FROM THE OFFICE OF PUBLIC AFFAIRS

Mr. Chairman, Ranking Member Leahy and Members of the Committee:

Good morning. I am here to discuss the Administrations position on proposals to further amend the Foreign Sovereign Immunities Act.

Let me begin by expressing the Administrations and my own personal sympathy to victims of international terrorism -- an evil that this Administration has taken world leadership in combating. It is the responsibility of the United States Government to do everything possible to protect American lives from international terrorism. People like the Flatows and the families of the Brothers to the Rescue deserve government support in their demand to be compensated for their grievous losses. The Administration is dedicated to working with the Congress to achieve this goal by setting up a commission which would recommend proposals to the President and to the Congress to help families of the victims of international terrorism receive compensation. But this must be done in a way that is consistent with our national interest, not done in a piecemeal fashion, and does not touch blocked assets or diplomatic property to achieve this end. The commission would also review all other aspects of the problems presented by acts of international terrorism.

International terrorism is an all too common evil in todays world, affecting the lives of too many Americans. In my capacity as the Presidents Special Representative for Cuban Democracy, I met in Miami with the families of the Brothers to the Rescue members who were shot down by Cuba. It was an unforgettable experience and one that personalized for me the brutality of the Castro regime. I have also met on several occasions with Mr. Flatow, who lost his daughter Alisa in a bomb attack in Gaza. I was touched by the depth of suffering, as well as impressed by the strength and determination of the families to seek justice for their loved ones. We understand the frustrations that have led the sponsors of this legislation to introduce it. These plaintiffs have suffered grievously at the hands of terrorists and should be compensated by those responsible.

However, it should come as no surprise that the states involved here -- states that we have publicly branded as sponsors of terrorism -- do not view the United States as a cordial environment to conduct financial transactions. As part of our efforts to combat terrorism, we impose a wide range of economic sanctions against state sponsors of terrorism in order to deprive them of the resources to fund acts of terrorism and to affect their conduct. Because of these measures, terrorism-list states engage in minimal economic activity in the United States. In many cases, the only assets that states which sponsor terrorism have in the United States are either blocked or diplomatic property. Such property is not legally available for attachment and execution of judgments, for very good reasons involving the security and interests of the entire nation, which I will describe in detail.

As much as we join the sponsors of this bill in desiring to have victims of international terrorism compensated, it would be unwise in the extreme to ignore these reasons and forgo the interests of all our citizens for this purpose.

The legislation before the Committee today, though born of good intentions, is fundamentally flawed. The legislation would have five principal effects, all of which would be seriously damaging to important U.S. interests.

First, blocking assets of terrorist states is one of the most significant economic sanctions tools available to the President. This legislation would undermine the President's ability to combat international terrorism and other threats to national security by permitting the attachment of blocked property, thereby depriving the U.S. of a source of leverage, such as was used to gain the release of our citizens held hostage in Iran.

Second, it could cause the U.S. to violate our obligations to protect diplomatic property of other nations, and would put our own diplomatic property around the world at risk.

Third, it would benefit one small group of Americans over a far larger group of Americans. Those with judgments in court since the FSIA amendments of 1996 would benefit over others, many of whom have waited decades to be compensated by Cuba and Iran for both the loss of property and the loss of the lives of their loved ones, and would leave no assets for their claims and others that may follow.

Fourth, it would breach the long-standing principle that the United States Government has sovereign immunity from garnishment, thereby preventing the U.S. Government from making good on its debts and potentially causing the U.S. taxpayer to incur substantial financial liability.

Fifth, it would direct courts to ignore the separate legal status of states and their agencies and instrumentalities, overturning Supreme Court precedent and basic principles of corporate and international law by making state-owned corporations liable for the debts of the state.

As The Washington Post observed in a recent editorial, Victims of terrorism certainly should be compensated, but a mechanism that permits individual recovery to take precedence over significant foreign policy interests is flawed. The proposed legislation would indeed seriously compromise important national security, foreign policy, and other clear national interests, and discriminate among and between past and future U.S. claimants. For the reasons which I will explain in detail during the course of my remarks, the Administration strongly opposes the proposed legislation.

I want to begin by explaining the Administrations grave concerns with the provisions of the legislation that seek to nullify the President's waiver of last year's Foreign Sovereign Immunities Act amendments and thereby permit attachment of blocked and diplomatic property.

