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Home EJIL Analysis Is there a place for sovereign immunity in the fight against terrorism? The US Supreme Court says ‘no’ in Bank Markazi v. Peterson

Is there a place for sovereign immunity in the fight against terrorism? The US Supreme Court says ‘no’ in Bank Markazi v. Peterson

Published on May 19, 2016        Author: 

The US Supreme Court’s judgment of 20 April 2016 in the case of Bank Markazi, aka The Central Bank of Iran, Petitioner v. Deborah Peterson, et al. highlights the increasingly isolated nature of US practice on sovereign immunity. As well as addressing issues of constitutional law, the judgment is also significant from an international law perspective; the highest jurisdiction of the US took a dangerous step toward the effective application of its terrorism exception to sovereign immunity.

The terrorism exception was introduced to the Foreign Sovereign Immunities Act of 1976 (FSIA) by an amendment made in 1996, and then further revised in 2008.  28 U.S.C. §1605A reads:

A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case […] 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.

The court can hear a case under this provision provided the foreign State has been designated as a State sponsoring terrorism by the Department of State and the claimant or the victim was at the time of the act a US national. This law aims at providing justice for victims through massive civil liability judgments, punishing foreign States committing or sponsoring terrorism, and discouraging them from doing so in the future.

In this post I focus not on the content of the judgment, but rather on the impact of US practice, which has recently seen all assets of the Iranian Central Bank located in the US subject to execution, on international law.

Background

The case at hand put an end to 16 suits brought in the aftermath of the deadliest terrorist attack suffered by US citizens prior to September 11, 2001. On October 23 1983, a suicide bomber belonging to Hezbollah, a terrorist organization formed and financed by the government of Iran, killed 241 US servicemen in a US army barracks in Beirut, Lebanon. Estate representatives, surviving family members and more than 1,000 individuals, including Deborah Peterson the sister of a serviceman killed in Beirut, brought lawsuits against Iran. Iran, which has been designated as a State sponsoring terrorism since 1984, did not appear before US courts. In a series of suits, Iran was ordered to pay compensatory and punitive damages amounting to billions of dollars. Because Iran contested these judgments by diplomatic means and refused to pay, victims encountered many difficulties at the enforcement stage due to Iran’s immunity from execution. For example, from 2008, the claimants, including Ms. Peterson, sought in vain to seize $1.75 billion in bond assets held in a New York bank account belonging to Bank Markazi, the Central Bank of Iran, which is wholly owned by the Iranian government.

In order to guarantee an effective remedy to the victims, US Congress enacted two statutes. The first of these is the Terrorism Risk Insurance Act of 2002. This Act makes it possible to execute a judgment against any assets blocked by the executive branch of a State sponsoring terrorism and its agencies or instrumentalities. On February 6 2012, “in light of the deceptive practices of the Central Bank of Iran and other Iranian banks to conceal transactions of sanctioned parties, the deficiencies in Iran’s anti-money laundering regime and the weaknesses in its implementation, and the continuing and unacceptable risk posed to the international financial system by Iran’s activities”, President Obama issued Executive Order No. 13.599. The Order blocked all property and interests in property of the Government of Iran, the Central Bank of Iran and Iranian financial institutions, located in the US.

In order to save some of these financial assets to satisfy judgments reached in terrorism cases, Congress also enacted the Iran Threat Reduction and Syria Human Rights Act of 2012. In so doing, it precisely identified in Section 502, codified under §8772 of the US code, the case of Peterson et al. v. Islamic Republic of Iran et al. Following its entry into force, judgment holders filed new writs of execution under the Act, and the District Court of New York authorized the execution. In response, Bank Markazi moved to challenge the constitutionality of the 2012 Act.

In relation to domestic law, the key issue was whether the passing by Congress of §8772 amended the law so as to direct a particular result in a single pending case, and therefore, breached the constitutional principles of separation of powers and independence of the judiciary. With regard to the first issue, the Supreme Court, under Justice Ginsburg’s pen, determined that:

Congress, our decisions make clear, may amend the law and make the change applicable to pending cases, even when the amendment is outcome determinative. Adding weight to our decision, Congress passed, and the President signed, § 8772, in furtherance of their stance on a matter of foreign policy. Action in that realm warrants respectful review by courts. [at 2]

From an international law perspective, the central issue that requires assessment is whether this practice complies with the law on State immunity from jurisdiction and from execution.

