Court Opinion

ID: 4120187
Source: CourtListenerOpinion
Date Created: 2017-01-27 22:45:53.412709+00
Date Added: 2024-06-11T14:20:23.009182
License: Public Domain

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
                                   249
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.

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   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
                                   251
        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
                                  252
 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.

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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.

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        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].

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       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

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