Message to the Congress on the Continuation of the Emergency With Respect to Iran

June 16, 1987

To the Congress of the United States:

This report is made pursuant to section 204(c) of the International Emergency Economic Powers Act, 50 U.S.C. 1703(c), and, as with previous reports, discusses only matters concerning the national emergency with respect to Iran that was declared in Executive Order No. 12170 of November 14, 1979. This report covers events through May 14, 1987, including those that occurred since my last report on November 21, 1986.

1. The Iran-United States Claims Tribunal (the ``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 44 awards, for a total of 304 awards. Of that total, 228 have been awards in favor of American claimants: 139 of these were awards on agreed terms, authorizing and approving payment of settlements negotiated by the parties, and 89 were decisions adjudicated on the merits. The Tribunal has dismissed a total of 20 other claims on the merits and 44 for jurisdictional reasons. Of the 12 remaining awards, one was withdrawn and 11 were in favor of the Iranian claimant. As of April 30, 1987, total payments to successful American claimants from the Security Account held by the NV Settlement Bank stood at approximately $854 million.

To date, the Security Account has fallen below the required balance of $500 million five times. Each time, Iran has replenished the account, as required by the Algiers Accords, by transferring funds from the separate account held by the NV Settlement Bank in which interest on the Security Account is deposited. The most recent replenishment occurred on April 8, 1987, in the amount of $20 million, bringing the total in the Security Account to $516,532,511.28. Prior replenishments were for $100 million, $100 million, $50 million, and $100 million.

In claims between the two governments based on contracts, the Tribunal to date has made four awards in favor of the United States and three in favor of Iran. The Tribunal has dismissed two claims that had been filed by the United States and dismissed ten claims that had been filed by Iran. In addition, Iran has withdrawn 13 of its government-to-government claims (prior reports have overstated this number by two as a result of a clerical error), while the United States has withdrawn three.

American arbitrator Charles N. Brower was temporarily absent from the Tribunal in January, February, and March due to his appointment as Deputy Special Counsellor to the President. During his absence, American substitute arbitrator Carl Salans served in his place for several hearings. The Tribunal accepted the resignation of Iranian arbitrator Mohsen Mostafavi, to become effective upon the appointment by Iran of a replacement. Mr. Koorosh-Hossein Ameli served as the Iranian arbitrator on an ad hoc basis in a number of cases.

2. The Tribunal continues to make progress in the arbitration of claims of U.S. nationals for $250,000 or more. Over 57 percent of the non-bank claims have now been disposed of through adjudication, settlement, or voluntary withdrawal, leaving 220 such claims on the docket. Among recent cases, two U.S. companies received awards in excess of $36 million each, and one U.S. company received an award for $8.5 million. Other decisions were notable for the legal precedents set by the Tribunal. In one case, a claimant born in Iran of United States parents, who had lived most of his life in the United States, served in the U.S. military, and had other substantial contacts with the United States, was found to possess dominant and effective United States nationality, so as to bring his case within the Tribunal's jurisdiction, notwithstanding his contacts with Iran. In another case, an American subcontractor's claim for recovery directly against an Iranian respondent was upheld based on unjust enrichment, where the Iranian entity had not paid the general contractor for the work. Such favorable decisions should prove helpful to other U.S. claimants before the Tribunal.

3. The Tribunal continues to process claims of U.S. nationals against Iran of less than $250,000 each. While the Tribunal's progress is slower than we would like, a total of 127 small claims have been resolved, 15 of them since my last report, as a result of decisions on the merits, awards on agreed terms, or Tribunal orders. Six contested claims were decided in three awards issued by the Tribunal since my previous report, raising the total number of contested claims decided to 11, eight favoring the American claimant. These decisions will help in establishing guidelines for the adjudication or settlement of similar small claims. To date, American claimants have also received 20 awards on agreed terms reflecting settlements of claims under $250,000.

There remain 139 small claims currently under active Tribunal consideration. The Tribunal has held hearings in five of these claims since my last report, and the Department of State has filed additional pleadings in more than 50 such claims. The Tribunal has recently assigned the remaining small claims, totaling more than 2,500, to three-person chambers. We expect these chambers to make further selections of claims for active arbitration in the near future.

4. The Department of State continues to coordinate efforts of concerned governmental agencies in presenting U.S. claims against Iran, as well as response by the United States Government to claims brought against it by Iran. Since my last report, the Department has filed pleadings in five government-to-government claims based on contracts for the provision of goods and services. The Tribunal finally dismissed a number of Iranian claims against the United States based on alleged violations of Iranian customs regulations. Thirty-seven government-to-government claims remain pending.

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. Since my last report, the Tribunal has held three hearings on interpretive disputes.

As noted in my last report, in August 1986 the Tribunal ordered the United States and Iran to negotiate in good faith on the terms of a transfer to Iran of some $500 million of Iranian funds that have been held by the Federal Reserve Bank of New York since 1981, and to transfer the funds as soon as an agreement had been reached. Following remarks by high-level Iranian officials linking U.S. compliance with the Tribunal order to the fate of hostages in Lebanon, the United States requested the Tribunal in January 1987 to take appropriate steps to clarify that no such linkage exists. On the following day, Iran filed a written submission with the Tribunal, accusing the United States of bad faith in the negotiations and requesting the Tribunal to resolve the technical issues.

On May 4, 1987, the Tribunal issued an award in which it orders the United States to retain about $65 million at the Federal Reserve Bank of New York to pay outstanding claims, and immediately to transfer the balance (about $454 million) to Iran's account at the Bank of England. The Tribunal adopted the substance of the release proposed by the United States that protects the United States against any possible future claims in connection with its administration of the account. The Tribunal stated that Iran has already publicly affirmed that there is no linkage between the United States' transfer of the funds and Iran's efforts to secure the release of hostages in Lebanon, and itself declared that ``there can be no room for any doubt that this Case . . . [has] no relation or link whatsoever to the issue of hostages held in Lebanon or any other political matter.'' The United States complied with the Tribunal's award on May 13, 1987.

5. Since my last report, three bank syndicates have completed negotiations with Bank Markazi Jomhouri Islami Iran (``Bank Markazi,'' Iran's central bank) and have been paid a total of $622,807.26 for interest accruing for the period January 1 - 18, 1981 (``January Interest''). These payments were made from Dollar Account No. 2 at the Bank of England. Negotiations have been completed and payment of $1,222,306.11 is pending for January Interest owed to three other bank syndicates, and Bank Markazi and additional bank syndicates are now negotiating January Interest settlements, with agent banks requesting the necessary participant consents.

6. Since my last report, there have been no amendments to the Iranian Assets Control Regulations, 31 C.F.R. Part 535, administered by the Office of Foreign Assets Control at the Treasury Department.

7. The situation reviewed above continues to implicate important diplomatic, financial, and legal interests of the United States and its nationals and presents an unusual challenge to the national security and foreign policy of the United States. In particular, the Iranian Assets Control Regulations issued pursuant to Executive Order No. 12170 continue to play an important role in structuring 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,

June 16, 1987.