Presidential Authority to Settle the Iranian Crisis

Presidential Authority to Settle the Iranian Crisis

The President has the constitutional and statutory authority to enter an executive agree­

ment with Iran which settles Am erican citizens' claims against Iran; claimants who

receive less than - the stated value of their claims should not be able to recover

additional compensation from the United States governm ent on the theory that the

settlement constituted a taking under the Fifth Amendment.

The President may, through orders issued under the International Em ergency Economic

Powers A ct (IEE PA ), free currently blocked Iranian assets and effect their return to

Iran, notwithstanding the existence of court orders o f attachm ent for bidding the

removal o f Iranian funds from the banks holding them, by revoking the existing general

license for the attachm ents under the Iranian Assets Control Regulations and licensing

Iranian withdrawals from the blocked accounts. Since private banks may refuse to

honor withdrawal licenses after the attachm ents are revoked for fear o f liability under

state law to the attachm ent claimants, funds held by federal banking entities should be

relied on as the source o f any amounts promised to be returned forthw ith to Iran.

Foreign branches of Am erican banks are subject to orders issued under authority of the

IE E PA and, once withdrawal licenses are issued, there should be no legal impediment

to Iranian w ithdrawals from previously blocked accounts as long as previously licensed

setoffs are observed. If creditors o f Iran seek to attach these accounts through actions

in foreign courts, it is likely that those courts would allow their own domestic

claimants a special priority.

T he President may, under existing law, take several kinds o f actions to assist Iran in

effecting the return of the form er Shah’s assets in the United States. These actions

include blocking the assets under the IE E PA to facilitate a census and prevent their

removal, undertaking to aid Iran in its litigation to recover the assets, informing the

court o f our position on foreign sovereign immunity and act of state doctrines, or

taking an assignment o f its claims from Iran. H ow ever, vesting the Shah’s assets in the

governm ent would require new legislative authority and even then would give rise to a

takings claim for just compensation by the Shah’s estate.

September 16, 1980

MEMORANDUM OPINION FOR THE ATTORNEY GENERAL

This responds to your request for our views concerning the Presi­

dent’s power to settle the current crisis with Iran without the enact­

ment of additional legislation. We believe that the President has the

constitutional and statutory power necessary to enter an agreement

with Iran settling the principal issues now outstanding, and to imple­

ment that agreement in an effective fashion. In particular, we conclude

as follows. First, the President has the constitutional and statutory

power to enter an executive agreement with Iran that settles American

citizens’ claims and returns some blocked funds to Iran. Second, to

implement such an agreement, the President may, under the Interna-

248

tional Emergency Economic Powers Act (IEEPA), 50 U.S.C. § 1701 et

seq. (Supp. I 1977), license Iran to withdraw blocked funds, although

the President would first have to revoke existing licenses for attach­

ments against those funds. Federal entities and private banks in the

United States could then safely permit withdrawals by Iran, although

the private banks may perceive sufficient risk of liability to disappointed

lien claimants to refuse to recognize the validity of licenses for with­

drawals. Third, once withdrawals are licensed there will be no impedi­

ment to Iranian withdrawals from foreign branches of American banks,

at least if previously licensed setoffs by those banks are left undisturbed.

Fourth, a settlement agreement may provide for the United States to

aid Iran in recovering the Shah’s assets in the current litigation in New

York state court, although an immediate return of those assets would

not be possible. Finally, all these arrangements can be structured in a

way that makes successful takings claims unlikely.

I. Settlement of American Claims Against Iran by Executive Agreement

A. Presidential Power

The authority of the President to enter executive agreements with

other nations in order to settle claims has been explicitly upheld by the

Supreme Court. United States v. Belmont, 301 U.S. 324, 330-31 (1937);

United States v. Pink, 315 U.S. 203 (1942) (“That the President’s control

of foreign relations includes the settlement of claims is indisputable.”

Frankfurter, J., concurring, 315 U.S. at 240); see also Restatement

(Second) of Foreign Relations Law § 213 (1965). Belmont and Pink

upheld the Litvinov Assignment, by which outstanding Soviet claims

were assigned to the United States by a simple exchange of letters

between the President and the Soviet Foreign Minister. Both cases

emphasized the Executive’s exclusive constitutional power to recognize

foreign governments and to normalize diplomatic relations with them,

and viewed claims settlements as necessary incidents of the Executive’s

foreign relations power. See generally United States v. Curtiss-Wright

Export Corp., 299 U.S. 304 (1936).

Although the President’s constitutional powers almost certainly suf­

fice to authorize an executive agreement with Iran that would take an

assignment of some blocked assets and return others, support may be

drawn as well from the President’s statutory power under IEEPA.

That statute, which authorizes the current blocking of Iranian assets,

was drafted in explicit recognition that the blocking of assets could

have as a primary purpose their preservation for later claims settlement.

H.R. Rep. No. 459, 95th Cong., 1st Sess. 17 (1977); S. Rep. No. 466,

95th Cong., 1st Sess. 6 (1977). Thus, IEEPA’s § 1706(a)(1) authorizes

the continuation of controls after the underlying emergency has ended,

where “necessary on account of claims involving such country or its

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nationals.” The need to provide a means for orderly termination of a

blocking of assets once the emergency has passed implies presidential

power to resolve the plethora of claims that will invariably arise.