Let us be entirely clear: attachment of blocked or diplomatic property would compromise our national security and would seriously prejudice a number of important national interests. These interests include:

• our interest in the effective functioning and preservation of our asset blocking programs to combat threats to our national security and to the safety of American citizens abroad;
  

• our legal obligation to protect the diplomatic property of foreign states, regardless of the status of our relations with those states, and our clear national interest in upholding the international legal regime that protects U.S. diplomatic property and personnel abroad; and
  
• our interest in avoiding laws that would create gross inequities in the amounts of compensation received by similarly situated U.S. nationals with claims against foreign governments.

I will address each of these concerns in turn.

The ability to block assets represents one of the primary tools available to the United States to deter aggression and discourage or end hostile actions against U.S. citizens abroad. Our efforts to combat threats to our national security posed by terrorism-list countries such as Iraq, Libya, Cuba, and Sudan rely upon our ability to block the assets of those countries.

Blocking assets permits the United States to deprive such countries of resources that they could use to harm our interests, and to disrupt their ability to carry out international financial transactions. By placing the assets of such countries in the sole control of the President, blocking programs permit the President at any time to withhold substantial benefits from countries whose conduct we abhor, and to offer a potential incentive to such countries to reform their conduct. Our blocking programs thus provide the United States with a unique and flexible form of leverage over countries that engage in threatening conduct.

The Congress has recognized the need for the President to be able to regulate the assets of foreign states to meet threats to the U.S. national security, foreign policy and economy. In both the International Emergency Economic Powers Act and the Trading with the Enemy Act, the Congress has provided the President with statutory authority for regulating foreign assets. On the basis of this authority and foreign policy powers under the Constitution, Presidents have blocked property and interests in property of foreign states and foreign nationals that today amounts to over $3.4 billion.

The Supreme Court has also recognized the importance of the Presidents blocking authority, stating that such blocking orders permit the President to maintain the foreign assets at his disposal for use in negotiating the resolution of a declared national emergency. The frozen assets serve as a bargaining chip to be used by the President when dealing with a hostile country, Dames & Moore v. Regan, 453 U.S. 654, 673 (1981).

The leverage provided by blocked assets has proved central to our ability to protect important U.S. national security and foreign policy interests. The most striking example is the Iran Hostage Crisis from 1979-1981. The critical bargaining chip the United States had to bring to the table in an effort to resolve the crisis was the almost $10 billion in Iranian Government assets that the President had blocked shortly after the taking of our embassy. This was a decision in which I was involved as President Carters Chief Domestic Adviser. Because the return of the blocked assets was one of Iran's principal conditions for the release of the hostages, we would not have been able to secure the safe release of the hostages and to settle thousands of claims of U.S. nationals if those blocked assets had not been available. This settlement with Iran also resulted in the eventual payment of $7.5 billion in claims to or for the benefit of U.S. nationals against Iran.

In the case of Vietnam, the leverage provided by approximately $350 million in blocked assets, combined with Vietnams inability to gain access to U.S. technology and trade, played an important role in persuading Vietnams leadership to address important U.S. concerns in the normalization process. These concerns included full accounting of POWs and MIAs from the Vietnam War, accepting responsibility for over $200 million in U.S. claims which had been adjudicated by the Foreign Claims Settlement Commission, and moderating Vietnamese actions in Cambodia.

In addition, blocked assets have helped us to secure equitable settlements of claims of U.S. nationals against such countries as Romania, Bulgaria and Cambodia in the context of normalization of relations. These results could not have been achieved without effective blocking programs.

However, our blocking programs simply cannot function, and cannot serve to protect these important interests, if blocked assets are subject to attachment and execution by private parties, as the proposed legislation would permit. The ability to use blocked assets as leverage against foreign states that threaten U.S. interests is essentially eliminated if the President is unable to preserve and control the disposition of such assets. Private rights of execution against blocked assets would permanently rob the President of the leverage blocking provides by depleting the pool of blocked assets.

In the Cuban and Iranian contexts, for example, the value of the judgments won by the Brothers to the Rescue families exceeds the total known value of the blocked assets of the Government of Cuba in the United States, and the value of the judgment won by the Flatow family or the former Beirut Hostages exceeds the total known value of the blocked assets of the Government of Iran in the United States. Attachment of blocked assets to satisfy private judgments in these and similar cases would leave no remaining assets of terrorism-list governments in the Presidents control, denying the President an important source of leverage and seriously weakening his hand in dealing with threats to our national security.

