Botched Iran Case Adds to Woes of SDNY, Office Upended by Barr
(Bloomberg) -- The story line seems familiar. U.S. prosecutors win a significant conviction. Then evidence emerges that suggests possible misconduct by investigators, and the prosecution asks the judge to dismiss the charges.
It happened to Michael Flynn, the onetime Trump aide who’s on the verge of walking away from his guilty pleas. Now it’s also happening to Ali Sadr Hashemi Nejad, an Iranian native whose conviction for violating U.S. economic sanctions received far less fanfare. The judge in the case said last week she intends to dismiss the case, and she has raised the specter of disciplinary action for prosecutorial misconduct.
The mishandling of the Sadr case, and prosecutors’ abandonment of it after conviction, blemishes the Manhattan U.S. attorney’s office, an elite outpost of prosecutors handling some of the nation’s most politically charged investigations. The office was blindsided after Attorney General William Barr helped oust its top prosecutor last month. Now, embarrassing details about the Sadr matter could invite skepticism when the office’s prosecutors take their next sensitive cases to trial.
“It’s a challenge the office must rise to, and if it doesn’t, it could have a very serious effect on its credibility,” said Daniel Richman, an alumnus of the Manhattan U.S. attorney’s office who’s now a professor at Columbia Law School. “More than anything, the office lives by its credibility before judges and juries.”
A spokesman for the Southern District of New York, as the Manhattan office is known, declined to comment on behalf of the top officials and the line prosecutors who handled the case. The government has said in court filings that the missteps weren’t made in bad faith.
A federal jury in Manhattan deliberated for just one day before convicting Sadr in March of funneling more than $100 million from a Venezuelan construction project to Iran-linked entities using the U.S. financial system, in violation of U.S. economic sanctions against Iran.
Then last month, prosecutors acknowledged that they had withheld evidence from the defense team that could have undermined the case, including a witness statement that contradicted key evidence and documents that raised doubts about the basis for the charges. They filed a motion asking the court to drop the case, a rarity in federal court.
The investigation was flawed from the start, a review of evidence and court filings in the case indicates. The records show that prosecutors failed to turn over exculpatory evidence to the defense and made repeated misstatements to judges overseeing the case. U.S. District Judge Alison Nathan, who presided over the trial, ruled early on that prosecutors had unconstitutionally searched emails. She is now demanding information about how decisions were made and said she may hold a hearing into the matter.
Internal messages suggest that prosecutors tried to paper over their omissions. The U.S. attorney’s office disclosed that one of its prosecutors, Stephanie Lake, wrote a message to a colleague regarding one piece of exculpatory evidence they were producing belatedly. The document, a letter from a bank alerting regulators to one of the Sadr transactions, could have allowed the defense to argue that the payment was legitimate because authorities took no action on it.
Lake suggested they “wait until tomorrow and bury it in some other documents.” The colleague, Jane Kim, replied: “That’s fine too.”
When another prosecutor, Michael Krouse, wrote to the judge to explain how they turned over the new evidence, a line noting that they hadn’t called attention to the new document was changed to read: “The Government made clear that GX 411 was a newly marked exhibit.”
A lawyer for Sadr said his client was relieved that prosecutors reversed course. “We firmly believe the case never should have been brought in the first place,” said the lawyer, Brian Heberlig.
Similar objections to the conduct of SDNY prosecutors have come from Premium Point Investments co-founder Anilesh “Neil” Ahuja, who was convicted at trial and sentenced to 50 months in prison for conspiring to overvalue the hedge fund’s assets by more than $100 million. In a July 6 filing, Ahuja and a co-defendant claim new evidence shows prosecutors hid details about the guilty plea of a government witness and later misled the judge. Prosecutors previously denied wrongdoing.
The Sadr case originated in 2013 in the New York district attorney’s office, which spent four years issuing search warrants, interviewing witnesses, assembling evidence and building its case. In 2017 the district attorney brought the case to the U.S. attorney’s office and enlisted the help of federal prosecutors and the FBI, in a rare local-federal joint effort.
But problems soon emerged. State authorities had seized Sadr’s email accounts under a warrant and were supposed to have access to only those messages that were relevant to the case. But authorities continued searching the entire set of emails and used them to build their case, records show, which ultimately led the judge to disallow much of their use in the trial.
Sadr, a Cornell-educated international businessman with a condominium in the Georgetown section of Washington, wasn’t charged until 2018. Prosecutors accused him of creating a network of shell companies and bank accounts to funnel millions of dollars from a Venezuela construction project through a Swiss bank account, ultimately benefiting Iranian entities, using the U.S. financial system as an intermediary.
Sadr’s father was the founder and chief executive officer of a giant Iranian conglomerate called Stratus Group with interests in the construction and banking sectors. A Turkish-based unit of the company had been the end destination of the payments.
A major part of the government’s case was that the people involved knew the payments violated the law and that the network had been created to mask their true destination. That assertion relied on notes taken by an FBI agent during a 2016 interview with Bahram Karimi, a senior financial executive with Stratus who had left Iran to oversee the project in Venezuela.
In a June 2016 report of his interview with Karimi, the agent wrote that Karimi had said “everyone associated with Stratus and the project in Venezuela recognized the international sanctions placed on Iran but believed that circumventing those sanctions was a matter of survival.”
But in a later conversation with the agent and a New York prosecutor, Karimi told the authorities that “neither he or anyone else broke any laws,” contradicting the apparent admission earlier that they were intentionally circumventing sanctions.
Although the report of the earlier interview became part of the record, the report about the follow-up conversation was deemed classified. The reason for the classification remains unclear; the document doesn’t contain any material that would usually be deemed an official secret, such as methods of intelligence gathering.
Defense lawyers had asked repeatedly if there was classified evidence in the case. One judge assigned to the case early on had asked the same thing, trying to find out if special procedures would have to be adopted to review it. Prosecutors denied its existence multiple times, including to the judge.
The classified report of Karimi’s statement might never have been discovered but for a reference on page 91 of a 92-page package of exhibits sent to the defense, in which an FBI agent said she was including “unclass 302s” -- unclassified reports of witness interviews. Defense lawyers noted the reference and asked again: If these are the unclassified reports, are there classified ones?
At first, prosecutors from the U.S. attorney’s office told the defense those documents were, indeed, classified and therefore off limits. “None of the materials” referred to in the email, prosecutors wrote to the defense in an April 21 letter, “are discoverable.” But they changed course within weeks, declassifying the second Karimi report and turning it over.
On another occasion, Kim, the prosecutor, told the judge: “We have produced all of our underlying notes and materials in connection with those interviews,” even though they hadn’t yet disclosed the existence of the classified report.
Prosecutors also disclosed after trial that they had briefed the Treasury Department unit in charge of sanctions enforcement multiple times about the Sadr case. Treasury never pursued an enforcement action over the matter.
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