In August 2012, a silver Rolls-Royce pulled up to the majestic Broadmoor Hotel in Colorado Springs, Colorado. Out stepped a newly married couple, freshly arrived from their wedding ceremony. At the lavish reception, the bride and groom performed an intricately choreographed dance for the assembled guests, and cut the first piece of a formidable, multi-layered white wedding cake. They celebrated with family and friends. The bride wore a dazzling sapphire pendant around her neck, matching sapphire earrings and a weighty diamond ring around her finger. At the wedding dinner, a man toasted the groom, Mitchell Zong, as the kind of person who “really bends over backwards to help friends and family.”
Less than two years later, when FBI agents, executing a search warrant, entered the Zong family’s Southern California home, they took that same sapphire wedding set, valued at more than $40,000, as well as $24,000 in cash. Federal prosecutors had initiated a huge civil forfeiture case over property owned by the Zong family, including Mitchell Zong.
Prosecutors claim that what the FBI seized that day represents a fraction of the ill-gotten funds that tie Mitchell Zong to a spectacular transnational sanctions-evasion scheme, one that laundered more than $1 billion in Iranian government funds over a mere six-month period in 2011.
And the unlikely figure at the center of this story—which encompasses shadowy Iranian businessmen based in the Middle East and Caucasus; high-ranking South Korean state banking officials; an Iranian-American airline magnate whose planes have been linked to covert work for the U.S. government, including the CIA; the difficult politics of multilateral sanctions; the abstruse world of illicit finance; and laundered property and goods spread across three U.S. states—is a septuagenarian Alaskan ex-salmon exporter and restaurateur, Mitchell’s father, Kenneth Keun Zong.
Zong’s bizarre tale, reconstructed here through court documents and other sources, is no idle caper: As the Trump administration takes an increasingly aggressive posture toward Iran—by some accounts, it is even flirting with an official policy of regime change—it might soon seek to enlist the cooperation of allies and partners like South Korea in isolating Tehran. If so, imposing new multilateral sanctions might become a key objective for the Trump administration.
But the Zong case shows just how fraught this process can be, even when the international community is relatively united, as it was regarding Iran’s nuclear program during the Obama years. Even then, a single U.S. citizen, allegedly aided by bankers and government officials of one of America’s closest allies, was able to puncture the sanctions regime with unsettling ease. How will the Trump team, lacking even this modicum of international cooperation and goodwill, be able to cut off Iran from the global financial system? And what will happen if Trump team pushes strenuously against political currents to isolate Iran, only to find itself roundly ignored, not just by America’s great-power rivals, but also by its friends? To understand that, we need to understand how, for a time, Ken Zong outsmarted just about everybody.
Ken Zong seemed, at first glance, like a typical immigrant success story. He emigrated to Alaska in 1980, according to an affidavit from the civil forfeiture case. He became a U.S. citizen in 1985, raising his four boys in the Anchorage area. Zong quickly established himself within Anchorage’s small but growing Korean community; by 1991, he was identified by the Anchorage Daily News as a “community leader” and the head of the local Korean Chamber of Commerce. He played golf avidly. Mitchell was lionized in local papers for his prowess at football.
As a businessman, Zong was restless—some might say opportunistic—but by all accounts operated perfectly lawful businesses. According to reports in the Alaska Daily News, at different points he worked in real estate; owned a construction business; and ran a local diner that he converted (ultimately unsuccessfully) into an Italian restaurant. In 2004, according to the Juneau Empire, he worked with an Alaska state senator to export millions of cans of salmon to South Korea, where they were slated for use by the South Korean military and school lunches.
Zong moved back to South Korea, at least part-time, around 2001, court documents say. It is unclear what precipitated the decision. Records show that Zong has been sued in Alaska a number of times for unpaid debts, and Jim Spertus, Mitchell Zong’s lawyer, told me Ken Zong had been “in and out of bankruptcy.” The overall picture of Zong that emerges during these years is of a restless entrepreneur (one, perhaps, with a propensity for cutting corners) but certainly not an international criminal mastermind. By 2009, however—the year Zong registered the company KSI Ejder (later known as KSI/Anchore) in South Korea—there were signs that he was connected to something big.