Historical practice reflects the existence of presidential power to

settle claims. While claims settlements have often been concluded by

treaty or convention, historical examples abound of settlements through

executive agreement. Numerous lump-sum agreements have settled

claims of American nationals against foreign nations. See, e.g., Claims

Settlement Agreement, July 16, 1960, United States-Poland, 11 U.S.T.

1953, T.I.A.S. No. 4545; Claims Settlement Agreement, July 19, 1948,

United States-Yugoslavia, 62 Stat. 2658, T.I.A.S. No. 1803. History also

provides numerous examples of claims settlements through executive

agreements that establish international arbitrations rather than provide a

lump sum. See generally W. McClure, International Executive Agree­

ments 52-56 (1941). In 1935, a congressional study identified 40 arbitra­

tion agreements entered into by the Executive between 1842 and 1931

which were not submitted to the Senate for advice and consent. 79

Cong. Rec. 969-971 (1935).1

B. Constitutional Takings Claims

A question that has not been clearly settled is whether any right of

action exists for claimants who allege that a settlement provides them

with less than what they consider to be the real value of their claims.

Agreements have traditionally provided significantly less than the

amounts claimed.

The principle of international law that a sovereign may settle debts of

nationals has a corollary—a national has no legal claim to any particu­

lar funds received in a claims settlement that extinguishes his claim. See

Boynton v. Blaine, 139 U.S. 306 (1891); Williams v. Heard, 140 U.S. 529,

537 (1891). The Supreme Court has held that even payments received

“on behalf o f” an American claimant do not legally belong to him, and

that the Executive Branch could refuse to remit payments received

from a foreign government (allegedly because it suspected the claimants

of fraud). La Abra Silver Mining Co. v. United States, 175 U.S. 423

(1899). This supports the generally held view that an American has no

recourse against his government’s settlement, except to petition Con­

gress for relief. See Christensen, The United States-Rumanian Claims

Settlement Agreement of March 30, 1960, 55 Am. J. Int’l L. 617, 625

(1951). No case has been found adjudicating the right to such compen­

sation.

'W e perceive no reason to believe that passage o f the Foreign Sovereign Immunities A ct o f 1976,

28 U.S.C. § 1602 et seq., w as in any way intended to limit the established constitutional pow er of the

President to settle claims, or in any way to alter the substantive law of liability. 1975 State Dept.

Digest of U.S. Practice in Int’l Law 353.

250

Dissatisfied claimants have, nevertheless, raised the issue in connec­

tion with previous settlements, see International Claims Settlement Act,

Hearings on H.R. 9063 Before the Subcommittee on Europe o f the House

Committee on Foreign Affairs, 90th Cong., 1st Sess. 50-55 (1967); Inter­

national Claims Settlement Act, Hearings on S. 1935 and S. 2064 Before

the Subcommittee on Europe of the House Committee on Foreign Affairs,

89th Cong., 2d. Sess. 42, 48-49, 74-77 (1966). Scholars in the field have

recognized the argument without necessarily endorsing it. Henkin, For­

eign Affairs and the Constitution, 262-66 (1972); Oliver, Executive.

Agreements and Emanations from the Fifth Amendment, 49 Am. J. Int’l

L. 362, 364 (1955); cf. Restatement, supra, Reporters’ Note to §213;

Leigh & Atkeson, Due Process in the Emerging Foreign Relations Law of

the United States, 21 Bus. Law. 853, 870-77 (1966).

Two historic Court of Claims cases discuss the taking question. Gray

v. United States, 21 Ct. Cl. 340 (1886), Meade v. United States, 2 Ct. Cl.

224 (1866), affd, 76 U.S. (9 Wall.) 691. See generally W. Cowles,

Treaties and Constitutional Law: Property Interferences and Due Proc­

ess of Law, 200-21 (1941). Gray concerned settlement of the French

Spoliation claims of the early 1800’s, relating to damage done to Ameri­

can vessels from 1793 until 1801 by the French navy. Negotiations

between France and the United States led to an agreement: the United

States agreed to release the French from all claims by American nation­

als and France agreed not to insist upon enforcement of the alliance

between the two countries. The court opined that where the Govern­

ment extinguished the American claims in order to further its foreign

policy, it had taken private property for a public use and the claimants

were thereby entitled to compensation. We would note that in the

negotiation of 1800, “individual” claims were used against “national”

claims, and the setoff was of French national claims against American

individual claims. Responding to this, the court said:

It seems to us that this “bargain” . . . falls within the

intent and meaning of the Constitution, which prohibits

the taking of private property for public use without just

compensation. We do not say that for all purposes these

claims were “property” in the ordinarily accepted and in

the legal sense of the word; but they were rights which

had value, a value inchoate, to be sure, and entirely de­

pendent upon adoption and enforcement by the Govern­

ment; but an actual money value capable of ascertainment

the moment the Government had adopted them and

promised to enforce them, as it did in August, 1793, and

constantly thereafter. That the use to which the claims

were put was a public use cannot admit of a doubt, for it

solved the problem of strained relations with France and

forever put out of existence the treaties of 1778, which

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formed an insuperable obstacle to our advance in paths of

peace to the achievement of commercial greatness.

