from Executive Orders issued in 1995, which identified Iran as a significant threat to U.S. national security and imposed comprehensive trade sanctions. The ITR prohibits the export of goods, technology, or services to Iran unless authorized. Violations can result in criminal penalties.
The defendant, Banki, challenges the district court's jury instructions on two grounds: first, that the jury should have been instructed that money transfers to Iran are considered "services" under the ITR only if done for a fee; second, that non-commercial remittances, such as family remittances, should be exempt from the ITR’s prohibition on service exports.
In **United States v. Homa International Trading Corp.**, the court ruled that executing money transfers from the U.S. to Iran qualifies as a "service" under the Iranian Transactions Regulations (ITR). The court clarified that "services" refers to the performance of useful actions for a fee. However, this interpretation was deemed dicta, as the defendant's argument did not hinge on the necessity of receiving a fee for a conviction regarding service exportation. The court emphasized that while the ITR does not define "services," other legal interpretations suggest that the term could encompass actions that do not necessarily involve a fee. Notably, different dictionaries provide varying definitions of "service," some including a fee component and others not. Ultimately, the court concluded that transferring funds on behalf of another constitutes a service, irrespective of whether a fee is charged.
The Iranian embargo is established to address a significant threat to U.S. national security and foreign policy due to the actions of the Iranian government, focusing on issues such as the proliferation of weapons of mass destruction, state-sponsored terrorism, and disruptions to Middle East diplomacy. The embargo, enacted through Executive Orders 12,959 and 12,957, employs broad economic sanctions aimed at isolating Iran, making it intentionally overinclusive. This means it prohibits a wide range of exports, including both services for compensation and those provided for free, under the same regulatory framework, as both types of service exports have similar impacts on Iran.
Banki's argument that a fee should be a requirement for the definition of "services" is deemed flawed, as it could create loopholes allowing high-risk service exports to Iran without compensation. Consequently, the execution of money transfers from the U.S. to Iran is classified as the exportation of a service, regardless of whether a fee is involved.
Additionally, Banki contends that non-commercial remittances, such as family remittances, should be exempt from the service-export ban. He references a specific regulation (31 C.F.R. 560.516) that allows U.S. banks to process such transfers if they are not associated with prohibited transactions. However, the general stance of the ITR remains that commercial services are broadly banned, and Banki's claims regarding non-commercial remittances do not exempt them from this regulatory framework. He seeks a judgment of acquittal or a new trial based on these arguments.
Banki interprets 31 C.F.R. 560.516(a)(2) as allowing non-commercial remittances to or from Iran, including family remittances, based on its plain language. The government counters that such remittances are only permissible if processed through U.S. depository institutions. The court finds the regulation ambiguous, necessitating an interpretation favorable to Banki under the rule of lenity, which dictates that ambiguous criminal laws should be construed in favor of defendants. The regulation explicitly states that family remittances are not prohibited, suggesting that U.S. depository institutions can process these transactions. However, it does not definitively state that only these institutions may handle family remittances, as the government claims. The court notes that the regulation does not contain language restricting remittances to U.S. banks, which implies that it does not prohibit others from processing such transactions. The court acknowledges that textual arguments exist on both sides, but emphasizes the importance of giving effect to every part of the regulation to avoid rendering any clause meaningless.
A statute should be interpreted to ensure all provisions are effective, avoiding any part being rendered useless. The argument that 560.516 grants U.S. depositary institutions exclusive authority for non-commercial remittances to Iran is not convincing. Banki's interpretation does not nullify the first clause, as the complex regulatory framework and nature of banking necessitate explicit guidance for processing such transactions. The regulation confirms that U.S. banks can process non-commercial remittances without violating service bans. The argument against Banki’s interpretation fails to acknowledge that processing these remittances is not inherently prohibited under general service bans. The regulation has two meaningful clauses: one allowing U.S. banks to process non-commercial remittances and another clarifying that these transactions are not prohibited. Regulations do not bar U.S. persons from remitting their own funds for non-commercial purposes to Iran, as outlined in 31 C.F.R. 560.201-.209. Specific prohibitions exist for certain purposes, such as investments in Iran or purchasing Iranian petroleum resources. The government’s viewpoint that its interpretation aligns with ITR objectives is also noted.