Breach of Immunity from Jurisdiction

In lifting the immunity “for a certain category of sovereign acts that are repugnant to the United States and the international community” [Flatow v. Iran, at 12], the 1996 terrorism exception does not comply with customary international law. In 2012, the International Court of Justice [ICJ] noted:

this amendment has no counterpart in the legislation of other States. None of the States which has enacted legislation on the subject of State immunity has made provision for the limitation of immunity on the grounds of the gravity of the acts alleged.

Even if there is an emerging practice, it is neither general nor uniform. Indeed, apart from the US, Canada is the only State that has modified its law to include the same exception for terrorist acts. In October 2015, by way of an exequatur procedure, the Italian Court of Cassation in Flatow v. Iran  accepted the legality of this exception, provided the act of terrorism constitutes a crime against humanity; in other words, a breach of jus cogens is required. But in Kazemi v. Iran, the Canadian Supreme Court clearly specified that the terrorism exception should not be confused with a general human rights exception to immunity for allegations of torture, genocide and other grave crimes of international law [para. 44].

Breach of Immunity from Execution

Throughout the proceedings, it was only the US District Court that expressly tackled the issue of immunity from execution of Bank Markazi’s assets. Pursuant to Article 21.1 (c) of the UN Convention on Jurisdictional Immunities of States and Their Property, property of the central bank “shall not be considered as property specifically in use or intended for use by the State for other than government non-commercial purposes”. Similarly, §1611(b)(1) of the FSIA immunizes “the property […] of a foreign central bank or monetary authority held for its own account”. This refers to property used for what is normally understood as central banking functions, irrespective of its commercial nature [NML v. Argentina at 194].

The US District Court ruled that §8772 superseded provisions on the immunity from execution of central banks. The Supreme Court agreed in this sense by stressing that:

The Executive has historically made case-specific sovereign-immunity determinations to which courts have deferred. And exercise by Congress and the President of control over claims against foreign governments, as well as foreign-government-owned property in the United States, is hardly a novelty [at 2].

According to the judge, the preamble of the Executive Order suggested that “Bank Markazi [was] not engaged in activities protected by § 1611(b), and thus [was] not entitled to immunity” [at 109-110]. Still, arguments put forward by the executive, based on the activities engaged in by Bank Markazi and other Iranian financial institutions, were found to be too broad to rebut the presumption that the funds at stake were not effectively used for central banking functions. When considering assets used for ‘mixed purposes’, immunity will stand as long as the sovereign purpose is not negligible. It was unlikely that all frozen assets were used for non-sovereign purposes. In these circumstances, it was arguable that the executive in the first place could freeze all the assets of Bank Markazi.

Under international law, to set aside immunity from execution, without prejudice to the protection of diplomatic or consular properties, a State can only resort to a countermeasure as defined in the 2001 Draft articles on Responsibility of States for Internationally Wrongful Acts. Assuming that the US really was an injured State and could act in this way, its distribution of frozen assets would clearly infringe the law of countermeasures by preventing the reversibility of the measure.

Future Prospects

In framing the terrorism exception without deliberately taking into account international law, it was not the intention of US Congress to set an example for the rest of the world; it was instead tailored to respond to American foreign policy interests. While the FSIA aims at depoliticizing the determination of immunity, the implementation of the terrorism exception relies on the discretion of the executive. For example, when Iraq was removed from the list of States sponsoring terrorism after the US invasion in 2003, national proceedings against Iraq were suspended at the request of the executive branch. This type interaction between the judiciary and the executive has triggered several domestic disputes in the US and as a result, led to a weakening of the exception’s effectiveness.