Id. at 393. The court’s opinion was advisory; Congress had asked the

court to hear the claims and report to it. Thus, the court noted that it

was examining the “ethical,” not “legal” rights of a citizen against his

government, id. at 406-07, although this would not change the constitu­

tional analysis.

The Meade case involved an effort by a citizen to obtain payment

from the United States government after settlement of claims with

Spain in 1819. After the signing of a treaty between the United States

and Spain but prior to Spain’s ratification, Meade submitted a contract

claim to Spain and Spain agreed to pay a certain amount. The treaty

established a claims commission; Meade presented his claim to it with

evidence of the Spanish settlement. He was unable, however, to

produce documents requested by the Commission because they had

been sent to Spain; he received no payment. Congress subsequently

referred the claim to the Court of Claims. Three members of the court

wrote opinions. The majority held that the release and cancellation of

Meade’s claim against Spain was an appropriation of private property

to public use and came within the Just Compensation Clause of the

Constitution. 2 Ct. Cl. at 275. Nevertheless, it said Meade was entitled

to no compensation because the Commission’s decision not to award

compensation could not be reexamined by the Court of Claims. Id. at

275-76. A concurring opinion found no compensable taking since the

right of eminent domain had not been exercised. The dissent found a

compensable taking, but distinguished Meade from the general class of

claimants because he was a creditor armed with a settlement entered

into by the government of Spain rather than a claim which had not

been acknowledged by a foreign power. Thus, a majority of the court

held that a compensable taking had occurred, yet a different majority

held that Meade’s heirs were entitled to no compensation from the

government. The Supreme Court affirmed, 76 U.S. (9 Wall.) 691, but

did not reach the constitutional question.

The question now arises as to what reaction the courts would have

to these opinions written many years ago. While the courts in recent

years have become increasingly sensitive to the procedural require­

ments imposed by the Due Process Clause, e.g., Goldberg v. Kelly, 397

U.S. 254 (1970), they have also recognized that extensive use of regula­

tory powers by the government is not necessarily a taking. Destruction

of a monetary claim might have serious consequences for claim holders

but may be no more serious than the economic consequences flowing

from other regulation not considered a taking. The complexity of the

modern world and the increased, almost pervasive regulation that is

found in international trade have led to the realization that losses can

arise from export controls, import controls, embargoes, and similar

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government acts. Individual contracts and profits are often sacrificed

for what is perceived as greater foreign policy benefits.

There is no set formula for deciding when the Due Process Clause

requires that economic injuries caused by public action be compensated

by the government rather than remain disproportionately concentrated

on a few persons. Penn Central Transp. Co. v. City o f New York, 438

U.S. 104, 124 (1978). Essentially ad hoc factual inquiries have been

considered necessary. Id. When there is a physical invasion by the

government a taking may more easily be found than when there is a

public program adjusting benefits and burdens of economic life to

promote the common good. Id. The mere fact that property, in this

case claims, may be reduced in value does not mean that a taking has

necessarily occurred. Goldblatt v. Town of Hempstead, 369 U.S. 590, 594

(1962); cf. Miller v. Schoene, 276 U.S. 272 (1928) (upheld destruction

without compensation of cedar trees to protect apple orchards from

rust).

The courts are also more likely to uphold government action against

“taking” claims during war and emergency situations which make de­

mands that “otherwise would be insufferable.” United States v. Central

Eureka Mining Co., 357 U.S. 155, 168 (1958); Bowles v. Willingham, 321

U.S. 503, 517 (1944); United States v. Caltex, 344 U.S. 149 (1952).

Applying the kind of balancing suggested by recent cases leads to

persuasive arguments against the contention that a settlement for less

than value is a taking. In dealing with an international emergency, the

President must be able to act quickly and without fear that the courts

will intervene for any but the most compelling reasons. Cf. Narenji v.

Civiletti, 617 F.2d 745 (D.C. Cir. 1979).

Because of the delicate nature of the negotiations with Iran, it is

impossible for a court to review political issues and put a value on the

extent to which foreign policy considerations may have prevailed over

monetary ones. In addition, because of deep government involvement

in the crisis, (i.e., the freeze, trade controls, the World Court action) it

would be difficult for individuals to demonstrate what they would have

recovered absent government intervention.2 In sum we believe that

claimants who receive less than the stated value of their claims should

not be able to recover additional compensation from the government on

the theory that the settlement constituted a taking.

II. Presidential Authority to Return Blocked Assets to Iran

We now consider whether the President may, through orders issued

under IEEPA, free the currently blocked Iranian assets and effect their

return to Iran. Although the President has broad powers under IEEPA,

2W e would note that these argum ents can also be viewed as separate grounds for defending a

settlement apart from the taking issue.

253

to issue orders blocking or releasing these assets,3 difficulties arise

because the banks holding the Iranian accounts are presently subject to

a variety of court orders, principally attachments and preliminary in­

junctions, that forbid removal of the funds.4

The President’s action would presumably be to revoke the existing

general license for the attachments and to license Iranian withdrawals

from the blocked accounts. (Simply to lift the freeze would probably

allow the attachments to vest, preventing removal of the funds indefi­

nitely.) Our conclusion is that the President has ample authority under

IEEPA to revoke licenses for attachments and to license withdrawals

of blocked funds.

