RPT-INSIGHT-Tweak to
US bill on Iran sanctions opens door to damages
Mon Aug 27, 2012 By
Basil Katz
Section 502 of the Iran Threat Reduction
and Syria Human Rights Act of 2012 lifts the Central Bank of
Iran’s immunity under the Foreign Sovereign Immunity Act of 1976 and
effectively neuters the Bank’s defences in a case pending before the US
District Court for the Southern District of New York in which plaintiffs are
seeking to seize $1.75bn or Iranian assets to enforce an earlier judgment
against Iran awarding $2.65bn in damages for its involvement, via Hezbollah, in
the Lebanese civil war.
* Bill could unfreeze
$1.75 billion for 1983 bomb victims
* Washington suspects Iran role
in US Marine barracks attack
* Iran says sovereign
immunity doctrine protects from payout
NEW YORK, Aug 24
(Reuters) - One way to win a court case is to get the United States Congress to
change the rules of the game midstream.
A little-noticed
provision tucked into the latest Iran sanctions bill may have done just that
for American victims of a 1983 bombing of the U.S. Marine Corps barracks in
Beirut.
The sanctions bill, signed
by President Barack Obama on Aug. 10, set out additional penalties against
Tehran to curb the country's nuclear ambitions.
The bill also
specifically disarms claims the Central Bank of Iran has made in a legal battle
in federal court in Manhattan over $1.75 billion in securities frozen in a New
York bank account that the central bank says it owns.
The plaintiffs in that
case are trying to get Tehran, through the Central Bank of Iran, to pay damages
for Iran's suspected role in helping Hezbollah carry out the barracks attack
during the civil war in Lebanon.
The $1.75 billion was
uncovered by the U.S. Treasury Department in 2008 and sits in a New York branch
of Citibank, part of Citigroup. Treasury says the money is effectively Iranian
funds.
The Beirut plaintiffs'
lawsuit, filed in 2010, argues that the funds should go toward paying a $2.65 billion
damages award they obtained against Iran in 2007 and have so far been unable to
collect.
In court papers, the
Central Bank of Iran has argued that the funds are off limits from
seizure under the doctrine of sovereign immunity, which holds that
foreign states or their agents are not subject to another nation's laws.
But Section 502 of the
sanctions law, officially known as the Iran Threat Reduction and Syria Human
Rights Act of 2012, takes direct aim at that defense.
The section specifically declares that the Central
Bank of Iran "is not immune" under the Foreign Sovereign Immunities Act of 1976, the U.S.
law that Iran's central bank claims protects its funds from seizure.
It also states that
the "financial assets that are identified" in the Manhattan case
"shall be subject to execution or attachment ... to satisfy any judgment
to the extent of any compensatory damages awarded against Iran."
Over the years, there
have been billions of dollars in default judgments against Iran levied by U.S.
courts in favor of Americans, but never collected. Language in the latest
sanctions bill, which could be subject to legal challenge, appears to have
brought the plaintiffs in the Manhattan case closer to seizing actual funds
than in any other case.
David Lindsey, a New
York-based lawyer for the Central Bank of Iran, also known as Bank Markazi,
acknowledged that the new sanctions law could affect the Manhattan case.
"The purpose of
this 10th inning change in the law was to do away with our defenses,"
Lindsey said. "No allegations have ever been made that the Central Bank
of Iran was involved in the 1983 attack," he said.
Steven Perles, a
lawyer for the Beirut plaintiffs, declined comment. The case was brought on
behalf of Deborah Peterson, the personal representative of one of the deceased
servicemen, and encompasses hundreds of individual plaintiffs.
"If this section
stands, it does seem to overcome any defenses Iran might have," said
Julian Ku, a professor at Hofstra University's School of Law.
Ku, who called the
statute modification "unusual," said that "if the payment is
made, I think it would be the first such payment, and certainly the largest
ever paid out in a U.S. court against Iran."
To be sure, the
plaintiffs must file supplemental briefs in light of the new legislation, and
the judge must eventually decide whether to order that the funds be turned over
- a process that could still take years.
A BIG ASSIST FROM
CONGRESS
While Congress has
previously intervened to help terrorism victims obtain compensation from
foreign states, it is rare for a law to directly address an
active case, legal experts said.
"There is
precedent for massive payouts, but this is a little bit unusual because it
changes a law about Iranian sovereign immunity in just one case," said
Roger Alford, a professor at the University of Notre Dame Law School. "How
did the lawyers get Congress to do that?"
The amendment was
introduced last winter by Senator Robert Menendez, a New Jersey Democrat. A
senior aide to Menendez said the lawmaker's efforts were spurred on by a visit
from a victim's family from his home state.
The aide, who spoke on
condition of anonymity, said the purpose of the legislation was to ensure that
claims against Iran were in fact actionable.
"The amendment
sends a message not just to Iran but to the other states that support terrorism
that the U.S. will allow the seizure and attachment of assets to satisfy
judgments against those countries," the aide said.
Experts and lawyers
involved in such cases said the defendants in the Manhattan case may seek to
challenge the constitutionality of Congress changing the statute, but that
this would likely be a losing battle. One way would be to argue that the
legislative branch had improperly interfered with judicial matters.
'INNOCENT THIRD PARTY'
There is another
wrinkle in the claims over the $1.75 billion held in a Citibank account. The
money was deposited there by Luxembourg-based bank Clearstream, which holds
Iranian funds in accounts in Luxembourg.
Clearstream said in
court papers in July that if it is forced to turn over the $1.75 billion in New
York, it may be barred from docking an equivalent sum from a Bank Markazi
account in Europe because of European sanctions against Iran.
Clearstream has argued
that since the Iranian assets were booked in Europe, they could not be
considered to be in the United States.
The sanctions law,
however, said that a sum held in the United States that was "equal in
value" to Iranian assets held abroad could be attached.
A spokesman for
Clearstream's law firm, White & Case, declined comment.
FEEDING FRENZY
Ever since the
Menendez amendment was introduced, other groups of plaintiffs who have won
judgments against Iran have expressed interest in getting a piece of any
possible payout.
Lawyers close to the
case in New York say the $1.75 billion would currently be shared among about
1,350 people, which includes families of victims of a 1996 truck bomb attack at
a U.S. military complex in Khobar near the Saudi Arabian oil city of Dhahran.
The attack killed 19 soldiers and injured nearly 400.
Five days after Obama
signed the sanctions bill, the Peterson plaintiffs sued London-based bank
Standard Chartered seeking compensation over its concealment of Iran-linked
transactions, citing the Beirut bombing, which killed 241 U.S. servicemen.
Experts say the U.S.
State Department has been reluctant to push for enforcement of existing money
judgments against Iran because they could serve as a potential lever in
negotiations with Tehran, while levying the $1.75 billion would have only a
minimal impact.
"While the assets
involved are substantial," said Suzanne Maloney, a former State Department
adviser who now works at the Brookings Institution's Saban Center for Middle
East Policy, "I don't believe they are perceived as a meaningful
bargaining chip with Tehran on the nuclear issue or other elements of concern
with respect to Iranian policy."
The case is Peterson
v. Islamic Republic of Iran, U.S. District Court for the Southern District of
New York, No. 10-cv-04518.
