Private lawsuits against Iran for injuries caused by terrorist acts have generated billions of dollars in damage awards in U.S. courts. In 2016, Iran filed suit in the International Court of Justice (ICJ) alleging that these proceedings, and the seizure of certain Iranian assets to satisfy the judgments, violate international law. Last week, the ICJ issued its judgment on the United States’s preliminary objections to Iran’s claims. Perhaps not surprisingly, reactions to the judgment differed. The United States issued a statement that “the Court saw through Iran’s effort to distort the 1955 Treaty of Amity [between the two countries] and rejected Iran’s core arguments.” By contrast, the Tehran-based Financial Tribune carried the headline “ICJ Rejects U.S. Objection.” This post unpacks the judgment in the context of U.S. statutes that permit private litigation against designated state sponsors of terrorism, including Iran.
The financial stakes in the ICJ case are high. But there is more than money involved, as the litigation pits a repressive regime against a country that was instrumental in building many of the mechanisms for peaceful resolution of international disputes that it now appears to be walking away from. This post identifies key take-aways from the judgment on preliminary objections, which allows certain claims by Iran to proceed to the merits stage. (As with all the contributions I have made to public discussions of international legal issues since leaving the State Department Legal Adviser’s office, I offer this analysis solely in my personal capacity as an international lawyer and law professor and based solely on the public record.)
There are now two pending cases in the ICJ involving claims by Iran against the United States, each of which has been assigned a descriptive title per ICJ practice. In the Certain Iranian Assets case, Iran alleges that the United States has violated provisions of the 1955 Treaty of Amity between the two countries by allowing private lawsuits to proceed against Iran for injuries resulting from acts of international terrorism, and by allowing attachment of property of certain Iranian state-owned companies (including the Central Bank of Iran, also known as Bank Markazi) to satisfy default judgments obtained in these lawsuits. By Iran’s account, these judgments totaled over $56 billion ($30 billion of which consists of punitive damage awards) as of June 2016.
In a second case, Alleged Violations of the 1955 Treaty of Amity, Iran alleges that the United States’s reimposition of sanctions following its withdrawal from the Joint Comprehensive Plan of Action (JCPOA) violates its obligations under the Treaty of Amity. Even though the United States indicated last October that it was terminating the Treaty of Amity (which is permitted by the treaty’s terms one year after a party gives written notice), the termination does not retroactively affect the ICJ’s potential jurisdiction over Iran’s claims. (Separately, the United States and Iran are also still engaged in arbitral proceedings before the Iran-U.S. Claims Tribunal, which was established to resolve claims arising from the 1979 hostage crisis and subsequent freezing of Iranian assets in the United States.)
The Certain Iranian Assets Case
As noted above, the Certain Iranian Assets case centers on terrorism-related judgments rendered against Iran in U.S. courts, and plaintiffs’ efforts to satisfy those judgments by attaching Iranian assets. As a threshold matter, Iran strongly disputes that it has sponsored terrorist acts. However, when it was sued in U.S. courts for supporting various terrorist acts that killed and injured U.S. nationals, Iran refused to present arguments or evidence to defend itself, on the grounds that it is entitled to foreign sovereign immunity from suit. In other words, in Iran’s view, any proceedings against it are impermissible based on the international law principle that one country’s public acts cannot properly be subject to adjudication in another country’s courts.
The immunities of sovereign states from civil proceedings in U.S. courts are governed by the Foreign Sovereign Immunities Act (FSIA), under which Iran is not immune from suit for certain acts of international terrorism. In one of the most significant groups of cases brought against Iran, a U.S. court found Iran liable for its role in the 1983 bombing of the U.S. Marine barracks in Beirut, Lebanon that killed 241 service members. It subsequently awarded a total of over $8.8 billion in damages to victims of the bombing and their families. Plaintiffs sought to collect this judgment in part by attaching $1.75 billion in blocked assets of the Central Bank of Iran that were held by the Luxembourg-based international central securities depository Clearstream in a custodial account with Citibank in New York.