On November 14, 1979, Executive Order No. 12,170 blocked Iranian

government assets and the Treasury Department issued the first of its

Iranian Assets Control Regulations (IACR), which provided in part:

Unless licensed or authorized pursuant to this part any

attachment, judgment, decree, lien, execution, garnish­

ment, or other judicial process is null-and void with

respect to any property in which on or since the effective

date there existed an interest of Iran.

31 C.F.R. § 535.203(c). And on November 19, 1979, § 535.805 was

added, providing that any licenses “may be amended, modified or

revoked at any time.” A limited modification to the general ban on

unlicensed judicial proceedings was made subsequently on1November

23, 1979, with the adoption of § 535.504, which authorized judicial

proceedings, but continued the ban on judgments and payments from

blocked accounts. And finally, on December 18, 1979, an interpretive

rule was added to clarify the permissible scope of judicial action:

The general authorization for judicial proceedings con­

tained in § 535.504(a) includes pre-judgment attachment.

However, § 535.504(a) does not authorize payment or de­

livery of any blocked property to any court, marshal,

sheriff, or similar entity, and any such transfer of blocked

property is prohibited without a specific license. It would

3T he IE E P A ’s principal operative provision, § 1702(a)(1), provides that the President may:

(A) investigate, regulate or prohibit —

(i) any transactions in foreign exchange,

(ii) transfers o f credit or paym ents between, by, through, or to any banking

institution, to the extent that such transfers or payments involve any interest

of any foreign country or a national thereof,

(iii) the im porting or exporting of currency or securities: and

(B) investigate, regulate, direct and com pel, nullify, void, prevent or prohibit, any

acquisition, holding, w ithholding, use, transfer, w ithdraw al, transportation, im portation

or exportation of, or dealing in, or exercising any right, pow er, or privilege with

respect to, or transactions involving, any property in w hich any foreign country o r a

national thereof has any interest.

4F or convenience, w e will refer to these orders generically as attachm ents, since that is the nature

o f most of them.

254

not be consistent with licensing policy to issue such a

license.

31 C.F.R. § 535.418. Thus, the current situation is that the great major­

ity of attachments and similar court orders exist pursuant to Treasury’s

general license; there are, however, scattered instances of process that

was perfected before last November 14th. We understand that these

pre-blocking attachments affect only a small portion of the Iranian

assets. Because these attachments have priority to the licensing pro­

gram, it may not be possible to revoke them simply by amending the

IACR. See Propper v. Clark, 337 U.S. 472 (1949). These attachments

may, however, be destroyed by an exercise of the President’s constitu­

tional power to settle claims.5

Against this background, we turn to the effect of the major Supreme

Court cases in the field. In Zittman v. McGrath, 341 U.S. 446 (1951)

(Zittman 1), claimants attached New York bank accounts of German

banks, which had previously been frozen by executive order. After the

war, the Alien Property Custodian issued orders vesting the accounts in

himself, but the banks refused to release them because of the still-

pending attachments. The Custodian sought a declaratory judgment

that the claimants had no interest in the assets, and lost. The Supreme

Court noted that after the attachments had taken effect, the government

issued a ruling which it argued should be applied retroactively, desig­

nating attachments as prohibited transfers. Without deciding whether

such a rule could have retroactive effect in other circumstances, the

Court refused to apply it to these attachments because to do so would

be inconsistent with the government’s earlier position regarding attach­

ments. Treasury had represented in similar litigation that it did not wish

to interfere with court proceedings, including attachments, because it

was desirable to obtain adjudications of disputed rights to assets subject

to the need for a license for any transfer of them. Treasury had thus

encouraged litigation to go forward to conclusion, with the reservation

that the value of interests so adjudicated might range from worthless to

full value, depending on whether a transfer application met the govern­

ment’s purposes in administering the freeze program.

The Court accordingly concluded that the Custodian had

put himself in the shoes of the German banks. As against

the German debtors, the attachments and the judgments

they secure are valid under New York law, and cannot be

cancelled or annulled under a Vesting Order by which

the Custodian takes over only the right, title, and interest

of those debtors in the accounts.

5O ur preceding analysis, concluding that the President may enter agreem ents resulting in final

settlements o f the claims o f A m erican citizens, makes it clear that an incident of such a settlement

would be the voiding o f attachm ents and other inchoate interests relating to those claims. United States

v. The Schooner Peggy. 5 U.S. (1 C ranch) 103 (1801).

255

341 U.S. at 463-64. At the same time, the Court recognized that the

Custodian could take possession of the assets for administration under

the Act. This disposition left the ultimate status of the state law liens

for later determination.

In a companion case, Zittman v. McGrath, 341 U.S. 471 (1951)

(Zittman IT), the Court granted the Custodian possession of attached

accounts, for administration under the Act. The Court distinguished

Zittman I as involving the Custodian’s attempt to assert that the freez­

ing program “precluded attaching creditors from obtaining any interest

in the blocked property good as against the debtors,” whereas here

only possession was sought, without prejudice to the attaching credi­

tors’ rights.

