650 Fifth Avenue, in New York City, was cleared by a U.S. Federal judge for forfeiture because it was secretly owned by the Iranian government. Photo: WikiCommons.

A 36-story Manhattan office tower, partially-owned by a shell company controlled by Iran, has been cleared for forfeiture to the U.S. government by a federal judge, the Associated Press reported on Tuesday. The building is expected to fetch between $500 million and $700 million, the New York Daily News said.

U.S. District Judge Katherine Forrest made the forfeiture finding in a case first brought by the U.S. government in 2008, ruling that the building is subject to forfeiture because revenue from it was secretly funneled to a state-owned Iranian bank, in violation of a U.S. trade embargo.

The U.S. government, on behalf of the Asset Forfeiture Unit and Terrorism and National Security Unit of the United States Attorney’s Office, argued that the official owner, the Alavi Foundation, was partnered with a shell company controlled by Bank Melli, the state-owned bank of Iran. Because the Iranian government has been designated by the U.S. as a sponsor of international terrorism, its assets in the U.S. can be seized by the government to fund restitution to terror victims.

Judge Forrest agreed that monetary transfers by the shell company, Assa Co., to Bank Melli violated money laundering statutes.

“There is substantial, un-contradicted evidence that Assa is owned and controlled by Bank Melli, and that Bank Melli is wholly owned and controlled by Iran,” the judge said.

The Associated Press reported that the judge rejected Alavi’s “core defense,” because many of the Alavi board members who were involved in the creation of Assa as a front for Bank Melli in 1989 remained with or returned to positions with Alavi after 1995, when Iran was designated as a sponsor of terror.

“The Government argues that Alavi asserts a sort of collective amnesia,” the judge said. “The court finds the analogy apt and its reality implausible. No rational juror could believe in such extraordinary amnesia.”

The building, at 650 Fifth Avenue, was built in the 1970s on property acquired by a not-for-profit corporation formed in New York by then Iranian leader Shah Mohammad Reza Pahlavi, who was overthrown in 1979.

“The alleged money laundering occurred when the partnership, Alavi, and Assa Corp. distributed the rent with the intent to conceal that it was meant for the benefit of the Iranian government and caused partnership funds to be transferred abroad,” the judge wrote. “Having engaged in a money laundering violation, the entirety of the 650 Fifth Avenue Building (the business premises) and all of the associated bank accounts are subject to forfeiture — even if they were not used in the money laundering offense itself.”

Prosecutors told the Daily News they believe the decision to be “the largest real property forfeiture” in U.S. history. They intend to hand over the bulk of any proceeds derived from the forfeiture to relatives of people who died in Iran-aided terror attacks, including 9/11 and the bombing of a Marine Corps barracks in Beirut that killed 241 U.S. servicemen, the Daily News said.

The decision is subject to a potential appeal, but if the forfeiture moves forward soon, the timing could generate substantial gains for terror victims, because of the rising prices of Manhattan office property in today’s market, the Daily News reported.

Commercial real estate appraiser Dan Fasulo said the office tower could fetch up to $2,000 a foot, as much as the nearby General Motors Building, and could reach a total sale value of $700 million.

The building, at Fifth Avenue and 52nd Street, totals 380,000 square feet and leases retail space to Juicy Couture and Godiva.