One of the more puzzling aspects of Paul Manafort’s indictment for conspiracy, money laundering and other charges was the line items detailing the he epic sums he reported spending from Cyprus-based accounts on antique rugs in Northern Virginia. There’s really no reasonable way, THE WEEKLY STANDARD learned at the time, to spend $1 million on antique carpets in Alexandria. But we have since learned, from Treasury and IRS agents, a geopolitical expert with family ties to the rug business, and two sources versed in the Iranian business world, that we were far from the first to give a second thought to the way money moves through rug shops.
An intelligence analyst and Middle East expert who recently approached TWS with his story grew up wondering exactly that: Michael Nayebi-Oskoui, a consultant for global businesses, talked candidly about the mysterious import-export business his Persian and Soviet Russian grandparents operated. “To this day, I can never tell you what their business actually was—moving goods through places, funds come back and forth,” he reflected.
And that, he believes, is where the rug merchants come in: “The intrinsic value of these rugs is bupkis,” he said. “There’s no legal or functional tool for the IRS to judge their value.” Consequently, “if you needed someone to make a deal with you, to move some money around, this is a great way of doing it.”
None of this was news to Nayebi-Oskoui, but still the Manafort indictment—and THE WEEKLY STANDARD’s reporting—was something of a wake-up call for him. There has been no indication that any of the rug shops in Northern Virginia are being scrutinized by law enforcement as a result of the Manafort indictment. That said, among people familiar with the industry, details of the indictment raised eyebrows. “Knowing what I do about the industry, this was a real WTF moment for me. With my familial, cultural ties to this broader community, I can tell you: Most of them are fronts to some extent.” They’re not drugs traffickers, not “complete criminals,” he clarified, but “they’re going to be playing fast and loose with pricing and the IRS.”
When I told Nayebi-Oskoui’s story to former Treasury Department special agent John Cassara—a counterterrorism expert and international authority on the type of money laundering that moves criminal proceeds through material goods—he told me there’s a word for what Nayebi-Oskoui described: “Hawala.”
The practice of transferring capital via trade goods, without a paper trail, and with ample wiggle room, is, Cassara believes, the most common and by far the least examined form of money laundering. It’s especially common, he tells me, in Iran: “There’s a lot of capital controls in Iran. They can’t easily export money—the [Iranian] rial is not a hard currency, obviously. And there’s a lot of restrictions on how much they can send out of country in terms of wealth.”
“You’re not going to wire the money out. You’re going to do things like trade-based value transfer, invoice fraud, and manipulation using a commodity that makes sense like carpets”—and, chances are, you’re going to succeed. “So as long as it looks like it’s within reason, they’re going to get away with it unless they’re very, very, very, very unlucky.”
A source with knowledge of Iranian rug retailing responded that invoice manipulation is “very common”—and indeed reflects business as usual in Iran. Another source, an Iranian businessman who formerly worked as a financial middleman for the regime—and quite reasonably requested I not reveal his identity, for safety’s sake—expanded on the details and extent of the practice: “Say a carpet is worth $3,000, but the importer shows it for $20,000 on their invoices or packing lists. The guy that buys it here in the U.S., the client, pays that $20,000. Then $17,000 will be given by the merchant to an exchange guy.”
At which point the original client will tell the “exchange guy” where to send or how to spend the clean $17,000 stateside. “It is laundering money,” this source insists. It’s “like a Western Union,” he says, “but nothing is on paper.”
Tuition for children to attend American college or allowances for family members overseas, he says, are common endpoints for funds moved thusly through over-invoicing—but so, in his experience, are flashy cars and expensive real estate.
If Manafort was in fact using rug dealers to hide his money, as reporting suggests: “Manafort did it in the wrong way. It was a joke. He could have hid that money very easily, but he didn’t,” he says. “When I read the indictment, I thought, ‘OK, this was just his pocket money. He got a kickback.’ But I was just upset he ruined the whole $18 million, that they were able to trail it.” It was painfully obvious, he says, that Manafort employed a truly terrible tax adviser—or none at all. “I was surprised this guy, the famous lobbyist working with the Ukrainian government, could not hide his transactions.”
John Madinger, on the other hand, was impressed when I described the dealing. And he should know: He cracked money-laundering cases for the Internal Revenue Service from 1988 to 2010. “I’d say it’s a pretty good scam actually,” he said—particularly considering the innocent appearance of a scammer’s indulgence in fine rugs. “The Persian rug thing is a nice angle, it really is, because you’re dealing in something that doesn’t look like illegal proceeds and doesn’t get tracked by the government.”
Cars, precious gems, and cash would catch the attention of Madinger’s former colleagues. Rugs less so. “These guys can sell it at a loss. When they only want to move their money, they don’t care about a profit. People like me go look at somebody and say, ‘Where did you get all that money?’ And the guy can say, ‘Look, here’s a legitimate transaction: I imported these rugs.'”
This type of value transfer just wouldn’t light up the feds’ radar on its own anyway—which explains why so many small-time crooks slip through the cracks, he says. “It happens all the time with businesses. It happens daily. We call it ‘trade-based money laundering,’ and they never move cash—they only move property. It’s probably the biggest form of money-laundering there is.”
An auction house specialist and expert in the high-end rug market, who broached the topic of fast-and-loose value transfer via Persian carpets on the condition of anonymity, laughed when I asked her whether it’s an especially common practice. “You’re asking me whether people launder money through art objects? Of course they do.” Porcelain and rugs are particularly attractive to bad actors, she explained, because their market value is invisible to an unsophisticated observer.
My Iranian source, meanwhile, says he has an eye for rugs. In London, a number of years ago, he spotted one hanging in shop window that was identical to his parents’ carpet back home in Iran. The salesman out front said he could have it for 50,000 pounds sterling—but, when my source said he owned an identical one, the salesman offered to buy the twin rug for just 3,000. “These people could not survive on normal transactions,” he assures me. “It’s all about the over-invoicing. They get their kickback somewhere else.”