Subsequently, in Orvis v. Brownell, 345 U.S. 183 (1953), the Court

considered a closely similar set of facts, but with one crucial legal

difference. Again, claimants obtained attachments and judgments, valid

in New York law, against previously blocked assets. This time, how­

ever, the Court interpreted a similar prohibition of "transfers” to fore­

stall attachment from creating any rights against the Custodian. The

consequence was to deny the claimants a special priority in particular

property, leaving them with general debt claims, to which the state

court determinations would presumably be relevant.

The present program licenses attachments and litigation, but stops

short of permitting judgments. The evident purpose is to allow initial

sorting out of claims and preservation of evidence in contemplation of

later use in some federal distribution system, much as was the function

of litigation in the Zittman cases and in Orvis. The government has so

characterized it in court:

535.504 specifically grants a license for initiating judicial

proceedings, while withholding a license for a “judgment

or of any decree or order of similar or analogous effect.”

This distinction serves several important purposes and is

vitally related to the President’s (and his delegee’s) pur­

pose to protect those with lawful claims against Iran

while preserving the President’s flexibility to adopt an

approach to satisfy claims in an orderly and equitable

fashion. Permitting claims to go forward permits claim­

ants to avoid problems of statute of limitations, and may

provide a vehicle for preserving critical evidence neces­

sary to establish claims, whether they are finally resolved

through subsequent licensing of judgments, resolution

through an administrative claims process, or otherwise.

Similarly, permitting the filing of suits puts Iran on notice

of claims for which it may be held liable and thus serves

to promote efforts to secure satisfactory protection of

claimants’ interest. At the same time withholding license

256

for judgments helps assure that the President maintains

the flexibility to determine an orderly method of resolving

legitimate claims that assures equity among claimants and

provides maximum protection for creditors consistent

with the President’s on-going efforts to secure the hos­

tages’ release.

The approach works no unfairness on the litigants. The

United States’ consent to permit the litigation to go for­

ward, expressed in the general license granted by 535.504,

has always been expressly conditioned on the withholding

of a license for judgments. To interpret the regulation to

permit creation or extinguishing of interests in property

through, e.g., summary judgment on liability or on mo­

tions to dismiss with prejudice “would ignore the express

conditions on which the consent was extended.” Orvis v.

Brownell, 345 U.S. 183, 187 (1953). See also Propper v.

Clark, 337 U.S. 472, 485 (1949), where the Court recog­

nized that the United States might permit litigation to go

forward under the TWEA, while limiting the rights ob­

tainable through litigation.

Memorandum in Support of United States Request that the Court Defer

Ruling on the Pending Motions, Charles T. Main International, Inc., v.

Khuzestan Water and Power Authority, No. 79-2034C, D. Mass. Identical

motions are being filed in other cases.

Thus, in the Iranian Assets Control Regulations, the government has

reserved full rights to revoke the licensed attachments.6 Although fed­

eral entities holding blocked funds can be expected to honor with­

drawal licenses after the attachments are revoked, private banks may

refuse to do so, fearing liability to the attachment claimants. The

claimants could sue the banks for wrongfully releasing the funds, argu­

ing that under Zittman I, the government is not in a position to

abnegate all their state law rights against their debtors, and that under

New York law, a wrongful release of attached property makes the

banks liable for an accounting. See Fitchburg Yarn Co. v. Wall & Co., 46

A.D. 2d 763, 361 N.Y.S. 2d 170 (1974). Against such an argument the

exculpatory provision of IEEPA, § 1702(a)(3), appears to provide a

complete defense. It provides:

Compliance with any regulation, instruction, or direc­

tion issued under this chapter shall to the extent thereof

be a full acquittance, and discharge for all purposes of the

obligation of the person making the same. No person shall

be held liable in any court for or with respect to anything

6 Because of the reservation of the right to revoke these attachm ents, it is clear that they can be

revoked under IEE PA w ithout giving rise to a successful takings claim. See, e.g.. Bridge Co. v. United

States. 105 U.S. 470 (1881); United States v. Fuller. 409 U.S. 488 (1973).

257

done or omitted in good faith in connection with the

administration of or pursuant to and in reliance on, this

chapter, or any regulation, instruction, or direction issued

under this chapter.

This provision appears to be a complete barrier to state law liability for

release of blocked funds pursuant to presidential directive. Neverthe­

less, the presence of its predecessor does not seem to have assuaged the

banks’ concerns in the cases described above. Because this provision

does not appear to have been litigated, firm conclusions about its scope

are difficult. Moreover, there appears to be no conclusive legislative

history indicating that it is meant to bar state law liabilities of all kinds.

Therefore, because a presidential directive is arguably ineffectual to

destroy the attachments for all purposes, the banks may not be willing

to rely on it.7 Their exposure is great; faced with a choice of disobeying

a government order (which could subject them to a civil penalty of

$10,000 and criminal penalties that may be unlikely in a case of unclear

legalities), or releasing billions of dollars for which they may later be

asked to account, the banks may insist on legislation granting them

more specific protection than does the present statute before they will

release the blocked funds.

Therefore, funds held by federal entities should be relied on as the

source of any amounts promised to be returned forthwith to Iran,

because the disposition of the Iranian funds held by private banks, at

least in the United States, will surely be the subject of litigation.

