The following are my personal thoughts on the Khavari situation and I offer them merely out a personal fascination, from a financial crime perspective, of this file in case what Iran alleges is accurate. I would have thought that any bank or firm would have declined to onboard him, or to have derisked him, but apparently not.
The requested deportation of Mahmoud Reza Khavari, a former Iranian foreign national, and a Canadian citizen living in Toronto, seems to be at the centre of the arrest of a Canadian professor from Montreal, Homa Hoodfar, also an Iranian foreign national and equally a Canadian citizen, who was visiting Iran.
Professor Hoodfar was arrested by the Revolutionary Guard in Tehran just before Norwuz and is alleged to be incarcerated in Evin prison in Northern Tehran. The Canadian government has sought her release from Iran. The government of Iran has countered with its renewed requests for the deportation of Khavari.
Some background on Mahmoud Reza Khavari. He was prosecuted in Tehran for participating in the embezzlement of US$2.6 billion from the Melli Bank, a state-owned bank in Iran (Washington Post). It is the largest bank theft in Iran and its largest money laundering case, although it was not prosecuted on the basis of money laundering.
Khavari fled Tehran and came to Canada. Prior to that, however, he was granted citizenship of Canada in circumstances that seem unclear since he appears to have been living full-time in Tehran running a state bank; meeting the residency requirements under the Immigration and Refugee Protection Act to earn the right to citizenship would have been quite challenging, to say the least.
Khavari purchased a mansion on the Bridal Path in Toronto, which is like having a mansion in Elahiel in Northern Tehran, only with a yard. The yards are so large and private on the Bridal Path that one family once secretly kept a thoroughbred horse there for many months.
According to court filings, Khavari is alleged to have told a Toronto friend that he has “vast financial resources”. It turns out that Khavari was actively investing in Toronto – he invested $14.2 million in the construction of two Toronto luxury condominium buildings (Financial Post) and he has interests over them (they are at 131 Hazelton Avenue, 195 Davenport Road and part of 145 Davenport Road in Toronto) (2011 ONSC 101).
Also according to those court filings, Khavari assumed the name “Khalili” when he moved to Canada to conceal his true identity.
The US$2.6 billion stolen from Iran was never recovered.
The government of Iran has sought the deportation of Khavari for many years from Canada without success; prosecutors in Tehran omitted to charge Khavari with money laundering in Iran, which would have accelerated his removal. While Iranian agents have visited Canada and physically searched for Khavari in Ontario, also without success, it now turns out that his address has been published in Court documents filed in Ontario in connection with a civil litigation in which he is embroiled (Financial Post). My guess is that he will be in Vancouver.
Iran has called the refusal of Canada to return Khavari to Iran as “one of the biggest hostilities of Canada towards Iran” (Fars News Agency), in part because allegedly Canadian officials misled Iran as to the whereabouts of Khavari, claiming that he was no longer living in Canada when he was in Toronto.
Anti-money laundering law & sanctions law
Khavari was the Chairman of the Melli Bank, hence he and all his family members are foreign politically exposed persons, subject to anti-money laundering heightened due diligence that requires that the source of all their wealth be ascertained for legitimacy, when he opened bank accounts in Toronto.
Salaries in Iran are about 30% what they are in Canada, even for state officials, and therefore it would likely be very challenging for any bank in Canada to comply with its anti-money laundering compliance requirements for such a high profile politically exposed person such as Khavari, given his state employment income compared to his assets. More interesting, of course, is that Iran was subject to sanctions after 2010 which prohibited any bank or brokerage firm, in fact any person, from doing anything but freezing funds of Khavari that originated from Iran after 2010 unless it was approved by the Canadian government. To avoid sanctions, Iranians have typically moved their money through Dubai, which Canadian banks know. Obfuscating the original of money from Iran through banks in Dubai does not make the funds sanctions-free — it does the opposite, it makes them proceeds of crime, the predicate criminal offense being sanctions avoidance.
Dual citizens with dual passports
Back to Professor Hoodfar. The jurisdiction, as a matter of law, of the arrest of Professor Hoodfar is not as straight forward as it may seem to Canadians. All Canadian Iranians are Iranian citizens under the laws of Iran, and both countries allow them to have passports from both countries. However, Iran does not recognize dual residency and as long as an Iranian has not relinquished Iranian citizenship formally, in the eyes of Iran, they are Iranian.