The very same year that Zong founded KSI Ejder, in fact, a serial swindler named Sencer Sevket, a Turkish-Cypriot with British citizenship, was arrested in the U.K. and accused of cheating a British film company out of a £1.5 million investment. When police searched Sevket’s home, they found €40 million worth of promissory notes. According to the City of London police, at the time, Sevket claimed to be representing the “South Korean company KSI Ejder Korea Inc.” In 2013, Sevket received a seven-year sentence for fraud in a U.K. court.
Sevket had a long record of malfeasance. According to a 2010 story by the investigative finance journalist David Marchant, Sevket opened a mutual fund in the Cayman Islands in 2007 named “Ejder Investment.” Around that time, Sevket was still wanted by U.S. authorities for his alleged role in an early 2000s investment-fraud scheme. As Marchant notes, until 2010 Sevket referred to himself online as the director of KSI Edjer Korea; he was also the domain name registrant for the company’s website. During this period, Sevket’s name was associated with a dizzying number of shell companies with names containing some permutation of the phrase “Edjer” or “Ejder.” One of these companies, Ejder Plc, formed in 2006, listed Kenneth Keun Zong, “a 71-year-old resident of Seoul, South Korea,” as a company director on its corporate registry.
The wire transfers, all sent from Zong in South Korea, began as a trickle, court documents show: $30,000 to Canada, €50,000 to France, €149,000 to Italy, €116,000 to Germany. But there were dozens just like them over a few days in February 2011, and they kept getting larger. Within a week, the first recorded transfer to the United Arab Emirates—of $3.5 million—was posted, and many of the transfers thereafter were deposited into accounts based in that Gulf country. And the sums became increasingly eye-popping: On one day in May, for instance, there were $88 million in transfers; a week later, the one-day amount totaled more than $109 million.
Zong’s business was humming. His company, KSI Edjer/Anchore, had apparently secured a lucrative contract shipping marble to Farsoodeh and Company, an Iranian firm involved in mosque construction, via a Dubai-based tile importer, Orchidea Gulf Trading Co. The transfers were, in theory, related to Zong’s profits from his marble business.
There was just one problem: Orchidea wasn’t importing any marble to the U.A.E. Nor was it shipping any to Iran. Nor was Zong’s Seoul-based firm (which was just a shell company) fulfilling any real role as intermediary, besides submitting falsely marked-up documentation to Korean authorities detailing these completely fictitious transactions.
In reality, according to the sworn affidavit of the U.S. special agent charged with investigating Zong in the civil forfeiture case, as well as Kenneth Zong’s subsequent criminal indictment, Zong and his partners—Houshang Hosseinpour, Pourya Nayebi and Houshang Farsoudeh, three Iranian businessmen with tentacular connections across the Middle East and Europe—made up the entire arrangement. The court documents also claim that Hosseinpour, Nayebi and Farsoudeh ultimately controlled the accounts into which Zong transferred hundreds of millions of dollars. And moreover, the documents allege, the three Iranians were not operating primarily for their own personal enrichment, but in the service of the government of Iran, helping it circumvent the nuclear sanctions then choking off the Islamic Republic’s ability to make international purchases.
The origins of this partnership are opaque. Court documents say Ken Zong was connected to the three Iranians through his son Mitchell, who prosecutors say went to college with Houshang Farsoudeh’s brother at Colorado State University in the late 1990s. But Spertus, Mitchell’s lawyer, claimed to me that Mitchell has never met Farsoudeh’s brother, and that there is no record of him attending CSU. (Citing university policy, CSU declined to say whether Farsoudeh’s brother ever attended the school.)
This alleged scheme, as detailed in the court docs, could succeed only because of an unusual arrangement between Iran and South Korea. South Korea is a major importer of Iranian oil, and has a strong business lobby invested in bilateral ties. So while the U.S still pressured South Korea to decrease its business with Iran, it gave Korea a limited dispensation to continue importing oil from the Islamic Republic.
As part of this arrangement, the Iranian Central Bank was permitted to open a special account at the state-owned Industrial Bank of Korea (IBK). This account, which was held in Korean won (in 2010, the U.S. forbid business with Iran from being conducted in dollars), allowed South Korean companies to pay Iran. But these oil funds were forbidden from leaving the IBK account unless they satisfied a number of strict conditions regarding their usage, and all transfers had to be approved by Korean authorities.