III. Funds Blocked in Foreign Branches of American Banks

The possibility that licenses will be issued for Iranian withdrawals

from foreign branches of American banks raises the question of the

permissible extraterritorial effect of domestic regulation. First, the

United States has authority to exercise jurisdiction over its nationals

abroad. Blackmer v. United States, 284 U.S. 421 (1932) (upholding

contempt against U.S. citizen residing in France for failure to respond

to D.C. Supreme Court subpoena); Cook v. Tait, 265 U.S. 47 (1924)

(upholding tax levied against non-resident U.S. citizen for income from

property located outside the United States). Although international law

7 N or do the Iranian Assets C ontrol Regulations conclusively determ ine the effects o f a possible

revocation o f the existing licenses for judicial proceedings on the rights of private parties inter se.

A lthough § 535.805 provides that licenses “may be amended, modified, or revoked at any tim e,'’ other

ambiguous provisions suggest that private rights, if not public ones, may have accrued in the

meantime. See § 535.203(c), w hich states that “ unless otherw ise provided," licenses render transactions

enforceable “ to the same extent” as they would be absent IEE PA . See also § 535.502(c), providing that

unless otherw ise specified, licenses do not create interests in property w hich “w ould not otherwise

exist under ordinary principles o f law ,” and § 535.402, stating that revocation of licenses, “ unless

otherw ise specifically provided,” do not affect the validity o f prior actions. T he reservation in these

regulations of pow er to specify special conditions, how ever, may provide a sufficient warning to

attachm ent lienors that their interests may be negated entirely. Revocation orders should attem pt to

destroy the attachm ents for all purposes, relying on the special conditions power.

258

principles are unsettled for determining the nationality of corporations,

the generally accepted U.S. rule is that corporations have the national­

ity of the states that create them. See Craig, Application of the Trading

with the Enemy Act to Foreign Corporations Owned by Americans: Reflec­

tions on Fruehauf v. Massardy, 83 Harv. L. Rev. 579, 589-92 (1970).

American-owned and incorporated foreign branches of U.S. banks

thus appear to be “subject to the jurisdiction of the United States,”

within the meaning of IEEPA. And the government has steadfastly

maintained to date that the initial blocking orders applied to Iranian

funds in these banks. As the Supreme Court has stated in a related

context, such a branch bank:

is not a separate entity in the sense that it is insulated

from [its head office’s] managerial prerogatives. [The New

York head office] has actual, practical control over its

branches; it is organized under a federal statute, 12 U.S.C.

§ 24, which authorizes it “To sue and be sued, complain

and defend, in any court of law and equity, as fully as

natural persons”—as one entity, not branch by branch.

The branch bank’s affairs are, therefore, as much within

the reach of the in personam order entered by the District

Court as are those of the head office.

United States v. First National City Bank [Citibank], 379 U.S. 378, 384

(1965). In the Citibank case, the Supreme Court upheld the district

court’s authority, in a suit by the United States to enforce a tax lien

against a Uruguayan corporation, to issue a preliminary injunction

against the head office of Citibank ordering it not to transfer to the

corporation any corporate assets on deposit with the Montevideo

branch of Citibank. The same result would follow under judicial deci­

sions enforcing subpoenas against U.S. banks for the production of

records in the hands of foreign branches. United States v. First National

City Bank, 396 F.2d 897 (2d Cir. 1968); First National City Bank of New

York v. Internal Revenue Service, 271 F.2d 616 (2d Cir. 1959).

Thus under domestic law IEEPA orders are effective with respect to

foreign branches of American banks. These banks have already been

licensed to set off amounts owed them by Iran against these accounts.

Once withdrawal licenses are issued, there should be no legal impedi­

ment to Iranian withdrawal of the remaining balances of the accounts.8

8It is possible that after w ithdraw al licenses are issued, creditors o f Iran will attem pt to attach some

of these accounts through actions in foreign courts. Such an eventuality could raise jurisdictional

conflicts. In an analogous context, the United States Supreme C ourt has assented to an executive

policy of denying foreign claimants resort to form erly blocked assets, at least unless their claims

related to transactions in this country. United States v. Pink, supra. International law principles of

com ity suggest that foreign courts w ould therefore allow their ow n dom estic claimants a special

priority in adjudicating rights to Iranian funds found there.

259

IV. Returning the Shah’s Assets to Iran

We now consider what action the President may take to assist or

effect the return of the Shah’s assets in the United States to Iran. Such

an action might take one of a number of forms: vesting the assets in the

government for administration in accordance with an international set­

tlement; blocking the assets under IEEPA to facilitate a census and to

prevent their removal; or undertaking to aid Iran in its present litigation

to recover the assets, either by informing the court of our position on

sovereign immunity and act of state doctrines, or by taking an assign­

ment of the claim from Iran. We conclude that the first of these

alternatives, vesting the assets, would require legislation and even then

would , give rise to a takings claim for just compensation. The others

can be performed under present law, are likely to achieve the govern­

ment’s purposes, and would, we believe, be likely to survive constitu­

tional challenge by the Shah’s estate.

