### Vesting of Iranian Assets

B ecause the International E m erg en cy E conom ic P ow ers A ct does not authorize vesting o f foreign p ro p erty , and the T rad in g w ith the E nem y A ct authorizes vesting only in w artim e, in the absence o f a d eclaration o f w ar against Iran it w ould be necessary to seek new legislation in o rd e r for the U nited States to take title to th e blocked Iranian

assets.

N o dom estic constitutional issue w ould be raised by legislation authorizing th e vesting o f Iranian go v ern m en t pro p erty ; m oreover, vesting for the benefit o f eith er private claim ­ ants o r the U.S. g o vernm ent w ould be consistent w ith principles o f international law , eith er as a self-help m ethod o f securing paym ent for dam ages, o r as a reprisal for Iran ’s continuing violations o f international law.

V esting legislation w ould have little effect on pending dom estic litigation involving the blocked Iranian assets, and its effect on pre-judgm ent attach m en ts w ould depend upon the validity o f such attach m en ts und er state law . V esting legislation w ould not be enforceable against p ro p erty located abroad, and w ould th erefo re have no effect on foreign litigation involving Iranian d o llar deposits in U.S. branch banks abroad, unless foreign co u rts w ere to hold that such d o llar deposits are in reality located at the hom e
office o f the banks in the U nited States.

March 12, 1980

MEMORANDUM OPINION FOR TH E ATTORNEY GENERAL

We have been asked to address a number of issues relating to possible vesting of Iranian assets. This preliminary response has been prepared in cooperation with the Civil Division.

I. Existing Authority

At present no Iranian assets have been vested or seized. Vesting is a process by which the United States would take title to assets of a foreign country or its nationals. Under Executive Order No. 12,170 of November 14, 1979, the President blocked property of the Iranian government, its instrumentalities, and the Central Bank of Iran. 3 C.F.R. 457 (1979). The blocking order prevents property from being transferred or withdrawn, but does not permit its use by the United States or change title to it. This action was taken pursuant to the International Emergency Economic Powers Act, 50 U.S.C. § 1701(Supp. I 1977) (IEEPA). This Act does not, however, provide authority to vest property.1

1 N o private property of Iranian nationals was blocked although the IE E PA is broad enough to permit this. It would be necessary for the President to issue an additional order to accomplish blocking

C o n tin u e d

202The Trading with the Enemy Act provides for both blocking and

vesting of foreign property. 50 U.S.C. App. § 5(b). Until 1977, when the International Economic Powers Act was enacted, the Trading with the Enemy Act applied both during wartime and during any otherperiod of national emergency declared by the President. It was amended, however, so that it now applies only during wartime. 91 Stat. 1625 (1977). Therefore, the national emergency relating to Iran declared by the President on November 14, 1979, does not trigger the Trading with the Enemy Act. If the Trading with the Enemy Act were to be used it would be necessary to declare war. In the absence of such a declarationit would be necessary to seek new legislation. We make no recommendation as to whether or not the United States should declare war on
Iran.

II. Proposed Legislation

If the Administration seeks legislation permitting vesting of Iranian assets a number of policy and legal questions would have to be faced. These include whether to provide in the legislation for disposition of the assets once vested and what that disposition should be. We do not think that any domestic constitutional issue arises in the taking of Iranian government property. The Fifth Amendment by its terms applies only to the taking of “private property” without just compensation. Thus, on its face the Just Compensation Clause does not apply. The role of the Constitution in domestic law, as well as the text, supports this conclusion. Constitutional protections limit the power of the United States to act upon persons who are subject to its power by virtue of their presence in this country or their activities here. The United States asserts its power with respect to foreign nations because as a sovereign among equals it enjoys powers and privileges under international law and not because of its domestic authority.2 Cf. United

States v. Curtiss-Wright Export Co., 299 U.S. 304, 315-18 (1936). The precedents for this type of legislation have focused on providing for settlement of private claims against a foreign government, while government-to-government claims have been settled directly. See the International Claims Settlement Act of 1949, as amended, 22 U.S.C. §1621 et seq. There is no reason, however, why the legislation has to be so limited. As discussed below, vesting for the benefit of either

o f private properly since the N ovem ber 14 order only permits the Secretary of the Treasury to block Iranian governm ent property. Presumably, such action would be necessary pending vesting legislation; otherwise, the property could be w ithdraw n in the interim. T he vesting o f private assets presents issues different from those concerning vesting o f governm ent assets, as we discuss below.2 Vesting property o f private Iranian citizens presents constitutional issues which should be examined in detail if there is any intent to act regarding private properly. Russian Volunteer Fleet v. United
States. 282 U.S. 481 (1931). But see Sordino v. Federal Reserve Bank, 361 F.2d 106 (2d Cir. 1966), cert, denied, 385 U.S. 898 (1966).

203private claimants or the United States government would be consistent

with international law.

