It will be at least a month or so before Congress has its final say on the Iran deal. But plaintiffs’ lawyers representing victims of Iranian support for terrorism have weighed in with an emphatic “NO.” Lost amidst the fanfare the Iran-related hearings on Capitol Hill and the President’s Iran-related speech at American University, an injunction was filed yesterday in the Southern District of New York demanding that the United States be prohibited from relieving any sanctions with respect to the Central Bank of Iran (“CBI”) until the plaintiff’s judgments are satisfied.

Setting aside the fact that actually granting the injunction would represent an unprecedented incursion of the judiciary into the Executive’s authority over foreign affairs, the complaint is based on a far too expansive reading of the underlying statute.

The plaintiffs in this case are all victims or family members of victims of terrorist attacks committed by Palestinian groups who received support from Iran. Judgments were granted pursuant to §1605(a)(7) and/or §1605A of the Foreign Sovereign Immunities Act (“FSIA”), which strips sovereign immunity from states designated as state sponsors of terrorism. In order to facilitate the collection of this type of judgment, Congress included §201 in the Terrorism Risk Insurance Act (“TRIA”), which states that

Notwithstanding any other provision of law, and except as provided in subsection (b), in every case in which a person has obtained a judgment against a terrorist party on a claim based upon an act of terrorism, or for which a terrorist party is not immune under section 1605A or 1605 (a)(7) … of title 28, United States Code, the blocked assets of that terrorist party (including the blocked assets of any agency or instrumentality of that terrorist party) shall be subject to execution or attachment.

TRIA §201(d)(2) defines “blocked asset” as

any asset seized or frozen by the United States under section 5(b) of the Trading With the Enemy Act (50 U.S.C. App. 5(b)) or under sections 202 and 203 of the International Emergency Economic Powers Act (50 U.S.C. 1701; 1702).

The essence of the complaint is that Iranian assets held in accounts outside the United States, which amount to anywhere from $29 to $150 billion, should be accessible to plaintiffs seeking to have judgments against Iran enforced. A significant percentage of these funds are restricted through §504 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (“ITRA”), which requires proceeds from Iranian oil sales be used for bilateral trade between Iran and the oil importer or for humanitarian purposes.

According to the document, the lifting of U.S. secondary sanctions under the Joint Comprehensive Plan of Action (“JCPOA”)

Will enable Iran to access $100 to $150 billion in hard currency mainly from frozen oil profits that are accumulating in ITRA restricted escrow accounts held by foreign financial institutions. These accounts fall within the definition of “blocked” assets under TRIA § 201 and are subject to judgment enforcement by Plaintiffs.

There are several issues with this reading of “blocked asset.”

First, the plaintiffs seem to misunderstand how U.S. secondary sanctions on Iran function. Close readers of the blog may notice that I will sometimes use the term “secondary sanctions” and “extraterritorial sanctions” interchangeably, depending on how favorably I’m feeling towards Treasury on any given day. Representatives of the U.S. government on the other hand, will exclusively describe sanctions targeted at foreign parties for their conduct outside of U.S. jurisdiction as “secondary sanctions.” This is because secondary sanctions do not technically prohibit any conduct undertaken by non-U.S. persons. Rather, these sanctions threaten the imposition of restrictions on U.S. persons if the foreign target engages in certain behavior. For example, if French Bank A conducts a significant financial transaction with designated Iranian Bank B, Treasury may prohibit U.S. persons from dealing with French Bank A. For a good discussion of the legality of secondary sanctions see this.

The sanctions imposed by ITRA § 504 operate in the same way. It’s therefore incorrect to say that Iran’s overseas assets are “seized or frozen by the United States.” The plaintiffs attempt to use the TRIA conference report to justify this expansive reading, pointing to a statement from Sen. Tom Harkin, which reads

This definition of [blocked assets] includes any asset with respect to which financial transactions are prohibited or regulated by the U.S. Treasury under any blocking order under the Trading With the Enemy Act, the International Emergency Economic Powers Act, or any proclamation, order, regulation, or license.

The problem is that the ITRA § 504 restrictions, while codified in the Iranian Financial Sanctions Regulations (“IFSR”), 31 C.F.R. §561.203, are not a “blocking order.” They merely authorizes the imposition of certain restrictions on the U.S. financial institution’s ability to open and maintain correspondent accounts with foreign financial institutions that violate the regulations.

Second, the suit is based on expanding the definition of “blocked asset” beyond what is contained in statute. The definition of blocked asset contained in TRIA §201(d)(2) encompasses assets seized or frozen under sections 202 and 203 of the International Emergency Economic Powers Act (50 U.S.C. 1701; 1702). §1702 of IEEPA authorizes the President to take a number of steps to regulate economic activity including blocking assets or prohibiting transfers of credit or payments between financial institutions. However, the authorities granted under §1702(a)(1)(A) and §1702(a)(1)(B) maybe only regulate activity “by any person, or with respect to any property, subject to the jurisdiction of the United States.” Assets held on behalf of the Central Bank of Iran in a foreign account with no U.S. nexus are not “subject to the jurisdiction of the United States.”

A recent ruling in a separate FSIA case involving Iranian support for terrorism emphasizes that Central Bank of Iran property outside of the United States cannot be attached. In February, Judge Forrest ruled against the plaintiffs in Peterson et. al. v. Islamic Republic of Iran, who were attempting to seize assets held by Banca UBAE on behalf of CBI at a Clearstream Banking account in Luxembourg. According to the decision,

The FSIA does not allow for attachment of property outside of the United States. See 28 U.S.C. § 1609 (“[T]he property in the United States of a foreign state shall be immune from attachment arrest and execution except as provided in sections 1610 and 1611 of this chapter.” (emphasis added)); Republic of Argentina, 695 F.3d at 208 (“We recognize that a district court sitting in Manhattan does not have the power to attach Argentinian property in foreign countries.”); Aurelius, 584 F.3d at 130.

CBI’s foreign assets held abroad that will be released should be considered “property outside of the United States” and therefore not subject to attachment. Moreover, as noted by the Supreme Court in Dames & Moore v. Regan, “The FSIA was designed to remove one particular barrier to suit, namely, sovereign immunity, and cannot be read as prohibiting the President from settling claims of United States nationals against foreign governments.” Even if the FSIA did allow attachment of assets with no U.S. nexus, this would not prevent the President from using his authority to remove sanctions targeting these funds.

Finally, the plaintiffs argue that sanctions restricting CBI’s full access to funds abroad can only be lifted if the President certifies to Congress that Iran has ceased funding terrorism. This obviously ignores the national security waivers included by Congress in virtually every sanctions provision.

While it’s impossible not to be sympathetic to plaintiffs who have been injured or lost loved ones in terrorist attacks supported by Iran, it’s hard to see this suit getting very far.