U.S. depository institutions are required by the ITR to maintain detailed recordkeeping and reporting when processing transactions related to Iran. Specifically, they must verify that transactions are not prohibited and retain records for five years, with reports submitted under oath. The regulation suggests that only U.S. banks and certain financial entities can handle non-commercial remittances, reinforcing U.S. oversight on transactions with Iran. The ITR aims to mitigate the Iranian government's actions while minimizing sanctions' impact on its citizens by exempting certain personal and humanitarian transactions. Given the regulatory ambiguities, Banki's conviction on Counts One and Two is challenged. Count Three accuses Banki of running an unlicensed money-transmitting business, violating 18 U.S.C. § 1960, which penalizes operation without proper licensing or registration. Banki did not hold the necessary New York license or register with the Secretary of the Treasury, with New York law penalizing unlicensed money transmission. The definition of "money transmitting" under § 1960 is extensive.
"Money transmitting" encompasses the transfer of funds for the public through various means, including wire, check, and courier services, both domestically and internationally. The parties agree that hawala transactions qualify as "money transmitting" under the relevant statute. Banki challenges the district court's jury instructions, arguing they inadequately defined "money transmitting business" by not clarifying that it refers to an ongoing enterprise conducted for profit, rather than isolated transactions. Banki's proposed instruction emphasized that a "business" is a commercial operation carried out regularly for profit, asserting that a single transaction does not constitute a business. The district court's instruction defined "money transmitting business" broadly, including various financial services and informal money transfer systems, while stating that it is for the jury to determine the business nature of the transmittals. The court did not adopt Banki's definition, believing that the term "business" is self-explanatory. However, it acknowledged that to establish liability for operating an unlicensed money transmitting business, the jury must find participation in multiple transactions, not just a single instance. The appellate court agrees that the term "business" is generally understood but concludes the district court erred by not adopting Banki's legally correct requested charge.
Merriam-Webster defines "business" as a commercial or industrial enterprise, and the government does not contest the accuracy of Banki's requested jury instruction on this definition. However, it asserts that the term is self-explanatory and implies multiple fee-based transfers. A money transmitting business, as defined by legal precedents, involves receiving money from a customer and transmitting it for a fee. Evidence presented at trial suggested that Banki's actions might constitute a single transaction rather than a series of transactions, particularly focusing on a $6,000 transfer linked to Sheikholeslami, where Banki had clear knowledge of the funds moving to Iran. Other associated communications were less definitive, and testimony indicated that Bakhtiari may not have participated in the $6,000 transaction, supporting the defense's argument that it was a one-time favor.
The jury could have reasonably concluded that the government failed to prove Banki's knowledge of funds being sent to Iran in more than one instance, thus entitling him to his requested instruction that a conviction under 18 U.S.C. § 1960 requires more than a single transaction. Additionally, the district court's instruction to the jury that "a hawala is a money transmitting business" potentially misled the jury by removing the requirement for the government to prove Banki's knowledge extended beyond the specific transaction in question. Consequently, due to uncertainties surrounding the jury's basis for conviction, the court vacated Banki's convictions on Count One and Count Three and remanded for a new trial. Furthermore, Banki contends that the district court erred by not instructing the jury that a mere customer or beneficiary of a hawala transaction cannot be held criminally liable as an aider and abettor or a conspirator.
Banki contends that the district court erred by not allowing his proposed jury instruction regarding the money-transmitting charges. He argued that if he acted solely as a customer or beneficiary of a hawala service, the government failed to prove his liability as an aider and abettor, even if he understood the nature of the service. Banki proposed that a mere customer should be exempt from criminal liability, likening his situation to previous cases that excluded minor participants in illegal gambling and drug transactions from liability. However, the court found his comparisons flawed. Under 18 U.S.C. § 1960, Banki was charged for knowingly conducting an unlicensed money-transmitting business, which encompasses a broad range of behaviors beyond mere customer activity. The court referenced prior rulings indicating that while regular betting customers do not "conduct" a gambling business, those acting as independent bookmakers making substantial bets could be seen as conducting business. Additionally, Banki's analogy to Abuelhawa v. United States, involving minor drug transactions, was deemed inapplicable to his case.
Abuelhawa was initially charged by the government with felony counts for using a communication facility to facilitate drug distribution, despite the underlying actions constituting misdemeanors under the Controlled Substances Act. The Supreme Court reversed these felony convictions, stating that penalizing one party in a bilateral transaction for facilitating the other would disrupt the legislative framework for punishment.