In addition, the prospect of future attachments by private parties would place a perpetual cloud over the Presidents ongoing control over blocked assets. This would further undermine the Presidents ability to use such assets as leverage in negotiations, even where attachments had not yet occurred.

Put simply, permitting attachment of blocked assets would eliminate the use of our blocking programs as a key tool for combating threats against our national security.

The proposed legislation also could cause the United States to violate our obligations under international law to protect diplomatic property, and would undermine the legal protections for diplomatic property on which we rely every day to protect the safety of our diplomatic property and personnel abroad. Even though the current version of the legislation before the Committee provides protection for a slightly broader range of diplomatic property than previous versions, it is still fundamentally flawed in its failure to permit the President to protect properties, including consular properties, some diplomatic bank accounts, and diplomatic residences, which international law obligates us to protect.

The United States legal obligation to prevent the attachment of diplomatic property could not be clearer. Protection of diplomatic property is required by the Vienna Convention on Diplomatic Relations, to which the United States and all of the states against which suits presently may be brought under the 1996 amendments to the FSIA are parties. Under Article 45 of the Vienna Convention on Diplomatic Relations we are obligated to protect the premises of diplomatic missions, together with their real and personal property and archives, of countries with which we have severed diplomatic relations or are in armed conflict. This would include diplomatic residences owned by the foreign state.

Likewise, under Article 27 of the Vienna Convention on Consular Relations, the same protection is required for consular premises, property, and archives. Attachment of any of the types of property covered by the Vienna Conventions on Diplomatic and Consular Relations could place the United States in violation of our obligations under international law. The proposed legislation would only permit the President to ensure the protection of a narrow portion of the property covered by the Vienna Conventions, and would thereby place the United States in violation of our legal obligations.

In addition, the proposed legislation as drafted could cause us to breach our obligations to ensure the inviolability of missions to the United Nations, pursuant to the UN Headquarters Agreement and the General Convention on Privileges and Immunities.

Nor could our national interest in the protection of diplomatic property be clearer or more important. The United States owns over 3000 buildings and other structures abroad that it uses as embassies, consulates, missions to international organizations, and residences for our diplomats. The total value of this property is between $12 and $15 billion.

Because we have more diplomatic property and personnel abroad than any other country, we are more at risk than any other country if the protections for diplomatic and consular property are eroded. If we flout our obligations to protect the diplomatic and consular property of other countries, then we can expect other countries to target our diplomatic property when they disagree strongly with our policies or actions. Defending our national interests abroad often makes the United States unpopular with some foreign governments. We should not give those states who wish the United States ill an easy means to strike at us by declaring diplomatic property fair game.

In the specific case of Iran, attachment of Irans diplomatic and consular properties could also result in substantial U.S. taxpayer liability. Irans diplomatic and consular properties in the United States are the subject of a claim brought by Iran against the United States before the Iran-U.S. Claims Tribunal. I will say more about the Tribunal later in my remarks. For the moment, let me simply note that, although we are contesting this claim vigorously, the Tribunal could find that the United States should have transferred Iran's diplomatic and consular property to it in 1981. If it does so and the properties are not available because they have been liquidated to pay private judgments, the U.S. taxpayer would have to bear the cost of compensating Iran for the value of the properties. Such an award against the United States would be enforceable in the courts of any country, under the laws of that country.

The proposed legislation would also frustrate equity among U.S. nationals with claims against terrorism-list states. It would create a winner-take-all race to the courthouse, arbitrarily permitting recovery for the first, or first few, claimants from limited available assets, leaving other similarly situated claimants with no recovery at all. In fact, it would take away assets potentially available to them.

As I noted earlier, the value of the judgments held by the families of the Brothers to the Rescue victims exceeds the total value of blocked assets of the Government of Cuba in the United States. Similarly, even if the plaintiffs in the Flatow case were to succeed in attaching all of Irans diplomatic and consular properties in the United States, these properties would be insufficient to satisfy even one tenth of the damages awarded in that judgment. In each case, execution on their judgments would exhaust all of the blocked assets of these governments in the United States.

