Iran and U.S. Sanctions
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U.S. Sanctions on Iran mean freezing assets: Are there any left to freeze?

With President Trump’s reinvigorated sanctions on Iran, the freezing of Iran’s assets anew would affect any ongoing or pending terrorism litigation. Usually when the media talks about victims of terrorism, they are referring only to Americans, when in fact, many of the victims of terrorism concerning Iran are members of the Iranian diaspora, people who have migrated from the Middle East in general and have been attacked by their native country while living in the US or Europe. The other issue left out of mainstream media is that there is legislative overlap: Foreign Sovereign Immunities Act (FSIA), the Terrorism Risk Insurance Act (TRIA), and the Joint Comprehensive Plan of Action (JCPOA) known as the nuclear agreement.

Most people think that sanctions on Iran began with the American Hostage Crisis during the Islamic Revolution in 1979, but actually started earlier leading to the taking of the hostages. To explain this and the interplay between the FSIA, the TRIA, and the JCPOA, it is necessary to go back further than the hostage situation. After the overthrow of Prime Minister Mossadegh in 1953, Mohammad Reza Pahlavi became the sole figurehead of power in Iran and the last monarch. The overthrow was lead by the British and American intelligence operations:  Operation Boot and Operation Ajax. This event sealed a firm alliance with the Shah followed by the creation of Iran’s nuclear energy program, Iran’s membership in the Nuclear Non-proliferation Treaty, and a friendly trade agreement known as the Treaty of Amity.

 

The Foreign Military Sales Account

As the 1960s and 1970s progressed so did Iran’s nuclear program. Iran saw an increase in the quantity of military equipment, particularly American-made aviation and weaponry. This equipment was purchased from private contractors through a Foreign Military Sales (FMS) account with the US. This was largely paid for with income from oil exports which was Iran’s main source of income, and Iran eventually became a member of OPEC. The Shah also instituted an intelligence arm called SAVAK which was based on the American CIA.

However, with the overthrow of the democratically elected prime minister, leftist opposition to the Shah and militant Islamic groups active in the region were targeting the Shah and his allied western affiliates. These leftist and anti-western sentiments can actually be traced back to the end of the 1800s and early 1900s, but with the 1953 coup of Dr. Mossadegh, this opposition came into full flower in the form of underground nonviolent political intelligentsia and violent professionalized guerrilla groups.

 

The First Frozen Assets

By 1978, Iran was in the throes of revolution and defaulted on payments to the FMS fund. Emerging Iranian leaders canceled orders on major weapons systems. The US continued to carry the FMS and paid some contractors with funds diverted from other areas. While in default the revolution in Iran progressed, foreign-owned properties were confiscated and nationalized. Foreign investors like Pak Dairy sued Iran in the Hague. In 1979, 52 Americans were taken hostage from the American Embassy in Iran. US President Carter declared a national emergency and blocked removal or transfer of all property and interests in property of Iran subject to jurisdiction in the US. In turn, the US Treasury Department issued restrictions and newly installed Iranian officials repudiated Iran’s foreign obligations.

At the same time, the Iranian revolution instituted the Ministry of Information and Security (MOIS) and revolutionary courts in Iran to purge internal opposition to the Khomeini regime. Some members of the Shah’s government were being assassinated and others tried in the revolutionary courts and executed. Saddam Hussein chose this moment to invade the much weakened Iran but Iranians rallied behind the Islamic regime in solidarity. Some Iranians who opposed the new regime or for safety fled the country and headed for the US, Europe, or other safe havens. The US supported Iraqi aggression, because Iran continued to hold Americans hostage. By 1981, Iran filed a claim against the US and the US filed a counterclaim for $817m. The US Department of Defense froze the FMS account at 400m. With payments to US contractors not being issued, motions were made to pay contractors with assets in Iran’s FMS account controlled by DoD. Iran continued to execute member’s of Mohammad Reza Pahlavi’s regime in Iran and abroad.

 

Diplomatic Immunity Granted

With his inauguration, President of the United States Reagan bartered for the release of the 52 American hostages. This deal was known as the Algiers Accord which in exchange for the hostages’ release granted Iran diplomatic immunity. In 1982, Israel invaded Lebanon, and Iran sent forces there for the fight against Israel. The UN put forth a peace-keeping mission of American Marines with some European support. With the trade embargoes in place and Iran granted diplomatic immunity, more American hostages were taken in Lebanon by Iranian terrorist proxies and exchanged for cash payments and embargoed material needed to fight Iran’s war with Iraq. Terrorist attacks were also executed on American military and civilians in Lebanon including the US Marine Barracks and the American Embassy in Beirut amidst the hostage exchange known as the Iran Contra affair. During this time, the Iranians restarted their nuclear program in response to Saddam Hussein’s WMD program. Underground material assistance came from the AQ Khan network, Pakistani models known as the P-1s. Iran’s main ally during the Iran-Iraq War was Syria.