III. International Law

A. Damages

The United States has claimed that Iran has flagrantly violated its treaty obligations to the United States including those under the Vienna Conventions on Diplomatic and Consular Relations. Apr. 18, 1961, 23 U.S.T. 3227, T.I.A.S. No. 7502, and Apr. 24, 1963, 21 U.S.T. 77, T.I.A.S. No. 6820. Breach of an international agreement involves an obligation to make reparation in an adequate form, even when the treaty does not specify damages as a remedy. E.g., Corfu Channel Case, 1949 I.C.J. at pp. 23-24. Self-help is recognized in international law as a method of securing payment for damages. The unquestioned right of a state to protect its nationals in their persons and property while in a foreign country mustpermit initial seizure and ultimate expropriation of assets if other methods of securing compensation should fail. E.g., Sordino v. Federal R eserve Bank o f New York, 361 F.2d 106 (2d Cir.), cert, denied, 385 U.S. 898 (1966). The United States is now proceeding against Iran in the International Court of Justice. The Court ruled as a preliminary matter on December 15, 1979, that Iran has violated pertinent treaties. It has not yet ruled on the question of damages. In January the United States submitted a Memorial (brief) to the Court seeking a judgment that the United States is “entitled to the payment to it, in its own right and in the exercise ofits right of diplomatic protection of its nationals held hostage, of reparation . . . in a sum to be determined by the Court at a subsequent stage of the proceedings.” It is likely that the issue of liability will be argued to the Court in the near future and there is every reason to anticipate a favorable judgment on the question. Such a judgment would, of course, lend support to any self-help remedies the United States may seek to apply. If in a subsequent hearing the Court were to find damages in an amount less than that seized by the United States, we might face the issue of whether part of the assets should be returned.

B. Reprisal

Apart from the issue of damages, vesting may be viewed as a reprisal for the continuing violations of international law by Iran and thus as an element of our diplomatic efforts to end those violations. A. David, The Strategy of Treaty Termination: Lawful Breaches and Retaliations 234 (Yale Univ. Press, 1975). Non-forcible reprisals may be used in the case of breach of treaty obligations. Commentary on Vienna Convention

204on Law o f Treaties, [1966] 2 Y.B. Int’l L. Comm’n 253-54. Since other

means of settling the dispute have failed, and since we can argue that seizure is reasonably proportional to the injury suffered, this action can be justified as meeting the standards of customary international law. E.g., 12 M. Whiteman, Digest of Int’l Law 321-28. We take no positionon whether vesting will be an effective method of resolving the diplomatic impasse.

IV. Effect of Vesting on Pending Litigation

A. Domestic Litigation

What effect would a vesting of Iranian government-owned assets have on domestic suits—and especially on pre-judgment attachmentswhich have been attempted by American creditors, primarily by American banks who have in their custody Iranian government deposits? The Foreign Sovereign Immunities Act of 1976, 28 U.S.C. § 1602, deals comprehensively with the suability of foreign states and their agencies and instrumentalities, and defines the circumstances under which property of such entities can be attached prior to judgment and levied upon in satisfaction of judgments. Whether a suit is properly brought and whether an attachment is valid is, therefore, a question offederal law; state law is relevant only in those instances where attachment is authorized under the Immunities Act; state law defines the rights obtained by an attachment creditor.3 Vesting of Iranian government-owned assets would have little effect on pending suits. It would be for the courts to determine on a case-bycase basis whether the Immunities Act confers jurisdiction. Vesting, however, would impact upon the pending pre-judgment attachments. A majority of the attachments which have been sought are in all likelihood invalid because they either seek to reach property of the Iranian government not used for a “commercial purpose,” or because the property sought to be reached belongs to an Iranian entity which is distinct from the debtor entity. An American claimant who attempted an unauthorized attachment would not be deprived of any cognizable property interests if the asset is vested and title passes to the United
States. In instances where attachments are proper under the Immunities Act, their legal effect would have to be determined under state law. A valid attachment would not be cancelled or annulled upon vesting, even if the property were “frozen” at the time the attachment was obtained.

Zittm an v. McGrath, 341 U.S. 446 (1951) (holding that a “right, title

3T he Iranian Assets C ontrol Regulations expressly authorize pre-judgm ent attachm ents. 31 C.F.R. § S35.4I8 (as added on Decem ber 19, 1979). But the regulations authorize such attachm ent only w here federal or state law grants a right to a creditor to attach his debtor's property; the regulations themselves are not a source o f substantive creditor’s rights.



### 205and interest” vesting leaves undisturbed any property interests acquired

by a pre-vesting attachment creditor). When vesting property, the federal government merely steps into the shoes of the pre-vesting owner (here, the Iranian government). This does not mean that property in
which an attachment creditor obtained an interest under state law is not subject to vesting. The Second Zittm an case ( Zittm an v. McGrath, 341 U.S. 471 (1951)) teaches that the federal government may enforce a transfer of possession of the funds “for purposes of administration.”During such administration—which is akin to a receivership—the preexisting rights of attachment creditors must be preserved. State law
would determine whether an attachment creditor would be entitled to apreference if the assets of the pre-vesting owner turn out to be insufficient to satisfy the obligation owed to the creditor.

B. Effect on Foreign Litigation

Legislation authorizing the vesting of Iranian property would, under principles of international law, not be enforceable against property located abroad.4 Iranian dollar deposits in U.S. branch banks abroad could be reached only if the foreign courts were to hold that such dollar deposits in U.S. branch banks are in reality located at the homeoffice of the banks in the United States. Of course, that issue is presently being litigated in English and French courts with respect to the
Presidential freeze order. While authorizing vesting of domestic assets, Congress could confirmthe preexisting Presidential freezing order on Iranian governmentowned assets in the custody of American nationals abroad, in which case the pending litigation in England and France would continue. Congress could, in the alternative, lift the freeze on Iranian assets held by Americans abroad, thus mooting the litigation (as far as the extraterritorial reach of the Presidential freezing order is concerned).

J o h n M. H a r m o n Assistant Attorney General Office o f Legal Counsel

*See Ingenohl v. Olsen, 273 U.S. 541, 544 (1927): “ If the Alien Property Custodian purported to convey rights in English territory valid as against those whom the English law protects he exceeded the powers that w ere or could be given to him by the United States." A ttem pts by states to extend their seizure pow ers extraterritorially have failed. See, e.g.. Republic o f Iraq v. First National City Bank, 353 F.2d 47 (2d Cir. 1965), cert, denied. 382 U.S. 1027 (1966).

206