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transferred or withdrawn, but does not permit its use by the United 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

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The 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 other 

period 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 declaration 

it 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).

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private 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 must 

permit 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 of 

its 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

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on 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 position 

on 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 attachments 

which 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 of 

federal 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.

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and 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 a 

preference 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 home 

office 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 confirm 

the 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).

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