IBK had been eager to do business with Iran for years. According to State Department cables released by WikiLeaks, U.S. officials received intelligence in June 2008 that the bank was in talks with the Iranians to open up an account to facilitate oil payments; Seoul-based U.S. diplomats, alarmed at the consequences for nonproliferation and terrorist financing, met with high-ranking Korean officials, and succeeded in temporarily stymying the arrangement.
Iran, desperate for foreign currency, needed a way to get those restricted funds out of its IBK account, and, even better, to exchange Korean won for U.S. dollars. This made a middleman like Zong, who could facilitate these transactions from within Korea, a valuable resource.
But there was no way such huge sums of money could be moved that quickly without attracting the attention of South Korean authorities and bankers. So, according to Zong himself, whose seized emails were reprinted in U.S. court documents alleging his illicit conduct, he and his Iranian partners simply bought officials off.
If Zong’s emails are to be believed, his plan was an audacious one. In a March 2011 email to the Iranians, he claims that IBK was only one of a number of Korean institutions involved. Woori Bank, another state-owned Korean financial institution, was also aware of these improprieties, Zong contends, as was the Bank of Korea, the country’s central bank. So was KOSTI, the Korean government’s export control authority, the watchdog agency tasked with ensuring compliance with the recent U.N. sanctions against Iran. All these institutions “know well our transactions are based on fabricated & fake documents,” writes Zong, who fretted over “the great dangerous risk” to him and the authorities with whom he worked, who were “cooperating to do transaction[s] … without proper investigation.” (None of the governmental or financial institutions mentioned by Zong has been accused of criminal wrongdoing in South Korea or the United States; Woori and the Bank of Korea could not be reached for comment by press time.)
This purported kickback scheme continued through the year. Later in 2011, after a night of revelry at a “Korean-style Geisha house,” Zong sent an email to Hosseinpour, updating him on the status of the arrangement. “[I got] completely drunk with [the] IBK people last night,” he writes, going on to name a number of top bank officials. Zong later explains to the Iranians that he is waiting “for [the] instruction of IBK main office” to tell him which “branch and manager” to open up an account with. The manager, Zong writes, needs to be a “good soldier” of IBK brass.
By 2012, however, it seems that the arrangement had become untenable for the allegedly compromised Korean bankers. In another email to Hosseinpour, Zong writes that IBK officials told him that they “need to be quite [sic] for a while.” Zong then suggests that he move to Hong Kong or Shanghai to “open up a new company” and replicate the success of the earlier scheme.
But the walls were closing in. In September 2012, the JoongAng Daily reported that Korean authorities were investigating an Iran-related fraud case of astounding scale. According to this report, the investigation was set off when Zong, who went unnamed in the Korean newspaper’s story, improperly transferred $20 million into an American bank account. In 2013, Zong was sentenced by a Korean court to a two-year prison term on money-laundering related charges; in 2015 he was handed a five-year term for failing to pay taxes on the money involved in the first prosecution. In May 2017, Zong lost his appeal to a Seoul superior court, and was ordered to serve a roughly four-year sentence, plus endure 400 days in a forced-work camp if he failed to pay millions in fines levied by the court. (IBK was investigated and later cleared of any criminal wrongdoing by Korea officials, according to South Korean press reports; the bank was, however, subject to financial penalty imposed by the Korean government for improprieties related to the case.)
Over the course of his partnership with the three Iranians, Zong allegedly deposited $10 million in kickbacks into U.S.-based accounts alone. According to U.S. court documents, his total earnings may have topped $17 million. And then, according to filings in the civil forfeiture case, Zong’s family members—especially Mitchell—either knowingly or unknowingly helped launder the funds. (Spertus, Mitchell Zong’s lawyer, says Mitchell had no idea about the source of the funds his father transferred to him, and correctly notes that his client has not been charged with any crimes.) They used the Iranian money to buy $4 million worth of condominiums in Anchorage and homes in Colorado Springs, Colorado, and Eugene, Oregon. They used it to purchase multiple luxury cars and a stake in a million-dollar yacht berthed in tony Newport Beach, California. And they used it to buy that sapphire jewelry, the kind that one saves for a special occasion, like a wedding. Almost all of it has been seized.
