Hundreds of thousands of dollars tied to Iranian financial institutions and frozen by U.S. banks remain off-limits to terrorism victims, the U.S. Court of Appeals for the D.C. Circuit ruled today. The problem, the court said, was the lack of proof the Iranian government owned the bank accounts at issue.
Families of victims of the 1996 bombings at the Khobar Towers apartment complex in Saudi Arabia sued the Iranian government in 2000, accusing Iran of supporting the terrorist group behind the attack. The families won a default judgment—Iran never participated in the case—and a judge awarded approximately $591 million in damages.
The plaintiffs began what U.S. District Senior Judge Royce Lamberth once described as the "often-frustrating and always-arduous" task of finding Iranian assets to satisfy judgments. In August 2011, Lamberth ordered Sprint Nextel Corp., to pay more than $610,000 it owed to an Iranian state telecommunications agency to the plaintiffs instead.
The plaintiffs also went after other assets in which Iran had an interest. Bank of America and Wells Fargo conceded Iran had an interest in certain accounts holding more than $360,000. The banks challenged the plaintiffs' claim to other accounts holding more than $350,000 in frozen electronic transfers, saying there was no evidence the Iranian government had an ownership interest in that money. The plaintiffs said the Iranian banks' interests were enough to give them grounds to claim the funds.
The D.C. Circuit today agreed with Lamberth's decision denying the plaintiffs' request. Senior Judge A. Raymond Randolph, writing for the panel, said the plaintiffs' interpretation of regulations governing blocked assets risked "punishing innocent third parties."
"If potentially innocent parties pay plaintiffs’ judgment, then the punitive purpose of these provisions is not served. Quite the opposite. To the extent innocent parties pay some part of a terrorist state’s judgment debt, the terrorist state’s liability is ultimately reduced," Randolph wrote. Judge Janice Rogers Brown and Senior Judge Harry Edwards also heard the case.
The federal court in Washington has awarded more than $18 billion in judgments against Iran since 2008 for its support of terrorism. Today's ruling highlighted the challenges plaintiffs face collecting terror case judgments.
Lead counsel on appeal for Bank of America and Wells Fargo, James Kerr of Davis Polk & Wardwell, said the decision would serve as useful guidance as similar cases play out. "It clarifies the process for dealing with blocked wire transfers," Kerr said an interview. "It should clarify things for both bank garnishees and parties seeking execution."
DLA Piper's Dale Cathell, who argued for the plaintiffs, could not immediately be reached for comment.