Further practical difficulties must be addressed in order to prevent a possible generalization of this exception. First, there is still no universal definition of terrorism. Second, where execution through lawful means on sovereign assets proved impossible, the US established victim compensation schemes. This method of compensation is by no means perfect as it sees the US taxpayer, rather than the State responsible for terrorist acts, paying out. What is more, by limiting compensation to certain categories of victims, the system is discriminatory. Finally, when terrorism is at stake, solutions should be reached at an international level. The Security Council of the United Nations in its resolution 1373 of 2001 calls on all States to work together through increased cooperation in accordance with the UN Charter, including the principle of sovereign equality, in order to combat this threat to international peace and security.

Conclusion

Iran has strongly protested the “highway robbery” of its assets and threatens to take the dispute to the ICJ. In support of Iran, on May 5 2016, 120 nations of the Non-Aligned Movement addressed a letter to the UN Secretary General rejecting the unilateral actions of the US as violations of international law, in particular the principle of State immunity. Despite the Iran nuclear deal reached 9 months ago, relations between Iran and the US are far from calm and peaceful.

Until 2012, the US terrorism exception, “because of the difficulties that beset its application, has been considered a failed judicial policy” [Yang, at 229]. In giving some real meaning to the terrorism exception, the US has breached rules on immunity from execution. It remains to be seen whether Congress, which is currently considering the bill Justice Against Sponsors of Terrorism Act  to expand the terrorism exception to Saudi Arabia with regard to the 9/11 attacks, will entrench the isolated and unlawful position of the US in this area, or return it to the path of international legality. On May 17th 2016, the US Senate passed the legislation by unanimous voice vote. It will now be taken up by the US House of Representatives and if passed, it is likely that a diplomatic storm will follow in the US.

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12 Responses

  1. Jordan

    I note that 18 USC sections 1330a and 1604 already had a violation of international agreement exception to immunity. I note that the IMT at Nuremberg recognized the ultra vires rational, that no state has authority to violate international criminal law, nor can a state delegate such to its officials (there even a head of state who took over after Hitler). It would be policy-serving to deny immunity to states that violate international criminal law and, with increasing human interdependence, I suspect that there will be increased demands for justice and an end to impunity, immunity for international crimes.

  2. Jordan

    Sorry, that’s 28 USC, and the exception was recognized by the US Supreme Court in Amerada Hess but with too narrow limits.

  3. Amril Vapr

    The most puzzling aspect of the whole case is how on earth did the attack on the US combatants in Lebanon was considered an act of terror.

  4. Idgor

    “Under international law, to set aside immunity from execution, without prejudice to the protection of diplomatic or consular properties, a State can only resort to a countermeasure as defined in the 2001 Draft articles on Responsibility of States for Internationally Wrongful Acts. Assuming that the US really was an injured State and could act in this way, its distribution of frozen assets would clearly infringe the law of countermeasures by preventing the reversibility of the measure”.
    Very important point. But I may have two questions:
    1)Can we raise the same argument as far as concern Immunity from Jurisdiction? Why in this point two kind of immunity are different?
    2)given that, what is distributed is in fine a money amount, and therefore refundable, why do you think that it is irreversible?