Ordinarily, the assets of a country’s central bank would be immune from execution to satisfy private claims. In 2012, however, Congress enacted the Iran Threat Reduction and Syria Human Rights Act. Among other provisions, the legislation abrogated the immunity from execution of the assets in the Citibank custodial account sought by victims of the Beirut bombing and other judgment-holders. The constitutionality of this provision was challenged on the grounds that it usurped the judicial role of determining the result in a pending proceeding, but the Supreme Court upheld the law in April 2016. Two months later, Iran filed its application instituting proceedings before the ICJ.
In the application, Iran argues that the United States violated the Treaty of Amity by, among other things, failing to recognize the separate juridical status of state-owned entities such as Bank Markazi, and by abrogating “the immunities to which Iran and Iranian State-owned companies, including Bank Markazi, and their property, are entitled under customary international law and as required by the Treaty of Amity.” The judgment handed down in Certain Iranian Assets addresses the United States’s preliminary objections to Iran’s application, as detailed below.
The State Sponsors of Terrorism Exception
In order to understand the crux of Iran’s claims against the United States, it is helpful to zoom out and consider the landscape of exceptions to foreign sovereign immunity under U.S. law. (Readers familiar with this landscape are invited to jump straight to the analysis of the ICJ decision in the next section.) As many Just Security readers know, the Foreign Sovereign Immunities Act (FSIA) provides jurisdiction over certain types of civil claims against foreign states and their agencies and instrumentalities—primarily, but not exclusively, those related to commercial activities carried out by the foreign state with a nexus to U.S. territory. (I have argued in another post that the FSIA neither authorizes nor precludes criminal proceedings against foreign sovereign entities, but the Supreme Court has yet to resolve this question.)
The FSIA also specifies a narrower set of circumstances under which a foreign state’s assets can be used to satisfy a monetary judgment. Notably, it provides stronger protection for assets held by a foreign state’s central bank for its own account (i.e., currency reserves) than for other liquid assets. This is important because, as Ingrid Wuerth has noted, central bank property can be an attractive target for judgment creditors seeking to satisfy a judgment against a foreign state.
Enter the state sponsors of terrorism (SST) exception to immunity under the FSIA. The Secretary of State has the authority under U.S. law to designate a state as a sponsor of terrorism. Currently, four states are subject to sanctions and foreign assistance restrictions associated with this designation: North Korea, Iran, Sudan, and Syria. A further consequence of this designation is exposure to certain claims under § 1605A of the FSIA, which provides that:
A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case not otherwise covered by this chapter in which money damages are sought against a foreign state for personal injury or death that was caused by an act of torture, extrajudicial killing, aircraft sabotage, hostage taking, or the provision of material support or resources for such an act if such act or provision of material support or resources is engaged in by an official, employee, or agent of such foreign state while acting within the scope of his or her office, employment, or agency.
This provision allows suits against a foreign state for the enumerated acts if the state was designated as a SST at the relevant time, and if the act injured a U.S. national, member of the U.S. armed forces, or U.S. government employee. In response to concerns raised by plaintiffs who had difficulty collecting on default judgments issued in these cases (and, some might add, intense pressure from their attorneys), Congress enacted legislation allowing judgments to be executed against certain frozen assets of SSTs (§ 1610(f)), as well as paid from certain U.S. funds appropriated for that purpose. The initial appropriation totaled $1.025 billion in U.S. taxpayer funds, with up to 25% going to attorneys’ fees.
The enactment of 22 U.S.C. § 8772 takes this legislative practice of aggressively facilitating recovery from SSTs to an extreme by explicitly rendering the specific blocked assets identified and restrained by plaintiffs in the Peterson v. Islamic Republic of Iran proceedings subject to execution. There are other recent examples of legislative activity and interest in this area, including the Justice Against Sponsors of Terrorism Act (JASTA), which removes obstacles to certain lawsuits against Saudi Arabia (which is not a designated SST) arising from the 9/11 attacks, and the Anti-Terrorism Clarification Act, which removes obstacles to certain terrorism-related lawsuits against the Palestinian Authority (which the U.S. does not consider a foreign state), both of which pose additional legal and foreign policy challenges. One House committee went so far as to request the GAO to prepare a report on how to improve timeliness of service of process on SSTs in terrorism-related suits.
