January 29, 2022

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U.S. Government Collects $7 Million in Iranian Assets for Victims of Terrorism Fund

22 min read
<div>The Justice Department announced the United States has collected $7 million of Iranian funds that will be allocated to provide compensation to American victims of international state-sponsored terrorism.</div>

The Justice Department announced the United States has collected $7 million of Iranian funds that will be allocated to provide compensation to American victims of international state-sponsored terrorism.

The funds are the United States’ share of a civil forfeiture investigation that is part of the government’s pursuit of a complex international conspiracy which spanned the globe.  The conspiracy’s purpose was to violate the United States imposed international economic sanctions regime on Iran and included several Iranian nationals and others, who fraudulently transferred approximately $1 billion worth of Iranian-owned funds to accounts around the world.

“The funds subject to today’s stipulation had been destined to benefit criminal actors who engaged in an elaborate scheme to violate U.S. sanctions against Iran, one of the world’s leading state sponsors of terrorism,” said Acting Assistant Attorney General David Burns of the Justice Department’s Criminal Division.  “Thanks to assistance from our foreign partners and the combined efforts of the Criminal Division, the U.S. Attorney’s Office for the District of Alaska, the FBI, and the IRS, the forfeited funds will instead be used to directly compensate victims of state sponsors of terrorism.”     

“I thank our law enforcement partners for their long-term and dedicated diligence in securing these funds for victims of state-sponsored terrorism,” said U.S. Attorney Bryan D. Schroder for the District of Alaska.  “The United States also acknowledges and expressed appreciation for the cooperation of UAE authorities, the Dubai Police Department’s Anti-money Laundering and Financial Crimes Division and the Government of Ras al Khaimah, the Office of the Prosecutor General of Georgia, and the Supreme Prosecutor’s Office and Ministry of Justice of the Republic of Korea, without whom this resolution would not have been possible.”

“The FBI will aggressively pursue those who aid terrorist financiers and those who abuse the U.S. financial system in the process,” said Special Agent in Charge Robert Britt of the FBI’s Anchorage Field Office.  “Due to the collaborative effort put forth by the FBI and our partners, it is with great satisfaction that a portion of these successfully forfeited funds will go to American victims of international state-sponsored terrorism.” 

“IRS-CI special agents are experts at tracing the flow of funds and throughout this investigation their skills were on display,” said IRS-Criminal Investigation (IRS-CI) Special Agent in Charge Justin Campbell.  “We are pleased that victims of state sponsored terror will receive these funds, and we will continue working with our partners to unravel financial transactions that promote terrorism.”  

Beginning in 2011 and continuing up to 2014, the conspirators, including three Iranian nationals and, allegedly, one U.S. citizen, defrauded South Korean banks by submitting false documents purporting to show that Iranian companies were doing legitimate business with Korean companies.  Based on these false documents, the conspirators succeeded in unlawfully transferring approximately $1 billion worth of Iranian-owned funds out of South Korea and into the world’s financial markets.

The American who is an alleged conspirator, Kenneth Zong, was indicted in December 2016 in the District of Alaska, for 47 counts of violating the International Emergency Economic Powers Act (IEEPA) and the Iranian Transaction and Sanctions Regulations (ITSR), providing unlawful services to the Government of Iran, conspiracy to commit money laundering, and money laundering.  Kenneth Zong remains in South Korea, where he recently completed serving a sentence of longer than five years for violating Korean law as part of the same scheme.

The conspirators transferred the Iranian-owned funds to accounts worldwide, including to Anchorage, Alaska.  In 2018, a federal judge sentenced Mitchell Zong (i.e. Kenneth Zong’s son) to two and a half years imprisonment for his role in laundering approximately $968,000 of Iranian-derived funds, knowing the funds came from his father’s illegal transactions with Iranian nationals.  In a separate forfeiture civil action, Mitchell Zong and other members of his family were ordered to forfeit to the United States approximately $10 million in assets, which were purchased with funds traceable to Kenneth Zong’s 2011 illegal IEEPA activity in Seoul, South Korea. 

In addition to the prosecutions of Kenneth Zong and Mitchell Zong, the U.S. Attorney’s Office filed a forfeiture complaint seeking to seize money held in a sovereign wealth fund in the United Arab Emirates.  These funds, which are also traceable to the scheme, were part of a down-payment made by the Iranian co-conspirators for the purchase of a Sheraton Hotel in Tbilisi, Georgia in 2011 and 2012.  The agreement announced today resolves that forfeiture case with a proposed order that $7 million be forfeited to the United States. The forfeiture case, Civil No. 3:20-cv-00126-JMK, was filed and remains pending in the U.S. District Court for the District of Alaska.