However, the Alejandre and Flatow cases do not represent the only claims of U.S. nationals against Cuba and Iran. No other claimants would benefit at all from the proposed legislation; indeed this legislation would seriously prejudice their interests.

In the case of Cuba, the U.S. Foreign Claims Settlement Commission has certified 5,911 claims of U.S. nationals against the Government of Cuba, totaling approximately $6 billion with interest, dating back to the early 1960s. These include the wrongful death claims of family members of two individuals whom the Cuban Government executed after summary trial for alleged crimes against the Cuban state. Other claims relate to the Castro Governments seizure of homes and businesses from U.S. nationals. These claimants have waited over 35 years without yet receiving compensation for their losses. This bill will not help them at all.

The same situation applies with respect to Iran. In addition to the Flatow case, the plaintiffs in the Beirut Hostage case -- David Jacobsen, Joseph Cicippio, Frank Reed, and their families collectively have won judgments against Iran totaling $65 million arising from the three men being held hostage in Lebanon. Similar suits against Iran, including one brought by Terry Anderson for damages related to his captivity, are currently pending in the Federal District courts.

Moreover, given the nature of these regimes, it remains possible that in spite of our substantial efforts to combat terrorism, foreign terrorist states will commit future acts in violation of the rights of U.S. nationals, which may give rise to claims against them. If such incidents occur, these claimants will also have an interest in being compensated.

Against this background, in which outstanding claims far exceed available funds, the proposed legislation would permit the first claimants to reach the courthouse to deplete all the available assets of terrorism-list governments, leaving nothing for other similarly situated claimants. Satisfaction of the judgments in the Brothers to the Rescue and Flatow cases would come at the expense of all other claimants against Cuba and Iran, both past and future. This would be fundamentally unfair.

Equitable resolution of all outstanding claims of terrorism-list states must be accomplished systematically in order to ensure fairness to all parties, not in the piecemeal fashion envisioned by the proposed legislation.

In sum, permitting the attachment of blocked and diplomatic properties in individual cases, as the proposed legislation would do, would:

• undermine our ability to combat threats to our national security,
  

• violate our obligations under international law,
  
• place our diplomatic properties and personnel abroad at risk, and
  
• lead to arbitrary inequities in the treatment of similarly situated U.S. nationals with claims against foreign governments.

Let me turn next to the provision of the proposed legislation which would permit garnishment of debts of the United States. This provision would breach the long-established principle that the United States Government has sovereign immunity from garnishment actions. This provision is of particular concern because it would result in the U.S. taxpayer being liable for millions, and perhaps hundreds of millions, of dollars by prejudicing the position of the United States with respect to claims pending before the Iran-U.S. Claims Tribunal in The Hague.

Let me say a few words about the Iran-U.S. Claims Tribunal. The Iran-U.S. Claims Tribunal is an arbitration court located at The Hague in the Netherlands. It was established as part of the agreement between Iran and the United States that freed the U.S. hostages in Iran and resolved outstanding claims that were then pending between the United States and Iran. Pursuant to this agreement and awards of the Tribunal, Iran has paid $7.5 billion in compensation to or for the benefit of U.S. nationals. The Tribunal also has jurisdiction over certain claims between the two governments.

The proposed legislation would prevent the United States from meeting its obligations to pay money to Iran in satisfaction of awards the Tribunal renders against the United States. Instead, the proposed legislation would permit private parties to garnish the funds of the United States Government in order to collect such payments before they reach Iran. Even without this change in the law, there have been efforts in the Flatow case to garnish the payment of a $6 million Tribunal award in Irans favor.

It is important to understand that allowing private litigants to garnish amounts we owe Iran under Tribunal awards would not discharge our liability to Iran to pay such money. For example, if the efforts in the Flatow case succeed, the Flatow family will receive $6 million, but the United States will still owe Iran $6 million under the unpaid award. And because the awards of the Iran-U.S. Claims Tribunal are enforceable in the courts of any country, Iran can enforce awards against non-immune U.S. property in other countries if we do not pay them voluntarily.

Permitting garnishment of the payment of such awards would thus result in the U.S. taxpayer paying twice: once when a private claimant garnishes the payment, and a second time when Iran enforces the still unsatisfied award against us abroad. Because the judgments against Iran received by these plaintiffs total in the hundreds of millions of dollars, permitting garnishment of debts owed by the United States to Iran as a means of satisfying these judgments could cost the U.S. taxpayer hundreds of millions of dollars.