In December 2016, U.S. prosecutors from the District of Alaska handed down a 47-count indictment for Kenneth Zong on money-laundering and sanctions-violations charges. If, upon the completion of his South Korean jail term, Zong is extradited to the U.S—which could take months, or even years, Steve Sckrocki, the lead U.S. attorney on the case, told me—he might face decades in U.S. prison.
But it is unclear if Korea will extradite him. According to Rich Curtner, Zong’s public defender in Alaska, Korean law forbids an individual indebted to the government from leaving the country, and recent Korean court documents state that Zong owes roughly $13 million to Korean authorities. (The case is as “an enigma wrapped in a mystery,” said Curtner.)
But while Zong languishes in a South Korea prison, the three Iranian businessmen with whom he worked are apparently still freely conducting their business worldwide. While the true extent of their holdings is unknown, what is clear is that Nayebi, Hosseinpour and Farsoudeh’s “business” in South Korea was just one, perhaps small, component of a far-flung business empire. In fact, emails seized by U.S. investigators, and reprinted in the civil forfeiture complaint, purportedly show that their work with Zong was just one of many similar initiatives they conducted on behalf of the Iranian government.
According to Emanuele Ottolenghi, an illicit finance expert and senior fellow at the Foundation for the Defense of Democracies, the three men went on an “investing spree” in Georgia during this same period. As Ottolenghi, who has documented the three men’s activities in that Caucasian nation, wrote in a 2015 article, this included “launching the private airline Fly Georgia, trying (unsuccessfully) to buy Tbilisi’s Sheraton Metechi Palace hotel, and creating local companies involved in real estate, investment, holiday packages for Iranian tourists, aviation services, microfinance, currency trade, and prepaid credit cards.”
The attempted purchase of the Sheraton hotel in Georgia deserves special scrutiny, because it shows just how entangled the three Iranians became in a number of large-scale, complex international business deals—deals that eventually piqued the interest of U.S. investigators. At the time, the Sheraton was owned by the government of Ras al-Khaimah, one of the seven sheikdoms of the United Arab Emirates, which had a number of commercial interests in Georgia. According to Farhad Azima, a prominent Kansas City-based Iranian-American businessman and private airline owner, representatives of Ras al-Khaimah, eager to sell the property, reached out to him to help find buyers for the hotel. It was then that Nayebi, Hosseinpour and Farsoudeh appeared on the scene. Azima, who provided written responses to queries about his involvement in the deal, casts their involvement as almost serendipitous. The government of Ras al-Khaimah, he said, “requested that [he] find a buyer for the Sheraton hotel in Georgia,” and the three Iranians subsequently “presented themselves as potential buyers.”
The full extent of Azima’s connections to Nayebi, Hosseinpour and Farsoudeh has never been made clear. But recent U.S. and U.K. court documents, as well as Azima’s own emails—Azima and Ras al-Khaimah are currently locked in a series of bitter lawsuits in both countries, with Azima’s lawyers claiming that Azima’s emails were hacked and subsequently leaked online by the sheikhdom’s agents—suggest the relationship was far more intimate than previously reported.
According to Azima’s lawyers’ filings in these cases, Azima not only introduced Nayebi, Hosseinpour and Farsoudeh to the ruler of Ras al-Khaimah, he hosted Hosseinpour and Farsoudeh at an in-person meeting with the emir at his palace in October 2011—just a few months after the Iranians wound up their billion-dollar money-laundering scheme with Kenneth Zong—to work out the purchase of the hotel. (There is no indication that Azima was aware of any of the three Iranians’ alleged activities in South Korea or elsewhere.) According to Azima’s legal brief, the emir was eager to complete the deal because the Iranians were, for reasons that go unexplained, willing to pay “above market price” for the hotel.
The Iranians’ $62.5 million bid for the Sheraton was, in the end, unsuccessful. This may have been due to the murkiness of their finances, which was of clear concern to the law firm in Georgia overseeing the deal. “Where did you find these people?,” writes a lawyer for the firm to Azima, in a leaked email. “Lost and Found Department!,” replies Azima, cryptically.
