Certain Iranian Assets

International Court of Justice Certain Iranian Assets case will not bring a significant change to the Iranian-American dynamics.

Both parties claim victory after the International Court of Justices (the ICJ) announced on March 30th the final judgement in dispute between the Islamic Republic of Iran (the applicant) and the United States of America (the respondent). The United States have been ordered to pay compensation for a number of breaches recognised by the Court, with its exact amount specified either between parties, or if they fail to do so – by the Court, in the upcoming two years.

While the partial compensation and the highlight of “the American wrongdoing” has been commanded in Tehran, Washington welcomed rejection of the vastest chunk of Iranian claims linked to freezing of state-owned Bank-e Markazi assets, now reaching around $1.75 billion. The case comes as a side chapter to the ongoing tensions between Tehran and Washington, but it seems that the balanced verdict is fuelling both sides’ narrative.

Background of the dispute

Lodged before the ICJ in 2016 by Iran, the conflict stemmed from the United States domestic legislation pointing at the “State sponsors of terrorism”. After a deadly terrorist attack on American and French nationals in Marine barracks and French-occupied building in Beirut, 1983, in which more than 200 American troops were killed, the American administration aimed to enable the victims to seek reparations in its domestic courts from countries that are believed to support various paramilitary and terrorist groups responsible for the attacks. It is believed that Iran was directly involved with the Marine Barracks bombing, as a Shia militia group Islamic Jihad claimed responsibility. It is disputed whether Islamic Jihad was an actual independent terrorist organisation or an alias for known to date: Hezbollah. Whatever its actual origin, there is no doubt so as to the fact that the attack was at least inspired by the Islamic Republic of Iran. As such, the United States designated Iran as “State sponsor of terrorism” in 1984, which resulted in its exposure to the domestic terrorist compensation claims, which have – as per Iranian statements – caused serious and ongoing harm, thus remaining in breach of a mutual amity agreement between the parties.

There have been a number of cases filed by American citizens in United States courts against the Islamic Republic of Iran in relation to various terrorists attacks. American courts not only have been ruling in favour of claimants, but – as a consequence of failure to satisfy the claims – deciding on enforcement by freeze of assets, in order to enable claimants to collect their dues.

When approached from legal perspective, this dispute offers quite interesting outlook onto what might be coming in international public law, since Certain Iranian Assets allowed the ICJ to address the issue of domestic counter-terrorism measures in relation to international obligations.

Parties’ submissions

As it does not appear surprising, Iran fiercely fought to absolve itself from liability, at first unsuccessfully shielding with state’s immunity principle, only to later shift to the obsolete, but quite not forgotten, Treaty of Amity, by challenging the measures taken by Americans before the International Court of Justice.

The Treaty of Amity – or, in its full title, the Treaty of Amity, Economic Relations and Consular Rights, signed in 1955, was a bilateral agreement concluded between Iran, then ruled by the Shah with strong pro-Western inclinations, and the United States, whose grip on Asia was just tightening. Even though the political scene of Iran changed dramatically with the Islamic Revolution in 1979, the treaty remained in place and stipulated bilateral accommodations of, inter alia, economic exchange and investment. That agreement was also used as basis in two previous cases between America and Iran – Tehran Hostages and Oil Platforms, also decided upon by the ICJ.

Although the Treaty was denounced by the US in 2018 amid growing tensions between the parties, alleged breaches occurred before that moment and thus this agreement could constitute the legal basis of Iran’s claims.

Iran accused the United States of breaching several provisions of the Treaty of Amity which centred around unreasonable and discriminatory treatment of Iranian state-controlled companies whose assets where frozen throughout enforcement proceedings. Iran claimed, inter alia, breaches of Articles III and IV of the Treaty by not allowing its entities to participate or appeal in the freeze process.

The applicant then demanded reparations for loses suffered and a formal apology for the breaches.

The United States requested full dismissal of all the claims on the grounds of clean hands doctrine, as Iran lodged a claim rooting out of their own unlawful acts, abuse of rights, since the applicant tried to apply the Treaty of Amity to matters unrelated to commerce for which the Treaty was initially intended so as to circumvent its obligation to compensate American victims, and Article XX par. 1 (c) [measures applied for regulating trafficking arms, supplying a military establishment, etc.] and (d) [measures necessary to upkeep international peace and security].

Court’s reasons

The International Court of Justice did not uphold any of the American arguments, pointing that clean hands doctrine was never a part of customary international law nor a general principal of law, and its rare use so far combined with little evidence provided makes it impossible to sustain. Lack of evidence was also the reason behind dismissal of the abuse of rights defence. The argument of measures applied for regulating weapons was deemed irrelevant, as that provision was clearly intended at direct regulation of state’s own production, while necessity to upkeep international security was not sufficiently supported by evidence.