Complications of a Compensation Regime Based on Private Litigation
The Congressionally-endorsed strategy of seeking compensation for U.S. nationals through private litigation rather than diplomatic negotiation (which succeeded with previously designated SST Libya and has been discussed with previously designated SST Cuba) can pose challenges for the conduct of U.S. foreign policy, and raises the specter of reciprocal suits and asset seizures by foreign plaintiffs against the United States. When then-State Department Legal Adviser Will Taft testified in support of a federal compensation program for U.S. victims of international terrorism in 2003, he stated:
The current litigation-based system of compensation is inequitable, unpredictable, occasionally costly to the U.S. taxpayer, and damaging to the foreign policy and national security goals of this country.
As a general matter, the Executive Branch can bring a broader perspective to the question of whether to allow private litigation against foreign states and what to do with frozen foreign assets than members of Congress who (understandably) feel compelled to respond to the more immediate demands of constituents seeking compensation. Notably, JASTA came into law only after Congress overrode a presidential veto.
Courts have imposed some outer limits on the private litigation regime: for example, when judgment creditors attempted to secure payment by attaching and executing on collections of Persian antiquities loaned by Iran to the University of Chicago, the Supreme Court held that the FSIA did not permit such attachment.
The ICJ’s Judgment on Preliminary Objections
The ICJ only has jurisdiction in contentious cases when States have agreed to submit their disputes to it, either in advance or on an ad hoc basis. As in domestic judicial proceedings, jurisdictional challenges are often made at the threshold of litigation, and proceedings may be bifurcated into jurisdictional and merits phases. Drawing the line between jurisdiction and merits can be tricky, and the ICJ sometimes addresses the two together at the merits stage. If the ICJ does not find the requisite State consent to jurisdiction, it will decline to adjudicate the merits of the dispute. That is what the United States asked it to do in Certain Iranian Assets.
This week’s judgment only deals with whether the ICJ will proceed to the merits stage on any of Iran’s claims. (It will, on a few.) At that stage, with more facts in the record, the ICJ could still determine that it lacks jurisdiction over some of the remaining claims. Such a determination, and any merits judgment, are likely several years away.
At this threshold stage, to show U.S. consent to jurisdiction, Iran argued that all of its claims are based on alleged violations of the Treaty of Amity, which contains a dispute resolution clause that gives the ICJ jurisdiction over disputes about the Treaty. The U.S. countered that Iran was invoking the Treaty as a pretext to get the ICJ involved in a dispute about the customary international law of foreign sovereign immunity, and that Iran’s claims fall outside the scope of the Treaty. (If you haven’t previously watched ICJ proceedings, you can find all 16 hours of the oral arguments on these points on the ICJ website.)
Since the ICJ does not have free-standing authority to adjudicate international law claims between States, the only basis for ICJ jurisdiction over this dispute is the “compromissory clause” in the Treaty of Amity between Iran and the United States. This provision, like many similar dispute resolution clauses, indicates:
Any dispute between the High Contracting Parties as to the interpretation or application of the present Treaty, not satisfactorily adjusted [i.e. resolved] by diplomacy, shall be submitted to the International Court of Justice, unless the High Contracting Parties agree to settlement by some other pacific means.
Iran alleges that the state sponsors of terrorism lawsuits and judgments violate substantive provisions in the Treaty guaranteeing protections to Iranian companies and nationals. The United States filed preliminary objections to the ICJ’s jurisdiction over this dispute, and to the admissibility of the case, on several grounds, including that Iran’s claims fall outside the scope of the Treaty, and that Iran’s attempt to invoke ICJ jurisdiction over this dispute given its documented history of support for international terrorism amounts to an abuse of process.
The Treaty of Amity was designed primarily to protect one country’s companies in the other country’s territory. Most Friendship, Commerce & Navigation (FCN) treaties from this period focused on reciprocal protection of nationals and their investments, as a precursor to modern-day Bilateral Investment Treaties (BITs). The United States argued that the 1955 Iran-U.S. treaty falls into this category, and the ICJ agreed.