In a written response to questions about the hotel deal, Azima noted that the three Iranians had passed “anti-money laundering checks and ‘know-your-client’ guidelines” conducted by the lawyers in Georgia. Even so, he wrote, he “sought the input of the U.S. State Department regarding the buyers … and was advised I should not deal with them. Based on that advice, I withdrew from the Sheraton Hotel transaction.” (He also noted that Ras al-Khaimah continued to deal with the three Iranians, eventually accepting, and keeping, $20 million from the buyers, even though the deal fell through.)
Successful or not, the activities of the three Iranians in Georgia started raising eyebrows. In June 2013, in an interview with the Wall Street Journal, both Nayebi and Hosseinpour denied working for the Iranian government. “We hate them,” Nayebi told the Journal. “We have nothing to do with evading sanctions,” said Hosseinpour.
But U.S. Treasury Department officials—who, according to the Journal, travelled to Georgia repeatedly in 2012 to investigate the influx of Iranian capital there—evidently disagreed. In September 2014, the three men were placed on the Treasury Department’s official list of sanctioned individuals, as were many of their businesses, including the Dubai-based front company Orchidea. Treasury officials accused the three men of “facilitat[ing] deceptive transactions” on behalf of multiple previously sanctioned Iranian financial institutions.
At this point, at least one of the three Iranians seems to have reached out to Azima for help. Azima’s leaked emails show that, in late 2014, he referred Hosseinpour to his own lawyer in order to potentially lobby the Treasury Department to remove Hosseinpour from a list of sanctions evaders. According to Azima, Hosseinpour asked him for the recommendation; he also says that Hosseinpour ultimately declined to retain the lawyer.
It’s not clear what specific alleged activities led to the Treasury decision. Nor is it clear who within the Iranian regime the U.S. believed the three men worked for. But there are some potential clues in the public record.
One is from a Cayman Islands-based newspaper, which, while reporting on a citizenship-for-investment program in Saint Kitts and Nevis—the three Iranians bought their way into citizenship, and thus another set of passports, to the tune of $250,000 per person—connected Nayebi to the Execution of Imam Khomeini’s Order (EIKO), a massive conglomeration of business interests controlled directly by Iran’s Supreme Leader. EIKO forms a key part of his power base and patronage network—a 2013 Reuters investigation estimated that EIKO’s holdings were valued at around $95 billion.
I found another. The billing address the Iranians provided for Farsoodeh and Co.—the Iranian company to which Zong “sold” roughly $1 billion in tiles—appeared on EU sanctions lists in 2014 as the headquarters of Sorinet Commercial Trust Bankers. At the time, Sorinet was recognized by the Treasury Department as a front organization of Babak Zanjani, one of Iran’s richest men, who helped the Iranian government illegally amass billions. Treasury had already announced sanctions against Zanjani and his companies, claiming that Sorinet was a front for Iranian state oil companies, some of which were themselves owned or operated by the Revolutionary Guard. Zanjani’s fortunes have since soured; in 2016, he was sentenced to death by an Iranian court for skimming billions in oil profits.
On July 14, 2015, after two years of painstaking multilateral negotiations, six world powers announced a historic deal to prevent Iran from developing nuclear weapons. Supporters hailed the agreement as a crucial step in forestalling Iran’s race for the bomb. Detractors lambasted it as a foolhardy giveaway to an implacable foe.
As part of the arrangements, U.S. officials agreed to remove Nayebi, Hosseinpour and Farsoudeh, as well as their associated companies—including Orchidea—from the sanctions list on the very day the Iran deal went into effect. Whatever the merits of the concessions U.S. officials made in service of their larger strategic goals, this much is clear: The three men were apparently important enough for Iranian negotiators to fight for their inclusion in the deal. Even before the deal, then, when it came to these three men, U.S. officials appear to have been walking a tightrope between political and prosecutorial concerns.
“It looks as if the size and scope of Nayebi, Hosseinpour and Farsoudeh’s operation made it hard for the Obama administration to ignore,” Ottolenghi told me. “So the administration had to sanction them, but because they were negotiating with [Iranian President Hassan] Rouhani, and were trying to get to a comprehensive deal, they didn’t go further.”