The $7 million will be allocated to the U.S. Victims of State Sponsored Terrorism Fund, which Congress established to provide compensation to certain individuals who were injured in acts of international state-sponsored terrorism, including victims of the 1979 U.S. embassy hostage situation in Iran, among others.

The Justice Department commended the FBI and IRS-CI for the successful investigation.

The forfeiture case and the case against Mitchell and Kenneth Zong were litigated by Assistant U.S. Attorneys Steven Skrocki and Jonas Walker.  Former Deputy Chief Woo S. Lee and Senior Trial Attorney Michael Olmsted of the Criminal Division’s Money Laundering and Asset Recovery Section handled the prosecution.  The Justice Department’s Office of International Affairs provided valuable assistance in this matter.

An indictment is merely an allegation.  A defendant is presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

For more information regarding the U.S. Victims of State Sponsored Terrorism Fund, see U.S. VICTIMS OF STATE SPONSORED TERRORISM FUND (usvsst.com).

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    What GAO Found GAO's interviews with officials representing eight selected U.S.-based companies revealed considerable uncertainty in how the international business provisions of Public Law 115-97—commonly known as the Tax Cuts and Jobs Act of 2017 (TCJA)—may be affecting business planning decisions. Some companies reported making specific changes, such as moving intellectual property back to the U.S. in response to a new deduction for income earned from certain foreign-derived sales of property or services attributed to assets located in the U.S. Preliminary studies on another provision taxing net income earned by foreign subsidiaries exceeding a specified threshold of certain assets hypothesized that this provision could encourage moving tangible property outside the U.S. Other business representatives emphasized the importance of nontax factors in business planning decisions, such as entering foreign markets where executives believe potential customers may be located. The Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) proposed eight regulations and finalized six of them to implement four international provisions of TCJA between December 2017 and October 2020 (the most current information available at the time of GAO's review) and used guidance to supplement the regulations. The agency generally complied with legal requirements for issuing regulations and offered public comment opportunities for some guidance. However, Treasury and IRS did not fully address expectations set in government-wide guidance related to Paperwork Reduction Act (PRA) burden estimates, economic analysis requirements for regulations, and public comment on significant guidance: IRS generally did not provide specific estimates of the incremental paperwork burden of TCJA's international regulations and instead estimated the total burden for all business tax forms. The Office of Information and Regulatory Affairs' PRA guide says agencies should estimate the time and money required for an information collection. GAO's interviews with representatives of selected companies show why it is important for IRS to consider burden because representatives reported challenges, such as gathering required information from foreign subsidiaries. Anticipated economic benefits and costs of Treasury's and IRS's regulations were generally not quantified. An executive order requires agencies to provide such information to the extent feasible for regulations with the largest anticipated economic effects. As a result, Treasury and IRS made important decisions about regulations, such as whether to allow foreign military sales to be eligible for a U.S. deduction, without more specific information about the potential economic effects. IRS did not provide an opportunity for public comment before issuing revenue procedures related to TCJA's international provisions. The Office of Management and Budget identified ensuring public comment opportunities for significant guidance when appropriate as a leading practice that agencies should follow. The President recently directed a government-wide review of agency guidance processes. Why GAO Did This Study TCJA made sweeping changes to taxing U.S. corporations' international activities: (1) a transition tax on untaxed overseas earnings of foreign subsidiaries that accrued prior to 2017; (2) a tax on the net income earned by foreign subsidiaries exceeding a specified threshold of certain assets; (3) a deduction for income from certain foreign-derived sales of property or services exceeding a specified threshold of certain assets; and (4) a tax on certain payments made to a related foreign party referred to as base erosion payments. GAO was asked to review IRS's implementation of TCJA and early effects of the law. This report: (1) describes how TCJA's international provisions may be affecting U.S.-based corporations' international business activities; and (2) assesses IRS's and Treasury's development of relevant regulations and guidance to implement the provisions. GAO interviewed representatives from eight companies' tax departments randomly selected from among the 100 largest U.S.-based companies and compared relevant regulations and guidance against procedural requirements.
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