U.S. citizens sue Iran over terrorist incidents
Credit: The Times of Israel
News Clipping Iran Chain Killings
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Parvaneh and Dariush Forouhar Assassinated
Credit: Parastou Forouhar
Dr. Abdul Rahman Ghassemlou Assassinated
Credit: Medya Magazine

The Iranian Chain Killings

Throughout the 1990s, Iran carried out a series of attacks on Iranian dissenters known as the chain killings. These took place both inside and outside the country known as, “extrajudicial killings.” The most famous of these is the assassination of the Shapour Bakhtiar in France and the Mykonos incident in Germany. Iran also continued to build up its military apparatus and nuclear program with black market goods as well as ongoing sponsorship for terrorist aggression. One of the most famous 1990s attacks that took place was the Khobar Towers bombing in Saudi Arabia. By 2001, numerous banks, companies, terror organization, mosques, charities, and individuals had assets blocked and frozen by OFAC constituting lists of entities providing material aid to Iran or illegally trying to access the US financial system from Iran. The September 11 attacks on the US brought about the US decision to hold foreign governments accountable in domestic courts.

US President Bush and later President Obama issued legislation making Iran’s government accountable for acts of terrorism through the Foreign Sovereign Immunities Act (FSIA) and later the Terrorism Risk Insurance Act (TRIA) which meant that survivors and family members who lost someone in a kidnapping or terror attack or extrajudicial killing could file claims on the Iranian government for damages and then attach writs to Iranian properties held in the US for those damages. This means that not only could hostages and victims of bombings file claims against Iran, but all of the Iranians who had suffered attacks from 1979 onwards, including from the 1980s reign of terror, the chain killings of the 1990s, and so on. Some like the wife of Shapour Bakhtiar whose husband was killed in France sued Iran through both France and the United States courts.

Some Iranian expats have struggled with the issue of citizenship in countries where they would like to file claims on the Iranian government, and so there are communities currently waiting in Canada or Italy, for example, on their citizenship status so that they may sue the Iranian government. Of the claims made by Iranians who successfully gained citizenship many were successful and judgments were awarded against the Iranian government. However, problems began to arise about the intel collected, the independence of certain terrorist organizations, and to what extent did the Iranian government own the property to which judgments were issued on. At this point in history, it can be said that these claims against the Iranian government were a core reason as to why some of the government’s property was dumped into the private sector and for some of its financial schemes like U-turn transactions. In U-turn transactions, Iranian clients move money through non-Iranian foreign banks, change the local currency from the foreign bank to dollars, and collect the dollars through the foreign intermediary. Through the operation of this system, the U.S dollars could freely move through the global market without putting American business in direct contact with Iran. The U-turn bank transactions are used to obfuscate the title on the funds subject to banking transactions.

One also has to keep in mind that as terrorism litigation was being fought by the Iranian government illegal transactions between companies created for example in the US, with the sole purpose of circumventing the U.S. stopping the flow of money into Iran, were being discovered and stopped from sending money to Iran. It is not uncommon to see in the indictments of sanctions violations a pattern of behavior as an entity usually one or more Iranian nationals with ties to the Iranian government would open a fake business on 5th Avenue in NYC for example with a fake bank account and run a number of transactions to Iran. Upon OFAC catching this, freezing the account and assets, the entity would then change the name and open a new account and run the scheme again.

The majority of indictments for sanctions violations are in fact on Iranian nationals including ex Iranian military and some charities including mosques operating in the US with ties to Iran. They also show common routing through Malaysia and UEA. So the “regime of sanctions” often depicting the US and Iranian companies as victims were really targeting entities of the Iranian government rather than alienating US-Iran peaceful trade. The illegal transactions were mainly defense articles and some dual use. So these accounts were piling up. However, it was the US banks that were paying out the heavy penalties, rather than Iran. This is why even after the nuclear agreement, many banks continued to be very dubious about facilitating any transactions with Iran.