In last week’s judgment, the ICJ’s determined that “the question of sovereign immunities” does not fall within the scope of the Treaty of Amity. This means that the ICJ will not adjudicate Iran’s broad claims that proceedings under the SST exception to the FSIA violate the United States’s international legal obligations. Simply put, the ICJ does not have jurisdiction over Iran’s claims that the U.S. has violated its sovereign immunity. Notably, the ICJ found (by a vote of 11 to 4):
The “international law” in question in this provision [of the Treaty] is that which defines the minimum standard of protection for property belonging to the “nationals” and “companies” of one Party engaging in economic activities within the territory of the other, and not that governing the protections enjoyed by State entities by virtue of the principle of sovereign equality of States. … Taken together, these provisions clearly indicate that the purpose of Article IV is to guarantee certain rights and minimum protections for the benefit of natural persons and legal entities engaged in activities of a commercial nature. It cannot therefore be interpreted as incorporating, by reference, the customary rules on sovereign immunities.
This interpretation means that the ICJ will not undertake a broad examination of principles of foreign sovereign immunity under customary international law in this case as Iran invited it to do, and as it did (with the parties’ consent) in a previous case between Germany and Italy.
Iran also argues that its central bank (Bank Markazi) qualifies as a “company” entitled to protection under the terms of the Treaty, which (among other protections) guarantees fair and equitable treatment and prohibits “unreasonable or discriminatory measures” against one country’s companies in the other country’s territory. The ICJ agreed unanimously to defer this question to the merits phase, when it will look more closely at the “nature” of the bank’s activities. It observed that “the legal person in question should be regarded as a ‘company’ within the meaning of the Treaty to the extent that it is engaged in activities of a commercial nature, even if they do not constitute its principal activities.” A company engaged in commercial activities (even if it is owned by a foreign state) generally does not enjoy foreign sovereign immunity for those activities under either the FSIA or international law, but it would arguably enjoy certain protections enumerated in the Treaty.
The ICJ also deferred consideration of the United States’s argument that the Treaty’s exemptions for arms control measures and measures necessary to protect a party’s “essential security” preclude U.S. liability and deprive the ICJ of jurisdiction over Iran’s claims. The ICJ cited a previous case between Iran and the United States involving the Treaty of Amity (in which a current ICJ judge, James Crawford, represented Iran) to note that “the Treaty of Amity contains no provision expressly excluding certain matters from its jurisdiction.” It therefore saw “no reason in the present case to depart from its earlier findings” that these carve-outs could provide the United States with affirmative defenses on the merits but did not preclude the ICJ from exercising jurisdiction over the dispute.
Likewise, the ICJ determined unanimously that the United States’s objections to the admissibility of Iran’s claims on the grounds that Iran was attempting to abuse the judicial process by bringing the claims, and that Iran had “unclean hands” based on its sponsorship of an support for international terrorism and destabilizing pursuit of nuclear weapons capabilities did not warrant dismissing Iran’s claims as categorically inadmissible (which, as the United States acknowledged, the ICJ has never previously done in response to a “clean hands” argument).
Some Implications of the Judgment Going Forward
Those who heralded this judgment as an Iranian victory correctly point out that elements of the Bank Markazi saga will continue to be litigated in the ICJ. That said, the core of Iran’s complaint that the United States violated its sovereign immunity will not proceed.
If Iran seeks some sort of injunctive relief with respect to the blocked assets pending final disposition, similar to its request in the Alleged Violations of the 1955 Treaty of Amity case, it could create another Medellin-type situation that tests the direct application of international law in the U.S. legal system. That said, because currency (unlike artifacts) is fungible, distributing the blocked Bank Markazi assets would arguably not risk causing any irreversible harm.
As a final observation, it is ironic that the very Executive Branch lawyers who have consistently warned Congress about the potential adverse foreign relations consequences of the SST exception and related legislation are the ones who are now tasked with fending off challenges to the results of Congress’s handiwork (among other measures) before an international court. In the current international environment, it is noteworthy that two of the world’s most bitter adversaries are currently confronting each other with words rather than weapons to resolve this outstanding dispute.
IMAGE: The International Court of Justice in The Hague, The Netherlands, on January 27, 2014. (Photo by BAS CZERWINSKI/AFP/Getty Images)