Having dismissed the respondent’s arguments, the Court noted however that providing effective remedies to plaintiffs who have been awarded damages can constitute a legitimate public purpose justifying actions against international obligations, including, in this case – the Treaty of Amity. Nonetheless, the core issue of that case lied in another place – since in order to allow enforcement of liability awards, certain Iranian companies’ assets had to be frozen. These companies were not included in any of the freezing proceedings, thus being denied the right to have their legal personality (and all the rights that come within) recognised. As a result, these organisations could not appear before the American courts or lodge appeals, nor had they any connection to facts from which that liability stemmed. Therefore, the Court considered that disregarding the legal entity in such circumstances is unreasonable and manifestly excessive, and as such, the United States acted in unjustified breach of binding international obligations. In further reasoning the Court determined that the United States are guilty of expropriation that calls for compensation towards certain parts of the assets in question.

Nonetheless, even though the Court recognised the aforementioned breach, it did not uphold a majority of other Iranian claims regarding violation of the right to dispose of property and restrictions in transfer of capital. It also refrained from awarding Iran non-financial compensation it applied for, i.e. satisfaction in form of an apology and cessation of wrongful acts. The latter should not come as a surprise, since due to the denouncement of the Treaty in 2018, the respondent cannot actually cease to wrong the applicant, as it is no longer being wronged as the legal basis for this action does not bind the parties any more. Although the Court was able to adjudicate compensation for loses incurred back in the day of Treaty’s applicability, as of now it is no longer possible to actually make the United States de-freeze the assets (partially also because the process of compensation distribution to victims of the attacks has already been happening).

In yet another pro-American move, the Court also refrained from voicing an opinion on the biggest chunk of assets frozen by the United States. They belonged to the Central Bank of Iran – Bank-e Markazi. Due to its special character as the main, state-owned financial institution, the respondent raised significant objections towards its legal status as a “company” within the meaning of the Treaty of Amity, arguing that it predominantly exercised its public function as the Central Bank. The Court characterized scarce commercial activity of Bank-e Markazi in the American financial market as inseparable from its main, public role, and as such considered it to fall outside of the scope of protection provided by the Treaty. This assessment led then to announce the lack of Court’s jurisdiction over that disputed part, estimated to be around $1.75 billion.

However, in judicial proceedings lack of ruling may also be a ruling – and as such in this part Iran clearly lost, as it is now the Americans and Americans only that can administer these frozen assets. It is quite easy to predict they will not be unfreezing them anytime soon.

On the surface, the ruling seems to lean towards Iranian victory – with compensation awarded and a number of breaches recognized – however on a more practical note, the actual result seems to be rather somewhere in the middle, with most of the marketing incentive indeed going to Iran, while the United States achieved their principal objective of effectively securing assets for compensation by keeping Bank-e Markazi’s assets ready to use for award enforcement in domestic proceedings.

Aftermath of Certain Iranian Assets

Judging by both parties’ statements, they seem equally satisfied and released a similarly-sounding statements commending the ruling:

The Treaty was never intended to shield Iran from having to compensate U.S. victims of its sponsorship of terrorism. (…) The Court’s decision was clear that it will have no impact on the U.S. laws that allow U.S. victims of terrorism to seek compensation from Iran or any other State sponsor of terrorism in U.S. courts going forward, in light of the Treaty’s termination.

The United States, Department of State

The ruling of the International Court of Justice on March 30, 2023 is another proof of the Islamic Republic of Iran’s righteousness and the violations by the US government. (…) In this important verdict, the ICJ correctly rejected all the fake defenses of the US. It also underlined the violation by the US of its commitments and recognized Iran as the rightful side. The fact that court’s ruling requires the US to make reparations for the losses is the key reason for the legitimacy of the Islamic Republic of Iran’s demand.

The Islamic Republic of Iran, Ministry of Foreign Affairs

It is rather unlikely that this ruling will pose a threat to ICJ’s credibility and popularity. Enforcement of this award, however, is unlikely, as the Court does not have tools necessary to impose it, and in case the international power structure remains similar to that of the adjudicating moment, Iran will have a hard time convincing the world to press the United States to pay its (un)dues.

That being said, the ICJ might have opened the door for cases similar to that one in the future, as it has, in fact, ruled somehow partially against domestic remedies towards uncooperative asset-holders of State sponsors of terrorism. Currently their list contains, apart from Iran, Syria, North Korea and Cuba. Although the two latter are rather unlikely to lodge any claims in the nearest future, Bashar al-Assad’s regime might come forward, having precedence, with claims on a similar basis as Iran did, as the Syrian governmental assets have been frozen since 2011. The exact repercussions – or even their actual occurrence – are yet to be observed.

Surely, the Court has not yet reached the most important conclusions regarding state-owned entities performing both commercial and public functions. Since it is a very common trait of a central bank to be active on foreign markets in order for profit it makes it vulnerable to foreign administration market freeze. And as such, clearly there is still room for the International Court of Justice to reflect upon admissibility of such actions and its place in the international public law system, especially in times of intense sanctions growing to become one of the sharpest tools of power-fuelled geopolitical strategies.

by Julia Sochacka