Certain Iranian Assets (Islamic Republic of Iran v United States of America), ICJ, 2023/3

The International Court of Justice (ICJ) issued its final judgment on the Certain Iranian Assets case (Iran v. USA) on March 30, 2023. The case was initially brought by Iran in 2016 after the US froze approximately $1.8 billion of Iran’s Central Bank assets (Bank Markazi), citing Iran’s alleged involvement in state-sponsored terrorism.

Background:

In 1983, a terrorist attack on a US Marine barracks in Beirut, Lebanon, killed over 200 American military personnel. The US believed Iran was involved in the attack through its support of Hezbollah (an Islamist political and militant group designated as a terrorist organization by many states, including the US) and subsequently declared Iran to be a ‘state sponsor of terrorism’ in 1984. Twelve years later, the US Congress amended the Foreign Sovereign Immunities Act (FSIA) to allow victims of terrorism to sue foreign states accused of supporting terrorist groups in US courts.

Iran challenged this legislation in 2016, claiming the US had breached the Treaty of Amity by failing to recognize the separate legal status of Iranian companies, including the central bank, and by unfairly treating them. Iran also alleged that the US had expropriated their property, restricted their access to US courts, and interfered with their freedom of commerce. Iran sought remedies via international legal mechanisms in the form of compensation for losses and a formal apology for these alleged breaches. As such, in 2019, the International Court of Justice (ICJ) issued a judgment on preliminary objections, rejecting most of the US’ claims. However, the ICJ did not rule on whether Iran’s central bank, Bank Markazi, was a commercial or sovereign entity, deciding that this question should be addressed in the judgment on the merits.

Relevant Laws And Treaties:

The primary legal foundation for this case is rooted in the 1955 Treaty of Amity, Economic Relations, and Consular Rights between Iran and the United States. This treaty sought to foster friendly relations and protect the economic interests of both nations’ citizens and companies operating within each other’s territories. In addition, the Foreign Sovereign Immunities Act (FSIA) of 1976 provides the legal basis for the United States to claim immunity for foreign states in US courts. However, it includes exceptions, such as the Terrorism Exception, which allows for the seizure of assets from state sponsors of terrorism to compensate victims. Furthermore, the Terrorism Risk Insurance Act (TRIA) of 2002, specifically Section 201(a), authorizes the US government to execute or attach assets of designated state sponsors of terrorism to satisfy judgments under the FSIA Terrorism Exception. Lastly, Executive Order 13599 of 2012, signed by President Barack Obama, expanded the scope of asset freezes to include all assets of the Islamic Republic of Iran, including those of the Central Bank, thereby intensifying US efforts to hold Iran accountable for state-sponsored terrorism.

Legal Proceedings:

In the 2023 proceedings, the ICJ partially upheld Iran’s claims. The ICJ determined that it lacked jurisdiction over claims involving Bank Markazi, but found that the US’s actions regarding other assets were inconsistent with the Treaty. This decision highlighted the complexities of international treaties, sovereign immunity, and the ongoing political tensions between the two countries.

Judgment:

The Iran v The United States case reached a significant milestone in 2023 when the ICJ delivered its judgment on Iran’s claims regarding the freezing of its assets. The core legal question the ICJ faced was whether the US’ freezing of Iranian assets violated the 1955 Treaty of Amity. Specifically, the ICJ had to decide if Bank Markazi, Iran’s central bank, was protected under the treaty. The court ultimately ruled that Bank Markazi did not qualify as a ‘company’ under the treaty and thus fell outside the treaty’s protection. However, the ICJ found that the US’ actions related to other Iranian entities breached the treaty by unjustly seizing their assets. This ruling reflects the complexities of applying international treaties in cases involving national security concerns and counter-terrorism measures.