In Banki's case, the court found no basis for a "mere customer or beneficiary" jury instruction, as he was convicted of facilitating the transfer of money to Iran, rather than receiving money from there. The indictment specifically charged Banki with aiding and abetting the transfer of funds to Iran and the jury was consistently instructed on this role. The evidence indicated Banki acted as an intermediary, and therefore, he could not claim customer status.
Furthermore, regarding the International Traffic in Arms (ITR) count, Banki was accused of providing money transfer services through a hawala system, which reinforced his position as a supplier of illegal services rather than a customer. The court concluded that there was no evidential foundation for giving a "mere customer or beneficiary" instruction, likening it to offering such an instruction in the trial of a drug dealer, thus affirming the convictions without the requested jury instructions.
To establish a conspiracy, evidence must demonstrate that two or more individuals agreed to engage in a joint venture aimed at committing an unlawful act, as outlined in United States v. Parker. A buyer purchasing illegal drugs from a seller typically constitutes a conspiracy, but there is a recognized exception for such transactions, allowing the less culpable buyer to benefit from this rule. In Banki's case, accused of conspiring to export services to Iran and operate an unlicensed money-transmitting business, the evidence did not support treating Banki as a "buyer" under this exception. Consequently, the district court correctly denied Banki’s request for a jury instruction asserting that he could not be liable if found to be merely a customer or beneficiary in the transactions.
Regarding Counts Four and Five, which charged Banki with making materially false statements in response to OFAC subpoenas, the government must prove several elements under 18 U.S.C. § 1001, including that the defendant knowingly made false statements in matters within U.S. jurisdiction. Banki contended that the government constructively amended the charges by altering its theory of materiality during trial. Initially, the government indicated that Banki's misidentification of his non-citizen cousin as the source of wire transfers was crucial since OFAC regulates U.S. citizens and residents. However, as the trial progressed, the government presented evidence showing Banki's father was actually the source of the funds, thus introducing an alternative theory of materiality. This shift in the government's approach occurred after the defense had presented its case, raising issues regarding the consistency of the materiality theory.
The defense contended that the true source of the fund transfers was misidentified, arguing that the government suggested Banki falsely named his cousin instead of his uncle, who had been investigated by OFAC in the late 1990s. The defense objected, claiming the government was altering its case theory, but the district court overruled this objection.
The legal framework for constructive amendment under the Fifth Amendment was outlined, emphasizing that a grand jury's indictment cannot be broadened without their consent. A constructive amendment occurs when trial evidence or jury instructions change an essential element of the charge, making it unclear if the conviction aligns with the indictment's original intent. Significant flexibility in proof is permitted as long as the defendant is notified of the core criminality.
In this case, the core of the alleged criminality in Counts Four and Five was Banki's false identification of his cousin as the source of wire transfers in responses to OFAC subpoenas. The court determined that there was no constructive amendment, as the trial's proof and the government's rebuttal referenced the same statements as in the indictment. Thus, the jury's charge did not create uncertainty regarding the basis for conviction.
Banki's conviction was scrutinized to determine if it was based on conduct outlined in the grand jury's indictment, which was found to provide appropriate notice of the charges, thus not constituting a constructive amendment. A variance, defined as a situation where the indictment remains unchanged but trial evidence differs materially, requires the defendant to show prejudice, which Banki failed to do concerning evidence about his uncle's prior investigation. The government had notified Banki of a potential theory of materiality regarding false statements, making the introduction of related testimony permissible.
Banki alleged two instances of government misconduct during rebuttal summation: claiming for the first time that his lies to OFAC were material due to his uncle's involvement in a prior investigation, and suggesting that conviction could be based solely on a $6,000 transaction. The district court rejected these claims, affirming that the standards for prosecutorial misconduct were not met, as the alleged misconduct did not significantly compromise Banki's right to a fair trial.
The court reviewed the government's rebuttal summation, concluding there was no misconduct, and upheld the denial of Banki's Rule 33 motion. Consequently, the court did not address Banki's argument regarding a potential miscalculation of the sentencing guidelines due to the prior conclusions. The court's disposition included reversing aspects of Counts One, Two, and Three, vacating and remanding others, while affirming Counts Four and Five.