The question of vesting authority presents special problems. When

the IEEPA was enacted in 1977, the President’s authority to vest assets

was confined to wartime. 50 U.S.C. App. § 5(b) (Supp. I 1977). New

legislation could attempt to authorize the President to vest the Shah’s

assets and to administer them in accordance with settlement of the

hostage crisis. However, vesting the private property of a non-enemy

alien national without compensation would appear to violate the Fifth

Amendment.9 In Russian Volunteer Fleet v. United States, 282 U.S. 481

(1931), the Supreme Court unanimously construed a statute to permit

suits by non-enemy aliens for the value of ship construction contracts

that the United States requisitioned under the statute (which provided

for just compensation suits in cases of expropriation, but did not specify

who would be entitled to sue). The petitioner, a Russian corporation,

was the assignee of two construction contracts that were requisitioned,

along with the ships built under them. The Government argued that

Congress did not intend to protect corporations organized under the

laws of a government that the United States did not recognize. The

Court declined to adopt that statutory construction on the ground that

such a construction would “raise a grave question as to the constitu­

tional validity of the Act,” (282 U.S. at 492), and instead held that:

The petitioner was an alien friend, and as such was enti­

tled to the protection of the Fifth Amendment of the

Federal Constitution. Exerting by its authorized agent the

power of eminent domain in taking the petitioner’s prop­

erty, the United States became bound to pay just compen­

sation. And this obligation was to pay to the petitioner

9A foreign nation, how ever, unlike a foreign national, does not have rights under the Fifth

Amendm ent.

260

the equivalent of the full value of the property contempo­

raneously with the taking.

282 U.S. at 489 (citations omitted).

The Supreme Court has, in subsequent cases, repeatedly indicated its

continuing approval of the Russian Volunteer Fleet holding. See, e.g.,

Guessefeldt v. McGrath, 342 U.S. 308, 318 (1952). In Clark v. Uebersee

Finanz-Korporation, 332 U.S. 480 (1947), the Court held that Congress’

amendment of the Trading with the Enemy Act (TWEA) in 1941 to

permit the seizure of any foreign asset was not intended to preclude

non-enemy aliens from claiming their interests in such assets:

It is not easy for us to assume that Congress treated all

non-enemy nations, including our recent allies, in such a

harsh manner, leaving them only with such remedy as

they might have under the Fifth Amendment.

332 U.S. at 487-8. See also Becker Steel Co. v. Cummings, 296 U.S. 74,

79 (1935).10

The President’s authority to block the Shah’s assets under present

law, in contrast to vesting them, does not seem open to serious ques­

tion. The IEEPA authorizes the President to block transfers of “any

property in which any foreign country or a national thereof has any

interest,” 50 U.S.C. § 1702(a)(1). The application of this language in the

predecessor TWEA to the assets of foreign nationals was firmly estab­

lished by the time of the IEEPA’s enactment and has repeatedly sur­

vived constitutional challenge. E.g., Sordino, supra, upholding the

blocking of assets of Cuban nationals. Still, an executive order blocking

property of the Shah’s estate in the United States would be unique in

singling out the assets of one individual. Nevertheless, there seems

ample justification for such an order in the prominent place in the

current emergency of Iran’s claim that assets in the Shah’s estate are

actually converted Iranian government assets.

Indeed, there is an argument that the Shah’s assets in this country are

presently blocked by Executive Order No. 12,170. That order blocks

“all property and interests in property” of the government of Iran, and

implementing regulations define “interests” and “property” in the

broadest possible terms, including indirect and contingent interests.

31 C.F.R. §§ 535.311-12. Therefore, perhaps the assets claimed in Iran’s

suit against the Shah in New York state court are subject to the

blocking order. (Certainly any assets for which Iran obtained a judg­

ment thereupon would be blocked.) However, an interpretation of the

,0T he only authority to the contrary is Judge Friendly's dictum in Sordino v. Federal Reserve Bank

o f New York, 361 F.2d 106, 113 (2d Cir. 1966), cert, denied. 385 U.S. 898. to the effect that the right of

a state to protect its nationals abroad might com prehend expropriation o f property o f nationals o f an

offending nation for com pensatory purposes. Sordino involved blocked assets, not vested ones; this

dictum has broad and quite harsh implications. We believe it to be inconsistent w ith the Suprem e

C ourt cases discussed in text.

261

blocking order that applied it to assets claimed by Iran in litigation

would grant that nation a power to block assets in this country by

asserting claims to them. In view of the implications of such an in­

terpretation, we believe that it was not intended by the order or the

regulations, and that a separate executive order blocking assets owned

by the Shah’s estate would be necessary. The Treasury Department

could then proceed to perform a census of the assets in the normal

manner.

An order blocking the Shah’s assets would presumably be prepara­

tory to an effort to have the Government participate in Iran’s suit

against the Shah in either of two ways. First, we could simply urge the

court to reach the merits of the conversion claims, by filing a Sugges­

tion of Interest that presents the Executive’s position that the doctrines

of sovereign immunity and act of state should not bar the court’s

determination of the merits. Second, the Government could urge the

court to treat the merits as foreclosed in Iran’s favor, so that the only

remaining issue would be to identify particular assets as belonging to

the Shah’s estate. We would do this by presenting a Suggestion of

Interest urging that under the act of state doctrine, Iranian government

determinations that the Shah did convert government assets must be

respected by our courts. Indeed, we could take an assignment of the

Iranian claims and pursue them before the court. We will analyze these

possibilities in the order presented.