 

85% of Financial Awards to the US Federal Government per TRIA

While the Iranian government has invested substantially in fighting terrorism litigation in the courts, this has taken place against the ongoing backdrop of covert narratives playing out in relation to Iran’s nuclear program and ongoing international conflict. Within this covert action dialogue problems have occurred over the handling and interpretation of CIA and FBI gathered intel and evidence used in the litigation and in the pursuit of writs on Iranian assets to pay claims. One could say that in the absence of diplomatic relations, Iran and the US were communicating instead through a mixed dialogue of covert action and legal dispute. What was happening in the courts would be responded to in the field and what happened in the field affected the outcome of the courts.

With respect to 9/11 and TRIA, the Obama administration reissued this legislation, he divided these assets so that awarded judgments to victims of terror would be split between the victims and the federal government introducing a government stake in the claims beginning at 85% to drop down over a period of time to 80%. This is a large commission on terror-related crime. At the same time, events are building up the nuclear agreement. The gesture perhaps made the sting of sanctions a tad bit stronger, but overall with Russia and China trading with Iran, and the cyber attacks on nuclear facilities being compromised, the nuclear negotiations proved a welcome site.

 

Competition for Frozen Assets in the Nuclear Deal

While negotiations for the Nuclear Deal were playing out Iran was pushing for the frozen assets from Iran’s previous regime, under the Shah and frozen during the 1979 Revolution and from sanction violations after, to be released. Though some of the funds in question had been paid out already many were still going through the process of appeals. The primary focus for the nuclear negotiations for the US was nuclear weapons as such so many other factors that were deemed less serious by the U.S. were actually important to the Iranian government and were simply reduced to bargaining chips. Also in play were the companies that stood to gain from the reduction of sanctions and resumed trade between companies like Boeing and Bell Helicopter and Iran. It was argued in order to resume trade, most or all of the entities that were listed by OFAC would become delisted in the nuclear agreement including both companies and individuals. Obama released the frozen assets Iran requested and also made a large purchase of Iran’s heavy water for fear it could be sold to an enemy and reduced sanctions to open trade. Heavy water is used in certain nuclear reactors acting as a neutron moderator slowing down neutrons so that they are likely to react with uranium capturing neutrons without fissioning. Its essential to most nuclear programs and Iran’s threat to sell to countries that dislike the United States was worrisome.

On the heavy water, a market value was established, on the frozen assets, what soon transpired was that Iran had received part of these assets then filed a claim on the US in the Hague for the remaining sum. It is not unreasonable to gather that future trade partners of Iran had a competitive interest in the assets with Iran’s agenda to utilize international trade in order to invest in its port, mining, transportation, and other infrastructure facilities. With these infrastructure costs in mind, Iran appealed to the Supreme Court case hearing Bank Markazi vs Peterson.

 

Nuclear Agreement Does Not Hold

The Supreme Court ruled in favor of Peterson, enabling the victim’s families and survivors to finally receive restitution. Of the cases that have been tried and judgment and compensation issued to victims families, there were complaints by critics of the rulings, who objected to the politicization of the trials and the perceived interference of President Obama in the judicial branch. It is possible or plausible that the frozen assets were to be divided between Iran and the US with Iran using part of its share of the money to pay US and European companies in resulting trade agreements and part going to victims of terrorism which 85% would go to the US federal government. The ICJ has yet to conclude matters on the U.S. in Certain Iranian Assets (the Islamic Republic of Iran v. the United States of America) ; meanwhile the Nuclear Agreement did not succeed on its chief mission to curb Iran’s military and terror belligerence leading to deteriorated diplomatic relations as predicted in a private study by Archival Institute Fellows. President Trump has pulled out the nuclear deal but one law firm remarked on the continued interest of the private sector in hearings involving Iran and the United States.

“But because investment treaties and arbitration have made international law more directly relevant to global business, the workings of such international legal institutions can sometimes matter more to the private sector than many companies may think.” speculated  Joshua M. Robbins from Baker & Hostetler LLP as Certain Iranian Assets (Islamic Republic of Iran v. United States of America) was scheduled for hearing in June 2018.

While the appeal is still pending in the ICJ at this point in time it appears President Trump and Iran will negotiate a new deal, hopefully, one that remedies previous legislative shortcomings to do with nuclear proliferation, terrorism, and international trade. The nuclear agreement did not pave the way for successful trade relations but left many obstacles and challenges facing the private sector and it was never ratified in the Iranian parliament. This tactic was used in the Azerbaijan Crisis in 1947 to keep Iranian oil from the Soviets. Nor did the agreement of 2015 specify a jurisdiction meaning it could not be enforced. The new deal will hopefully allow for closer monitoring of the nuclear program as well as an optimized environment for international trade.

 

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