The U.S. government’s apparent lack of enthusiasm to “go further,” as Ottolenghi says—to bring criminal charges against Nayebi, Hosseinpour and Farsoudeh—has been an obvious boon to the three men, who still control significant assets abroad. According to Ottolenghi, Nayebi spends significant time in Georgia and Dubai, while Hosseinpour seem primarily Dubai-based. Farsoudeh’s whereabouts are unknown.
“Nayebi lives a luxurious life in Georgia,” Dimitri Aleksidze, a Tbilisi-based lawyer whose firm has been involved in complex civil litigation against Nayebi, told me. To this day, Aleksidze says, Nayebi owns apartment buildings, restaurants and tracts of land in that small Caucasian state. This is all the more “strange and surprising,” the Georgian lawyer claims, because in 2013 Georgian authorities opened an investigation into Nayebi, Hosseinpour and Farsoudeh for allegedly laundering hundreds of millions of dollars there. The three have never been formally charged, a fact Aleksidze also finds puzzling. Politico has not been able to independently confirm Alekisdze’s allegation that they’ve been the subject of an investigation there. Requests for comment sent to multiple email addresses associated with Nayebi, Hosseinpour and Farsoudeh went unanswered, as did attempts to reach Nayebi via his Georgia-based lawyer.
Given their apparent political connections, we may never learn the full story of the extent of three Iranian men’s alleged dealings on behalf of the Iranian regime. Nor will we likely ever learn the full story about the Korean officials implicated in the scheme in Zong’s seized emails. Not only have Korean prosecutors have cleared IBK of wrongdoing related to the case (though the bank paid a fine for improper dealings), but Korean investigators have also declined to press charges against KOSTI, the government export control authority, and the Bank of Korea, the country’s central bank.
There may be more trouble coming for IBK, however. The Korea Times has reported that the bank was under U.S. federal investigation for its role in transactions related to the Zong case. Garry Cuddy, IBK’s New York-based compliance officer, confirmed to me that the investigation is still ongoing, and that IBK’s legal counsel was currently in discussions with the Treasury Department’s Office of Foreign Assets Control (OFAC)—which tracks sanctions violations—and the U.S. Attorney’s Office in New York. Cuddy was unaware of whether the high-ranking IBK officials named in Zong’s emails were still employed by the bank. In March 2016, IBK’s New York branch reached a voluntary agreement with OFAC and the state of New York to strengthen its anti-money laundering controls, after “an examination of the Branch found deficiencies.”
Zong’s case, and the miasma surrounding it, shows just how challenging it is to sustain the kind of international sanctions regime that existed in the lead-up to the Iran deal. The financial pressures, even in steadfast U.S. allies like South Korea, may simply be too great.
According to the Korea Times, for example, during the years when Iran sanctions were at their harshest, IBK and Woori (both, again, state-owned) made “huge” profits because of their special arrangement with Iran. In 2012 alone, they added the equivalent of $4.4 billion in deposits. It was such a huge amount of money, in fact, that the paper also later reported that Iran threatened to withdraw the money unless the Korean banks increased their interest rates. But they eventfully reached a deal: In 2016, the two countries finalized an agreement to keep the accounts—and thus billions of dollars of Iranian capital—in these banks.
The Zong case also points to how difficult, if not outright impossible, re-instituting such multilateral sanctions will be, if President Trump makes good on past threats to pull out of the Iran deal. (The recent Iran sanctions bill passed in the Senate—tied to Iran’s human rights abuses, support for terrorism and ballistic missile program—is conspicuously silent on that country’s now-dormant nuclear weapons program.) Getting stalwart allies such as South Korea and Japan, which also depends on Iranian oil, to agree to such measures would be a strain. But convincing rival states such as China, which is also a major importer of Iranian oil, to revive past sanctions would require a herculean—and at this point, totally uncharacteristic—diplomatic effort on the Trump administration’s part.
And why, after all, would these states agree to such punitive measures? Business is booming. According to CNN, Iran tripled its worldwide oil exports from late 2015 to mid-2016 alone. Billions in Iranian funds are capitalizing state-owned South Korean banks. And in 2016, South Korea announced plans to treble its exports to Iran over the next three years. Ken Zong, the Alaskan former salmon exporter, an overeager small-timer, may find himself spending the rest of his life behind bars, but the bigger fish—in Dubai, Seoul, Tehran and Tbilisi—can now glide through much calmer, emerald-tinged financial waters.