Both Iran and the US responded critically to the judgment, with each party interpreting the ruling to support their broader diplomatic narratives, evidencing broader tensions between national laws targeting terrorism financing and international obligations under treaties. For the United States, the ruling is a successful outcome in that it dismisses claims related to Bank Markazi, reinforcing the US legal stance on asset freezes tied to anti-terrorism measures. For Iran, the ruling acknowledges wrongful asset seizures beyond Bank Markazi, mandating compensation. However, the enforcement of this ruling remains uncertain given the strained US-Iran relations.

Commentary:

The ICJ decision has significant implications for the United States and Iran. As a binding ruling, the US is required to work with Iran to determine the compensation amount and ultimately pay the agreed-upon sum. Failure to comply would risk damaging the US reputation with the ICJ and under international law, potentially undermining its credibility.

A notable aspect of the ICJ’s ruling is that it did not address certain allegations related to the Central Bank of Iran (CBI), specifically Articles III, IV, and V. This omission allows efforts to pay out judgments using the bank’s funds to proceed, which a US official hailed as a significant victory for the US and victims of Iran’s state-sponsored terrorism. However, the ICJ’s judgment also ruled against the US on several key points, highlighting the complexity of the issue.

The US withdrawal from the Treaty of Amity in 2018 has significant implications for the ruling’s scope. Any actions taken after the withdrawal would not be subject to the decision, effectively limiting its applicability. Nevertheless, Iran has launched a separate case with the ICJ, Alleged Violations of the 1955 Treaty of Amity, which concerns the “8 May sanctions” imposed after the US withdrew from the Joint Comprehensive Plan of Action (JCPOA) in May 2018.

The Alleged Violations of the 1955 Treaty of Amity case presents an opportunity for the ICJ to provide further guidance on contentious issues, such as the definition of “company.” The court will also examine various sanctions regimes, including targeted sanctions against individuals and entities, and offer further jurisprudence on issues like national security under Article XX(1)(d).

While the US is not obligated to address the points raised by the ICJ by amending laws or revoking Executive Orders, other countries affected by the relevant provisions of the FSIA and the TRIA and by Executive Orders similar to EO 13599 may bring similar claims before the ICJ. This highlights the potential for future litigation and the need for the US to review its legislation and EOs.

To mitigate the risk of future litigation, the US may need to revise its legislation and EOs to address the issues raised by the ICJ. For instance, the court found that the legislative provisions were overly broad and could be applied to any legal entity, regardless of Iran’s control. Narrowly defining the language of the legislation to focus on entities under an SST’s direct control and limiting the available property to that which was previously blocked may help address these concerns.

Such revisions would likely reduce the pool of available funds but would ultimately increase the efficiency and ease with which victims can be compensated. They would also align the US with international standards, strengthening multilateral action. This opinion is likely to influence the approach other states take when applying and managing targeted sanctions, particularly in their ongoing efforts to freeze and seize billions of dollars’ worth of Russian bank funds and frozen assets.

Key Considerations:

• The ICJ’s ruling has significant implications for the US and Iran, requiring cooperation in determining the compensation amount.
• The ruling did not address certain allegations related to the CBI, allowing efforts to pay out judgments using the bank’s funds to proceed.
• The US withdrawal from the Treaty of Amity limits the ruling’s scope, but other countries may bring similar claims before the ICJ.
• The Alleged Violations of the 1955 Treaty of Amity case presents an opportunity for the ICJ to provide further guidance on contentious issues.
• The US may need to revise its legislation and EOs to address the issues raised by the ICJ and mitigate the risk of future litigation.

Written by Faryal Fatima

References:

Julia Sochaka, “Shaping the Immunity of Central Banks: The ICJ’s Merits Decision in Certain Iranian Assets,” American Society of International Law, Volume: 28, Issue: 3, February 12, 2024

Celeste Kmoitek, “What the ICJ ruling on the Central Bank of Iran means for the US and the Islamic Republic—and those seeking reparations for state-sponsored atrocities,” Atlantic Council, April 24, 2023