In the absence of a Suggestion of Interest of the United States that

alters the court’s approach to sovereign immunity and act of state

doctrines, it may fail to reach the merits of Iran’s case. The complaint

alleges that the Shah was the de facto ruler and head of state of Iran

from 1941 until January 1979. The acts complained of are alleged to

have taken place in Iran during the period that the Shah was the ruling

monarch, and therefore would ordinarily constitute acts of state.

An argument can also be made that the Shah’s estate enjoys sover­

eign immunity from suit.11 The 1976 Foreign Sovereign Immunities

Act, 28 U.S.C. § 1602 et seq., does not expressly address the privileges

and immunities of heads of state, but talks only in terms of “foreign

states.” Nevertheless, Restatement (Second) of the Foreign Relations

Law of the United States, §66 (1965), states that the immunity of a

foreign state recognized in § 65 extends to “its head of state and any

person designated by him as a member of his official party.” Thus, it is

arguable that a former head of state enjoys the immunities of a “foreign

state” as codified in the A ct.12 Alternatively, if the Act were construed

11 In Hatch v. Baez, 14 N.Y. (7 Hun) 596 (1876), the court held that the acts while in office of a

form er head of stale w ere immune from judicial scrutiny in a suit brought by a private claim ant, not

his form er governm ent. The court's decision is phrased in terms suggestive of both act of state and

sovereign immunity doctrines.

,2Section 1605(a)(5) preserves the immunity o f foreign states from suit with respect to—

Coniinued

262

not to apply to heads of state, the Shah might be entitled to immunity

under generally recognized doctrines of customary international law.

See 1 Oppenheim’s International Law 676 ff. (Lauterpacht ed., 1953).

Since either act of state or sovereign immunity doctrines may defeat

Iran’s claims against the Shah if applied in this case, it is important to

consider whether the present Iranian government may waive the appli­

cation of these doctrines to the acts of its predecessor. We have found

no authority on point. As an a priori matter, it seems that Iran might be

able to waive the doctrines.13 Both doctrines exist for the benefit of the

state in question, not for the individuals who lead it. Therefore it seems

incongruous to apply the doctrines to defeat a claim by a state for its

own assets converted by a former monarch. Since the question of the

waivability of these defenses by a present government against a former

head of state is an open one, a Suggestion of Interest indicating that the

Executive favors reaching the merits might be especially persuasive in

court, although it is unlikely to prove conclusive.14

A more conclusive impact on the merits might follow an Iranian

decree nationalizing the Shah’s assets, and either a Suggestion of Inter­

est by the United States, urging that it be honored, or a full-scale

assignment of the Iranian claims to the United States pursuant to an

executive agreement. Such an assignment should allow our government

to recover the assets, under United States v. Belmont, 301 U.S. 324

(1937), which held that a foreign country’s expropriation decree di­

rected at that country’s corporations must be deemed by a U.S. court

to have validly vested title to the expropriated assets in the foreign

government. The United States sued in Belmont to recover funds that a

Russian corporation, prior to nationalization, had deposited with a New

York banker. The United States claimed these funds under the Litvinov

Assignment. The Court held that our recognition of the U.S.S.R.

impliedly recognized as valid that nation’s expropriation decrees, and

that the U.S. claim for the expropriated assets did not constitute a

taking of private property under the Fifth Amendment:

The public policy of the United States relied upon as a

bar to the action is that declared by the Constitution,

namely, that private property shall not be taken without

(A) any claim based upon (he exercise or perform ance or the failure to exercise or

perform a discretionary function regardless of w hether the discretion be abused, or

(B) any claim arising out of malicious prosecution, abuse of process, libel, slander,

m isrepresentation, deceit, or interference w ith contract rights.

T he tortious and wrongful acts alleged in the com plaint w ould probably fall within the above

provisions of the Act.

13 Analogy may be taken to the pattern of diplomatic immunities and their waiver. Under the

Vienna C onvention on D iplomatic Relations, the sending state may waive a diplom at’s immunity (art.

32). Absent waiver, how ever, immunity for the exercise o f official functions subsists after the diplo­

mat's appointm ent has term inated (art. 39.2).

14The effect in New York courts o f Suggestions of Interest by the United States regarding these

issues is discussed at length in our m emorandum of January 2, 1980, to the A cting Associate A ttorney

G eneral [p: 160 supra].

263

just compensation. But the answer is that our Constitu­

tion, laws and policies have no extraterritorial operation,

unless in respect of our own citizens. What another

country has done in the way of taking over property of

its nationals, and especially of its corporations, is not a

matter for judicial consideration here. Such nationals must

look to their own government for any redress to which

they may be entitled.

301 U.S. at 332 (citation omitted). No suggestion appears in Belmont

that the constitutionality of the United States government’s “taking”

depended at all on the payment of compensation to Russian nationals

by this government or by that of the U.S.S.R. See also United States v.

Pink, 315 U.S. 203 (1942). Thus it appears that an assignment can avoid

the constitutional perils of vesting—the Russian Volunteer Fleet case

was cited with approval in Belmont.

John M . H arm on

Assistant Attorney General

Office o f Legal Counsel

264