Message to the Congress Reporting on the National Emergency With Respect to Iran

May 23, 1986

To the Congress of the United States:

Pursuant to Section 204(c) of the International Emergency Economic Powers Act, 50 U.S.C. Section 1703(c), I hereby report to the Congress on developments since my last report of November 13, 1985, concerning the national emergency with respect to Iran that was declared in Executive Order No. 12170 of November 14, 1979.

1. The Iran-United States Claims Tribunal, established at The Hague pursuant to the Claims Settlement Agreement of January 19, 1981 (the ``Algiers Accords''), continues to make progress in arbitrating the claims before it. Since my last report, the Tribunal has rendered 29 more decisions for a total of 223 final decisions. Of that total, 167 have been awards in favor of American claimants; 110 were awards on agreed terms, authorizing and approving payment of settlements negotiated by the parties, and 57 were adjudicated decisions. As of April 1, 1986, total payments to successful American claimants from the Security Account stood at approximately $538 million. In cases between the governments, the Tribunal has issued two decisions in favor of each government, dismissed one claim that had been filed by the United States, and dismissed four claims that had been filed by Iran. In addition, Iran has withdrawn fifteen of its government-to-government claims, while the United States has withdrawn three.

2. The Tribunal continues to make progress in the arbitration of claims of U.S. nationals for $250,000 or more. More than 40 percent of the claims for over $250,000 have now been disposed of through adjudication, settlement, or voluntary withdrawal, leaving 292 such claims on the docket. In recent decisions that should prove favorable for many American claimants, the Tribunal decided that principles of international law and the Treaty of Amity, Economic Relations and Consular Rights between the United States and Iran require that Iran provide compensation for the full value of expropriated property, regardless of the legality of the act of expropriation. In two major recent awards on agreed terms, two U.S. oil companies settled their claims against Iran for a total of $115 million. Settlement discussions continue to proceed between numerous American claimants and Iranian respondents.

3. The Tribunal continues to make progress on claims of U.S. nationals against Iran of less than $250,000 each. While this process is slower than we would like, more than 120 claims are in active arbitration. The Department of State has submitted more than 34,000 pages of text and evidence in support of these claims. Additional pleadings are being filed weekly. The Tribunal held the first hearings on these claims in December, and the first two decisions -- which may provide a basis for more rapid disposition of many other claims -- have recently been filed. Iran has not to date been willing to negotiate a lump sum settlement of these claims. Since my last report, another three small claimants (including one whose claims had been scheduled for a hearing) have received awards on agreed terms, bringing the total number of such awards to fifteen.

4. The Department of State continues to coordinate the efforts of concerned governmental agencies in presenting U.S. claims against Iran as well as responses by the U.S. Government to claims brought against it by Iran. Since my last report, the Department has filed pleadings in eight government-to-government claims based on contracts for the provision of goods and services. The Tribunal recently issued a decision holding that the contractual time limitation on the filing of claims under the Foreign Military Sales program is applicable to FMS-based cases at the Tribunal, but leaving unresolved the question of the evidentiary requirements applicable in proving shipment of goods under the contracts.

In addition to work on the government-to-government claims, the Department of State, working together with the Department of the Treasury and the Department of Justice, filed five pleadings in disputes concerning the interpretation and/or performance of various provisions of the Algiers Accords. The Tribunal held two hearings on interpretive disputes. The first dealt with the standard of proof that a corporate claimant must satisfy to establish that it enjoys the requisite U.S. or Iranian nationality for bringing a claim before the Tribunal. The second hearing dealt with the disposition of the balance remaining from the $3.667 billion transferred in January 1981 to the Federal Reserve Bank of New York, as fiscal agent for the United States, for the payment of Iran's syndicated indebtedness.

5. The ``Agreed Clarification on Payment of January Interest out of Dollar Account No. 2,'' which I mentioned in my previous report, was signed on November 20, 1985, by the Federal Reserve Bank of New York, as fiscal agent of the United States, and by Bank Markazi Jomhouri Islami Iran (Iran's central bank), acting on behalf of the Government of Iran, its agencies, instrumentalities or controlled entities. This Agreed Clarification allows interest still owing on Iran's syndicated debt for the period January 1 - 18, 1981 (``January Interest''), to be paid from Dollar Account No. 2 at the Bank of England. Bank Markazi is now in the process of negotiating January Interest settlements with the relevant bank syndicates.

Since my last report, no settlements of nonsyndicated debt claims of U.S. banks against Iran have been paid from Dollar Account No. 2. Thus, among banks responding to a December 1981 Federal Register notice requiring the registration of all U.S. banks with claims against Dollar Account No. 2, about 16 banks have yet to settle their claims. In addition, a number of those banks that have already reached settlements with Iran have reserved claims against Dollar Account No. 2. The balance in Dollar Account No. 2 currently exceeds $625 million, an amount clearly sufficient to satisfy both outstanding nonsyndicated debt claims and the January Interest claims now payable out of this account.

6. There have been no changes in the Iranian Assets Control Regulations since my last report.

7. My last report described a bench ruling issued by the United States Claims Court in a Sperry Corporation challenge to the two-percent administrative fee that had been deducted from Tribunal awards paid to U.S. claimants from the Security Account, pursuant to a Treasury Department directive license to the Federal Reserve Bank of New York. As I reported, Title V of the ``Foreign Relations Authorization Act, Fiscal Years 1986 and 1987,'' Public Law 99 - 93 (P.L. 99 - 93), replaced the fee deducted pursuant to this directive license with somewhat lower statutory fees. I noted that, in light of this legislation, it was unlikely that the Claims Court would issue a judgment based on its bench ruling, but that Sperry Corporation, in a continuation of its litigation, was challenging the constitutionality of P.L. 99 - 93.

Since my last report, the Claims Court has rejected Sperry's challenge to P.L. 99 - 93, although no judgment has yet been issued. Because P.L. 99 - 93 was made effective as of the date the Treasury Department directive license was issued, June 7, 1982, the Claims Court indicated that it would dismiss as moot Sperry's challenge to the two-percent fee deducted pursuant to the directive license. I also reported that the Treasury Department was in the process of refunding to all affected claimants the difference between the prior two-percent fee and the one-and-one-half-percent fee (one percent on amounts above $5 million) authorized by P.L. 99 - 93. This process was completed in December 1985. The refunds totalled approximately $2.6 million.

8. The claims settlement process created by the Algiers Accords continues to affect important diplomatic, financial, and legal interests of the United States and its nationals, and relations with Iran present an unusual challenge to the national security and foreign policy of the United States. The Iranian Assets Control Regulations issued pursuant to Executive Order No. 12170 continue to play an important role in regulating our relationship with Iran and in enabling the United States properly to implement the Algiers Accords. I shall continue to exercise the powers at my disposal to deal with these problems and will continue to report periodically to the Congress on significant developments.

Ronald Reagan

The White House,

May 23, 1986.