You should also know that we face other claims by Iran at the Tribunal totaling billions of dollars. We are vigorously contesting these claims. If we are unable to pay awards against us, our position before the Tribunal in these other claims will clearly be undermined.

Let me now turn to the provision of the proposed legislation that would change the way the FSIA defines a foreign states agencies and instrumentalities for terrorism-list countries where there is a terrorism-related judgment against it. This provision would overturn the Congress own considered judgment when it passed the FSIA in 1976, as well as existing Supreme Court case law and basic principles of corporate and international law. In addition, it would prejudice the interests of U.S. citizens and corporations who invest abroad.

This provision would make corporations that are majority-owned or controlled by a terrorism-list foreign government liable for all of the individual debts of that government. The Congress recognized the danger of this position when it passed the FSIA in 1976. The Conference Report to that bill observed that if U.S. law did not respect the separate juridical identities of different agencies or instrumentalities, it might encourage foreign jurisdictions to disregard the juridical divisions between different U.S. corporations or between a U.S. corporation and its independent subsidiary.

U.S. citizens and corporations have far more money invested abroad than those of any other country, and thus have more to lose if investment protections such as those provided by the presumption of separate status is eroded. If we saddle the investors of other countries with the debts of foreign governments with which they are co-investors, as the proposed legislation would do, then we can expect U.S. investors to pay a considerably higher price when other governments follow our example.

This hearing has afforded a welcome opportunity to discuss a very important subject involving the fight against terrorism, compensation for victims, and critical national security interests. Unfortunately, however, the concerns raised here today indicate that the 1996 amendment waiving sovereign immunity and creating a judicial cause of action for damages arising from acts terrorism has not met its purposes of providing compensation to victims and deterring terrorism. In fact, if blocked assets were exhausted to compensate the families, which would be the result of this bill, the leverage to affect the conduct of the terrorist-list states would be lost along with the blocked assets. I hasten to add that we are not happy that these suits have not led to recovery for families who have brought cases under the 1996 amendment. A system that has to date left no recovery option other than one that conflicts with U.S. national security interests is not an acceptable system.

We are anxious to work with the Congress to address this difficult problem. Together, we hope to formulate short and longer-term approaches that will address the concerns -- of compensation for terrorist acts and the U.S. national interests and international obligations that we all share -- in a much more satisfactory way. Most important, we believe that for a workable and effective longer-term solution we need a careful and deliberative review of the issues, informed by our experience since the 1996 amendment. We suggest that the Administration and Congress commit to a joint commission to review all aspects of the problem, and to recommend to the President and the Congress proposals to find ways to help these families receive compensation, in a way consistent with our overall national interests and international obligations.

This commissions task would differ from previous commissions such as that established under the 1996 Antiterrorism and Effective Death Penalty Act. The Commission on the Advancement of Federal Law Enforcement has 10 specific areas of inquiry in its broad law enforcement charter, with capability to investigate and deter terrorism being only one of them.

We believe that the new commission should be one of stature and with the right expertise to confront all the hard issues we have discussed today - including the lack of effective remedies in these cases because of sanctions against terrorism-list countries under U.S. law, which are absolutely necessary to maintain. I would like to pursue this idea in more depth with you and your staffs.

A fundamental principle for this joint commission - by definition - would be the need to inventory outstanding claims and develop an effective and fair mechanism for compensation of victims of terrorism. We believe it should be encouraged to think broadly, including consideration of avenues other than the judicial one created by the 1996 amendment.

Just as important, the commission should be guided by the principle of preservation of blocking programs and protecting diplomatic property, for the important reasons we have addressed here today. In this light, we would suggest that the commission should present alternatives to statutes that would make blocked assets available for attachment, such as last years amendments to the FSIA and the recent bill presented for consideration by this committee. Just as critical U.S. interests served by blocking must be preserved, so should the commission consider the likelihood that, under the current scheme, foreign countries will take reciprocal actions against U.S. property abroad both diplomatic and private.

Once again, we are committed to working together with you to find legislative and non-legislative means for addressing these issues. As one critical part of this effort, we look forward to beginning work on a commission so it can be constituted soon and be charged with making its recommendations within 12 months thereafter.