                                    Vesting of Iranian Assets

B ecause th e In te rn a tio n a l E m e rg e n c y E c o n o m ic P o w e rs A c t d o es not a u th o riz e vesting
   o f fo reig n p ro p e rty , and th e T ra d in g w ith th e E n em y A c t au th o riz e s vesting o n ly in
   w artim e, in th e ab sen ce o f a d e c la ra tio n o f w a r ag ain st Ira n it w o u ld be necessary to
   seek n e w leg islatio n in o r d e r for th e U n ited S tates to take title to th e b lo ck ed Iranian
   assets.
N o d o m estic c o n stitu tio n al issue w o u ld be raised by legislation a u th o riz in g th e v estin g o f
   Iran ian g o v e rn m e n t p ro p e rty ; m o re o v e r, v estin g fo r th e benefit o f e ith e r p riv a te cla im ­
  an ts o r th e U .S. g o v e rn m e n t w o u ld be co n sisten t w ith p rin cip le s o f in tern atio n a l law ,
  e ith e r as a self-h elp m eth o d o f se c u rin g p ay m en t fo r dam ag es, o r as a reprisal for Ira n ’s
  c o n tin u in g v io latio n s o f in tern atio n a l law .
V estin g legislatio n w o u ld h a v e little effect o n p en d in g d o m estic litigation in v o lv in g th e
  b lo ck ed Iran ian assets, an d its effect on p re -ju d g m e n t a tta c h m e n ts w o u ld d e p e n d upon
  th e v alid ity o f su ch a tta c h m e n ts u n d e r sta te law . V estin g legislation w o u ld not be
  en fo rc e a b le ag ain st p ro p e rty lo cated a b ro ad , an d w o u ld th e re fo re h av e no effect on
  fo reig n litig atio n in v o lv in g Iran ian d o lla r d ep o sits in U .S. b ra n c h banks a b ro a d , unless
  foreig n c o u rts w e re to hold th at su ch d o lla r d ep o sits a re in reality lo cated a t th e hom e
  office o f th e ban k s in th e U n ited S tates.

                                                                                                March 12, 1980

 M EM ORANDUM OPIN IO N FOR T H E ATTORNEY G EN ER A L

   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 author­
ity to vest property.1

   1   N o private pro p erty o f Iranian nationals was blocked although the IE E P A is broad enough to
permit this. It w ould be necessary for the President to issue an additional o rd e r to accom plish 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 amend­
ed, 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 recommen­
dation 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 p roperly since the N ovem ber 14 o rd e r only perm its the Secretary o f the T reasury to block
Iranian governm ent property. Presum ably, such action w ould be necessary pending vesting legislation;
otherw ise, the pro p erty could be w ith d raw n in the interim. T h e vesting o f private assets presents
issues different from those concerning vesting o f governm ent assets, as w e discuss below.
    2   V esting p roperty o f private Iranian citizens presents constitutional issues w hich should be exam ­
ined in detail if th ere is any intent to act regarding private properly. Russian Volunteer Fleet v. United
States. 282 U.S. 481 (1931). B u t 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. Dam ages

   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 meth­
ods of securing compensation should fail. E.g., Sordino v. Federal R e­
serve Bank o f N ew 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 repa­
ration . . . 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. Com m entary on Vienna Convention
                                    204
 on L aw 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 diplo­
matic impasse.

                       IV. Effect of Vesting on Pending Litigation

A. Dom estic 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 Amer­
 ican 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 attach­
ment 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-by-
case 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. M cGrath, 341 U.S. 446 (1951) (holding that a “right, title

   3T h e Iranian Assets C o n tro l R egulations expressly authorize pre-judgm ent attachm ents. 31 C .F .R .
§ S35.4I8 (as added on D ecem ber 19, 1979). But the regulations authorize such attachm ent only w here
federal o r state law g rants a rig h t to a c re d ito r to attach his d e b to r's property; the regulations
them selves are not a source o f substantive c re d ito r’s rights.


                                                    205
and interest” vesting leaves undisturbed any property interests acquired
by a pre-vesting attachment creditor). When vesting property, the fed­
eral 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 Z ittm 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 pre­
existing 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 insuffi­
cient 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. O f course, that issue is pres­
ently 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 government-
owned 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).

                                                               Jo   hn    M.    H   arm on

                                                          Assistant Attorney General
                                                           Office o f L egal Counsel




   *See Ingenohl v. Olsen, 273 U.S. 541, 544 (1927): “ If the A lien P roperty C ustodian purported to
convey rights in English te rrito ry valid as against those w hom the English law protects he exceeded
the pow ers that w ere o r could be given to him by the U nited States." A ttem pts by states to extend
their seizure pow ers ex traterrito rially have failed. See, e.g.. Republic o f Iraq v. First N ational City Bank,
353 F.2d 47 (2d Cir. 1965), cert, denied. 382 U.S. 1027 (1966).

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