  5. Victor Grandaubert Victor

    Dear Professor Paust, thank you for your remarks. I have to say that I share your concern about the lack of remedy for victims of terrorism and international crimes. However, in the very case of the US terrorism exception to sovereign immunity, one can ask whether it is a viable solution. Concerning the execution on blocked assets, the Department of State declared in 2003 :
    “Some judgment holders have been able to satisfy judgments against the particular state sponsor of terrorism, because at the time their judgments were rendered, there happened to be sufficient blocked assets they could attach. Others have not, because the defendant state in their cases has few blocked assets in the United States. In addition, plaintiffs have had to compete against each other for satisfaction, hoping that their writs were served before the others for attachment of the very same assets (…) [T]he current system has frequently conflicted with foreign policy and national security interest. The U.S. government block assets in the interest of the nation as a whole. This is a powerful foreign policy tool. It is not intended to expropriate those assets, but to use them to promote important foreign policy goals. Using those assets to pay court judgments undermines the President’s ability to use this tool in the broader interest of the nation” (Testimony of U.S. Department of State Legal Adviser William H. Taft IV on S. 1275, Benefits for Victims of International Terrorism Act, Before the Senate Committee on Foreign Relations, at 7-12 (July 17, 2003)).
    Concerning the exception in general, the american judge in 2009 reached the conclusion that :
    “Civil litigations against Iran under the FSIA state sponsor of terrorism exception represents a failed policy. After more than a decade spent presiding over these difficult cases, this Court now sees that these cases do not achieve justice for victims, are not sustainable, and threaten to undermine the President’s foreign policy initiatives during a particularly critical time in our Nation’s history. The truth is that prospects for recovery upon judgments entered in these cases are extremely remote (…) the Court will respectfully urge the President and Congress to seek meaningful reforms in this area of law in the form of a viable alternative to private litigation as the means of redress for the countless deaths and injuries caused by acts of terrorism … If the decade-long history of these FSIA terrorism actions has revealed anything, it is that the judiciary cannot resolve the intractable political dilemmas that frustrat these lawsuits : only Congress and the President can” (In re Iran, 659 F.Supp.2d 31).
    Fortunately, as you underlined, we observe some, slow but welcome, changes in international law : the development of international criminal tribunals since 1945 and mechanisms of mutual judicial assistance ; the increasing erosion of the immunity ratione materiae of State officials (currently reviewed by the international law commission of the UN).

  6. Jordan

    Yes. I once wrote that, for the victims, immunity is one more form of oppression, one less measure of human dignity. There is much for us to try to achieve, or move along.
    P.s. the FSIA exception has 5 specific causes of action (in 1605A) and terrorism as such is not one of them. The state has to be designated by our Executive as a terrorist sponsoring state.

  7. Victor Grandaubert Victor

    Dear Idgor, thank you for taking an interest in my post. With regard to your first question, I don’t think the national judge is the appropriate authority to decide a countermeasure in order to set aside immunity from jurisdiction. With regard to your second question, under article 49 of the ILC articles, the purpose of the reversibility condition deals with the possibility for the forum State adopting the countermeasure to resume the execution of the obligation. As a result, the forum State must refrain from doing any acts that may negate the possibility to resume the execution of the obligation. Pursuant to the rule of immunity from execution, the forum State with regard to a specific category of assets must broadly respect ownership and powers derived from ownership of the foreign State. Freezing orders which respect ownership while hindering the use of the assets create the necessary pressure to induce the foreign State to comply with internation law. If the forum State decides to lift the freezing orders, it can perfectly resume to comply with its obligation. In my opinion, that would be impossible if the forum State expropriated the assets. Obviously, the forum State could make a refund but it would constitute a compensation for infringing the law of countermeasures. Moreover, following the end of the freezing orders, the foreign State must immediately be in possession of its assets. Would the forum State be in capacity to refund immediately ? Negociations between the legislature and the executive may delay the refund specially when huge amounts, like 2 billions of dollar, are at stake. Finally, your interpretation of the reversibility condition may works with intangible assets but I’m skeptical about the fate of tangible assets. Will the foreign State accept a refund for a warship seized and sold by the forum State ? I have difficulty to imagine so.

  8. M Mojandeh

    Dear Victor,
    A very small point! In the “Background” you referred to “a suicide bomber belonging to Hezbollah”. It should be noted that Hezbollah did not exist at the time of attack in 1983. It came into being in 1985. So how is it possible for Iran to support and finance a nonexisting organization?!

  9. Victor Grandaubert Victor

    Dear M. Mojandeh,
    In the background, i was refering to the elements put to the fore by the american judge in 2003 when dealing with the merits of the case (see Peterson v. Iran, 264 F.Supp. 2d 46). The district court of Columbia held the government of Iran accountable for the acts of Hezbollah. Iran did not appear before the court and did not present contradictory arguments to this finding. I really encourage you to read this judgment.It is very interesting to see how the judge dealt with the facts in the absence of the defendant.

  10. Victor Grandaubert Victor

    In relation to the Supreme Court judgment, Iran instituted yesterday proceedings against the United States with regard to a dispute concerning alleged violations of the 1955 Treaty of Amity, including international rules on sovereign immunities; see http://www.icj-cij.org/docket/files/164/19032.pdf

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