Iranians often have two passports to facilitate their travel and often it is so that they can enter the United States as Canadians, without disclosing to US border agents the existence of their Iranian passports, and enter Iran as Iranians, without disclosing the existence of their Canadian passports to Iran’s border control agents. Professor Hoodfar likely entered Iran under her Iranian passport as an Iranian citizen, otherwise she would have needed to have applied for a visa to enter Iran from Dubai, which is unlikely. Khavari as well, although now a Canadian citizen, is still a citizen of Iran under the laws of Iran. Getting Professor Hoodfra back to Canada will not be as easy as it would be if she were just a Canadian citizen visiting Iran. In the eyes of Iran, she is an Iranian in Iran, not a Canadian in Iran.
The political situation between Canada and Iran became more complicated and tense because of the $13 million judgement against Iran awarded by a Toronto Court last week (National Post) for American plaintiffs.
What will Iran do?
If I were to take an educated guess, I think Iran will act on this file, as follows:
(1) Iran will start discussing the case of Khavari internationally with other countries, the UN and such. At the end of the day, if the rule of law prevails, Canada has to return Khavari – he was prosecuted in Iran pursuant to their rule of law and is being sought in connection with the most serious financial crime possible involving a US$2.6 billion theft that materially harmed Iran and the integrity of its banking system – these are not minor issues for any country. Likewise, he will have to be removed from Canada pursuant to the rule of law;
(2) Iran will seek the deportation of Khavari to Tehran in exchange for the release of Professor Hoodfra;
(3) Iran will seek from Canada the payment of an amount of money equal to the Ontario court judgment of $13 million, either directly or indirectly;
(4) Iran may go after the assets of the Yorkville condo projects, the home and the bank accounts of Khavari and sue a number of parties to recover its US$2.6 billion. If nothing else, they may succeed on this action; and
(5) The failure to return Khavari to Iran will financially cost Canadian companies billions of dollars – one way or another, likely through lost trading opportunities with Iran – of that I am certain.
What will Canada do?
On the part of Canada, if I were to take an educated guess, I think it will respond as follows:
But before I get to that, what will weigh on the mind of Canadian politicians in my view is this: (a) Canada does not want to face another situation like it did with China whereby it dragged its feet in deporting a money launderer back to Xiamen who fled to Vancouver, a decision that caused resentment among the people of Xiamen, as well as the Government of China because Canada harbored an international money launderer and which caused strained trade relations between the two countries, and cost Canadian businesses trade opportunities with China; (b) While Iranians love Canada and Canadians in Vancouver especially, the people of Iran, as well as its government, are not happy in respect of the Khavari file, and are unhappy to have been allegedly misled in respect of his whereabouts. If the claims against Khavari are true and if he brought proceeds of crime to Canada, then it means he is living a luxurious lifestyle in Toronto off the proceeds of crime that belong to the people of Iran, since it was a state bank. Iran has almost 4 million refugees that it supports – more than any other country in the world – that money could be used, if it belongs to Iran and was parked in Canada illegally, to support Iran’s growing refugee population and provide food, shelter and education to them – rhetorically, what are we doing holding onto it if its here when it does not belong here?; (c) if this file gets any more international media attention, unless there are salient facts that are known only to the Canadian government in respect of Khavari, there is no possible light under which Canada can look good on the Khavari file if the facts as alleged against him are accurate; (d) Canada does not want to be seen as negotiating Khavari for Hoodfra even though Iran seems to have suggested that is exactly how it will to play out; and (e) entering into negotiation requires that Canada inform Iran that it may be ten years before Khavari is removed if he appeals and therefore they may never get Khavari simply due to the length of time involved for due process unless Canada expedites the process or Iran does through anti-money laundering law. That will not go over so well in Iran because so many years have passed with delays that were unjustified (e.g., not caused by due process of law but rather appear to have been political).
So, what will Canada do?
(1) I suspect it will indeed move on the deportation of Khavari. In order to do that, I suspect it may scour through Khavari’s immigration application to see if it can find a material misrepresentation;
(2) Canada will require that Iran promise not to execute Khavari if he is returned;
(3) Canada will require, before it does anything at all, that Professor Hoodfar be released once the two countries have signed an agreement for an exchange of foreign nationals; and
(4) Canada wants to renew its relationship with Iran for trade purposes and is rebuilding its embassy in Tehran in preparation thereof and it will pay the government of Iran to re-establish relationships so that it can open a trading partnership with Iran.
My guess is that politically, Iran can and will wait this one out; Canada can’t and doesn’t want to wait this one out.
Knowing both how Canadians and Iranians think, my guess is that Professor Hoodfra is caught in the middle of a political situation between Canada and Iran over money – US$2.6 billion to be exact.
Politics is a game, sometimes a messy one, even when law is involved. The stakes are high on this one for both countries. Not only are the stakes high but Iranians are offended by the actions of Canada, which complicates the file and the resolution thereof.