Letter to the Speaker of the House of Representatives and the President of the Senate Reporting on the National Emergency With Respect to Iran

Dear Mr. Speaker: (Dear Mr. President:)

This report is made pursuant to Section 204(e) of the International Emergency Economic Powers Act, 50 U.S.C. 1703(e), and, like 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 matters that have occurred since the report I made on May 23, 1986.

1. The Iran-United States Claims Tribunal, established at The Hague pursuant to the Claims Settlement Agreement of January 19, 1981, continues to make progress in arbitrating the claims before it. Since my last report, the Tribunal has rendered 37 more decisions for a total of 260 final decisions. Of that total, 197 have been awards in favor of American claimants; 119 were awards on agreed terms, authorizing and approving payment of settlements negotiated by the parties, and 78 were adjudicated decisions. The Tribunal has dismissed a total of 17 claims on the merits, and 33 for jurisdictional reasons. As of November 1, 1986, total payments to successful American claimants from the Security Account, held by the NV Settlement Bank, stood at approximately $681 million.

In January 1986, the payment of awards in favor of U.S. nationals caused the balance of the Security Account to fall for the first time below $500 million, thus triggering Iran's obligation to replenish. Iran acted quickly in instructing replenishment from interest earned on the Security Account, which is also held by the NV Settlement Bank. Although technical difficulties involving the concerned central banks delayed actual replenishment for several months, a procedure has now been established that should make future transfers administratively simple. On October 10, 1986, replenishment was again triggered, and the second replenishment occurred on October 27, 1986.

In cases between the two governments, the Tribunal to date has issued three 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 In addition, Iran has withdrawn 15 of its government-to-government claims, while the United States has withdrawn three.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 50 percent of the claims have now been disposed of through adjudication, settlement, or voluntary withdrawal, leaving 251 such claims on the docket. Among recent cases, two U.S. claimant companies received large awards totalling approximately $91 million. Other decisions were notable for the legal precedents set by the Tribunal: In one case, the Tribunal valued an expropriated service company at its going concern value, taking into account the negative impacts of the Iranian revolution on its business, rather than using the net book value of the business as advocated by Iran. In a second legally significant decision, the Tribunal held that an order by a local Iranian court prohibiting an Iranian company from making lease payments or returning equipment to the U.S. claimant constituted a taking by the Government of Iran requiring compensation under international law. Both these 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. Iran has not to date been willing to negotiate a lump sum settlement of these claims. While the Tribunal's progress is slower than we would like, 50 additional claims have been selected by the Tribunal for active arbitration, making the total number of active small claims 170. The Department of State has submitted more than 44,000 pages of text and evidence in support of these claims, and additional pleadings are being filed weekly.

Since my last report, the Tribunal has held seven hearings on claims under $250,000, and issued awards in three contested claims, raising the total number of such decisions to five, of which four favored 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 15 awards on agreed terms reflecting settlements.

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 nine government-to-government claims based on contracts for the provision of goods and services. The Tribunal issued a decision holding the U.S. Atomic Energy Commission liable for simple interest at the rate of 10 percent per annum on a previously issued principal award of approximately $8 million in favor of the Atomic Energy Organization of Iran. The Tribunal dismissed two major claims brought by the Ministry of Defense of Iran against the U.S. Government based on the alleged breach of contract by a U.S. defense contractor, finding that the U.S. Government was not a proper respondent. Fortytwo 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 four pleadings in disputes concerning the interpretation and/or performance of various provisions of the Algiers Accords. Since my last report, the Tribunal has held no hearings on interpretive disputes. However, it did render its decision on Iran's request that different, and more stringent, standards be established by the Full Tribunal for proof of nationality of corporate claimants. Iran had contended that, under earlier decisions by the individual Chambers, some publicly held corporate claimants had been permitted to establish their United States nationality through insufficient evidence. The Full Tribunal held that no general rule is required and that none would be feasible given the widely varying fact situations in which corporate nationality must be determined. Thus, the individual Chambers can continue to approach each determination flexibly and pragmatically, as urged by the United States.

In August, following Iran's first replenishment of the Security Account, the Tribunal issued its decision on Iran's claim for 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. The Tribunal determined that Iran is entitled to so much of the remaining balance as is not needed to satisfy outstanding claims against the fund, as soon as the two governments reach agreement on three points: 1) the amount of claims remaining against the fund; 2) the amount not needed for any such claims and thus available for transfer to Iran; and 3) the terms of a release of all claims by Iran against the United States for administration of the fund. If the two governments are not able to reach such agreement within four months from the date of the order, either government may apply to the Tribunal for further action.

5. Since my last report, two bank syndicates have completed negotiations with Bank Markazi Jomhouri Islami Iran (Iran's central bank) and have been paid a total of $252,723.67 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 $482,175.27 is pending for January Interest owed to two other bank syndicates, and Bank Markazi and additional bank syndicates are now negotiating January Interest settlements.

6. Since my last report, there has been one change in the Iranian Assets Control Regulations. In response to the Tribunal's decision on Iran's claim to any excess monies held by the Federal Reserve Bank of New York over those required to pay Iran's syndicated indebtedness, a new regulation has been issued, requiring registration of all claims against the fund, all claims against Dollar Account No. 2, and all claims for January Interest (which, as my previous reports have indicated, are arguably payable out of either fund). 51 Fed. Reg. 37568 (Oct. 23, 1986).

7. The ongoing claims settlement process created by the Algiers Accords 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.

Sincerely,

RONALD REAGAN