This past week the United States District Court for the Southern District of New York ordered the payment of $359,689.75 to plaintiffs in the matter of The Estate of Michael Heiser, et. al v. Bank of Tokyo Mitsubishi UFJ, New York Branch (“Bank of Tokyo”). The matter is one brought under the Terrorism Risk Insurance Act of 2002, which allows Petitioners who have received a judgment under the Foreign Sovereign Immunities Act to attach certain assets to satisfy the judgement. In the case of The Estate of Michael Heiser, the judgement was against the Government of Iran, the Iranian Ministry of Information and Security, and the Iranian Islamic Revolutionary Guard Corps for their involvement in the deaths of seventeen (17) Air Force officers and airmen in the 1996 bombing of the Khobar Towers in Saudi Arabia.

Bank of Tokyo is holding blocked funds of parties designated on the List of Specially Designated Nationals and Blocked Persons (“SDN List”) administered by the United States Department of the Treasury’s Office of Foreign Assets Control (“OFAC”). Those parties include Bank Sepah International, Plc, Azores Shipping Company LL FZE, Islamic Republic of Iran Shipping Lines Benelux NV, EDBI, and Bank Melli Plc. According to Petitioners all of these entities are instrumentalities of the Government of Iran, the Iranian Ministry of Information and Security, or the Islamic Revolutionary Guard Corps. As such, the Petitioners have sought those funds as part of the satisfaction of the judgment.

The Bank of Tokyo did not contest that the Petitioners’ right to the funds, however, they stated they could not release the funds without a license from OFAC. At the request of the Court, the U.S. government filed a Statement of Interest Letter with the court which concluded that “in the event a court determines that blocked assets are subject to TRIA, those funds may be distributed without a license from OFAC.” That Statement of Interest is not found on the PACER database, however, there are three three separate sealed docket interests around the time that such a Statement of Interests would have been submitted to the Court. As a result of the Statement of Interests and a Motion for Summary Judgement, Bank of Tokyo has been ordered to release the funds in question to the Petitioners.

This yet another example of how sanctions are used as a tool to isolate sanctions targets. Those who were actually transferring funds either to or through those designated parties which were blocked by Bank of Tokyo are being held responsible for the actions of the Government of Iran, regardless of whether or not they had anything to do with the bombings of the Khobar Towers. For example, if the funds were for a private transaction, even one that would normally be authorized, but which were ultimately originating from or being received by Bank Melli, then those funds are now lost forever. Therefore, this is a scenario of guilt by association and any one dealing with the Government of Iran or those Government of Iran agencies mentioned above whose funds end up getting blocked are at risk of losing those funds. This fear could cause those that would normally transact with the Government of Iran to think twice, and thereby further isolate the country. It is just another classic example of how OFAC administered sanctions leverage the private sector to apply economic pressure to sanctions targets.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrariassociatespc.com.