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After Congress made terrorism the exception to the general rule that people cannot use American courts to sue foreign governments, victims of attacks have racked up more than $50 billion in default judgments against Iran over the last two decades. 

Although the judgments provided a symbolic justice, there was no realistic expectations that Iran would pay what it owed. However, with Iran nuclear deal in play now, in the first case of its kind, default judgments against Iran have gone to a European court to be enforced.  A judge in Luxembourg has quietly put a freeze on $1.6 billion in assets belonging to Iran’s central bank, for group of attack victims, including estates of people who were killed, who won their cases, according to people familiar with the case.

Instances in which domestic civil lawsuits against foreign entities over terrorist attacks have raised diplomatic and national security complications have increased, and  the

litigation also has broader significance. The 2015 deal was simply that Iran curbed its nuclear program in exchange for the lifting of sanctions so it could become part of the world economy. If Iranian-linked assets are vulnerable to seizure to pay off the default judgments handed down by American courts, that economic goal is undermined.

The Iran Project director at Harvard Kennedy School’s Belfer Center for Science and International Affairs, Payam Mohseni, said that if victims succeed in seizing the funds, it may be a step toward confrontation with hard-liners in Iran who were opposed to the deal and are looking for signs of betrayal. He also noted that few of the envisioned investments in Iran with Western financing have materialized.  “A ruling like this would make Iranian assets vulnerable in Europe which, for Iranians, would violate the spirit of the agreement if not the letter of it,” he said.

The Luxembourg decision attracted little attention as the litigation is confidential, but is now circulating in Washington. On Thursday, lawyers for the victims sent a letter detailing the case to the prime minister of Luxembourg, asking for his government’s assistance in opposing Iran’s effort to unfreeze its assets, and sent a copy of the letter to senior foreign policy officials in the White House.

Neither the White House, not the embassy of Luxembourg in Washington responded to a request for comment.

That the lawsuit did not stem from an attack by Shiite terrorists that specialists agree were sponsored by Iran, but instead, it was brought by victims of the September 11, 2001, attacks by Al Qaeda, the Sunni terrorist group, complicates matters.

A federal judge in New York, George B. Daniels, was persuaded by the victims in 2011 to find that Iran had aided the attacks by providing assistance to Al Qaeda. He ordered Iran to pay the victims $2 billion in compensatory damages and $5 billion in punitive damages in 2012.

As there was no way to collect that judgment stagnated for years. Then it was learned that Clearstream system in Luxembourg was holding $1.6 billion in Iranian central bank assets that had been blocked under sanctions, the letter said. So, last year, lawyers for the September 11 victims persuaded the Luxembourg judge to place a new freeze on those assets while they sued over whether they could execute the default judgment against those funds. Clearstream and the Iranian central bank, Markazi, are trying to get that freeze lifted.

The two lawyers who are leading the effort, Lee S. Wolosky and Michael J. Gottlieb, are former Obama administration officials. Mr. Gottlieb was a lawyer in the White House in Mr. Obama’s first term, and Mr. Wolosky served under Secretary of State John F. Kerry, as the special envoy for Guantánamo closure.

“The Iran nuclear deal does not include terrorism issues or resolve outstanding legal claims, so you can support that deal and also support the enforcement of lawful, final judgments entered by the federal courts wherever Iranian assets are found,” Mr. Wolosky said. “And that is exactly what we are aggressively pursuing.”

Dennis Ross, Iran adviser to Mr. Obama in his first term, predicted that European leaders who support the Iran deal would try to resist such efforts. Iran “will certainly try to get these assets unfrozen so they aren’t put at risk, but I don’t see them walking away from the deal, even though this is a very novel, very creative use of the legal system to try to get these judgments enforced,” he said.

In 2014, the Obama administration divided internally about urging the Supreme Court to intervene in a case against Arab Bank, Jordan’s largest financial institution, brought by victims of terrorist attacks in Israel who accused the bank of dealing with Hamas. The case was ultimately settled.

Last year, the Supreme Court ruled that Iran’s central bank turn over $2.1 billion in frozen assets held by Citibank to victims of the 1983 Marine Corps barracks bombing in Lebanon. The Obama administration backed the victims in that case, which Iran is challenging in the International Court of Justice.

American relations with Saudi Arabia came under strain last year, as well, when Congress, overriding President Obama’s veto, enacted a bill that widened the terrorism exception to foreign sovereigns’ immunity from civil lawsuits, so that victims of the September 11 attacks would be allowed to sue the Saudi government too.

 

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