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

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 17^th 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.