Sunday, October 30th, 2011

Family Matters

United States v. Banki, N o. 10-3381-cr (2d Cir. October 24, 2011) (Cabranes, Pooler, Chin, CJJ)

Defendant Banki is an Iranian-born United States citizen. Starting in 2006, his family transferred about $3.4 million from Iran to the United States, all of which was effectuated through the “hawala” system. Banki’s hawala broker used a “matching” system to facilitate these transfers. When he knew that Banki’s family wanted to send money to the United States, he would find someone in the U.S. who wanted to send approximately the same amount to Iran. The U.S.-based contact would transfer into Banki’s account a sum comparable to the amount Banki’s family wished to send. Banki’s hawala broker would then pay an equivalent sum to the U.S.-based contact’s intended recipient, or broker, in Iran. Ultimately, Banki received some 56 hawala-related deposits.

Banki would typically email a family member to confirm receipt of each payment. Although most of his emails did not acknowledge a corresponding payout in Iran for each deposit, at least one such email – relating to a $6,000 payment in August of 2006 – displayed his knowledge that that particular sum of money was moving to Iran.

Banki’s financial activity came to OFAC’s attention in 2008 and, after receiving administrative subpoenas, Banki gave some spurious answers. He was ultimately charged, inter alia, with two counts of violating the Iranian Transaction Restrictions (the “ITR”). After a two-week jury trial, Banki was convicted of those counts, along with one count of operating an unlicensed money transmitting business and two counts of making false statements.

The circuit reversed the ITR convictions based on a flawed jury instruction. While the ITR have a service-export ban, at trial Banki argued that non-commercial remittances to Iran, specifically family remittances, were exempt. He sought a jury instruction to this effect, but the district court refused to give one. This, according to the circuit, was error.

The regulation at issue authorizes U.S. “depository institutions” to process transfers of funds to or from Iran, if the transfer “arises from an underlying transaction that is not prohibited by this part, such as a … family remittance not related to a family-owned enterprise.” The government argued that this language permits such family remittances only if they are processed through a U.S. “depository institution.” But, to the circuit, the reg was “at a minimum” ambiguous.

Clearly, “family remittances” are “not prohibited” by the ITR. And, while this does not necessarily lead to the conclusion that they are permitted by the complete regulatory scheme, the language at issue “suggests that such actions do not contravene other applicable laws or regulations.”

And, more importantly, the government’s view – that only U.S. depository institutions are authorized to process the permitted transfers – is inconsistent with the language of the reg. A “fair reading” of the reg is that it tells U.S. depository institutions that they are permitted to process such remittances, but does not provide that they are the only entities that may do so. “Indeed, nothing in [the reg] specifically prohibits anyone from making a family remittance.”

Accordingly, after a lot of back-and-forth over the two sides’ competing views of the meaning – and purpose – of the reg, the court concluded that it was ambiguous. Interpreting it in Banki’s favor under the rule of lenity required that the two ITR counts be reversed.

The court also vacated Banki’s convictions relating to operating an unlicensed money transmitting business, again on a flawed jury charge. Banki wanted the district court to define a “money transmitting business” in a way that would make clear that it had to be an “enterprise” – not a “single transaction” – that was “conducted for a fee or profit.” Not only did the district court refuse, it actually told the jury that “a hawala is a money transmitting business.”

The charge as given was error. Banki’s requested instruction was “legally correct,” and there was a “foundation in the trial evidence” that the government proved Banki’s knowledge of money going to Iran in only a single transaction – the $6,000 transfer in August of 2006 – which the jury could have concluded was a one-time favor for a family friend. Moreover, the “hawala is a money transmitting business” charge compounded the error by “arguably reliev[ing] the government of its burden of proving that Banki’s knowledge that money was moving to Iran extended beyond the $6,000 transaction” and by suggesting that if it found that Banki participated in a hawala, “then he necessarily operated a money transmitting business.”

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