November 13, 1985

To the Congress of the United States:

Pursuant to Section 204(c) of the International Emergency Economic Powers Act (IEEPA), 50 U.S.C. Section 1703(c), I hereby report to the Congress with respect to developments since my last report of April 22, 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 25 more decisions, for a total of 194 final decisions. Of these, 146 have been awards in favor of American claimants; 101 were awards on agreed terms, authorizing and approving payment of settlements negotiated by the parties; and 45 were adjudicated decisions. As of October 15, 1985, total payments to successful American claimants from the Security Account stood at approximately $368 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 In addition, Iran has withdrawn fifteen of its government-to-government claims, while the United States has withdrawn only three.

2. My last report noted various changes in the composition of the Tribunal, including the designation of Karl-Heinz Bockstiegel as President of the Tribunal and Chairman of Chamber One. During the past six months, Swiss lawyer Robert Briner and French law professor Michel Virally have assumed their new positions as Chairmen of Chambers Two and Three, respectively. Shortly before Messrs. Briner and Virally assumed their new positions, Tribunal proceedings had been briefly disrupted because of travel difficulties allegedly encountered by Iranian respondents in connection with the Iran-Iraq war. With these alleged difficulties having abated, and the two new arbitrators having assumed their roles as Chairmen, the Tribunal has resumed normal operations.

3. The Tribunal continues to make progress in the arbitration of claims of U.S. nationals for $250,000 or more. More than 36 percent of the claims for over $250,000 have now been disposed of through adjudication, settlement, or voluntary withdrawal, leaving 330 such claims on the docket. The Tribunal issued long-awaited orders in claims involving dual United States-Iranian nationals, allowing these claimants to resume actively arbitrating their claims by demonstrating their dominant and effective U.S. nationality. The Chambers have also made significant awards to several American claimants, including a $7.3 million contested award to Sylvania Technical Systems, Inc. The Sylvania decision also purports to set forth a uniform standard for awarding interest in Tribunal cases. In another important decision, the Tribunal decided that, at least in the context of that case, the Treaty of Amity, Economic Relations and Consular Rights between Iran and the United States governs the standard of compensation in claims for expropriation of property, and determined that the claimant in that case was entitled to recover the fair market value of the going concern that had been expropriated by Iran. Settlement discussions continue to proceed between numerous American claimants and Iranian respondents.

4. The Tribunal has made significant progress in the arbitration of the claims of U.S. nationals against Iran of less than $250,000 each. As described in my last report, in addition to 18 test cases, the Tribunal has selected 100 other claims for active arbitration. As of October 15, 1985, the Department of State had submitted Supplemental Statements of Claim in 85 of these claims, containing more than 25,000 pages of text and evidence. Additional pleadings are being filed weekly. Although Iran repeatedly seeks extensions of time within which to file its responsive pleadings to these claims, the Tribunal has continued to press for their resolution. At the Tribunal, three senior legal officers and a law clerk work exclusively on these claims. The first three test case hearings have been set for December, and six additional cases have been set for hearing during the spring of 1986. The Department of State remains optimistic that the Tribunal will issue its first decision in a fully arbitrated small claim in early 1986. Finally, since my last report, another two small claimants have received awards on agreed terms, bringing the total to twelve.

5. 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 six government-to-government claims based on contracts for the provision of goods and services. The Tribunal held one hearing in a major contract dispute on whether it could hear approximately 1,500 cases under the Iranian Foreign Military Sales Program closed before October 1, 1978.

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 issued one significant decision in an interpretive dispute, ruling that -- subject to a limited exception, which Iran has stated does not apply to any of its claims -- the Tribunal lacks jurisdiction over claims brought by Iran against U.S. banks for allegedly unpaid deposits and for interest on transferred deposits. This, together with the Tribunal's earlier decision that it lacked jurisdiction over standby letter of credit claims asserted by Iran against U.S. banks, has resulted in the dismissal of more than 400 of Iran's claims against such banks.

Since my last report, Iran has initiated two new interpretive disputes. The first concerns the purported obligation of the U.S. Government to satisfy Tribunal awards issued in favor of Iran against private U.S. claimants. The second concerns the Tribunal's jurisdiction over indirect claims for losses incurred by corporations (and similar entities) that lack U.S. nationality, but which are controlled by U.S. nationals. The Department of State is now preparing responsive pleadings in both these proceedings.

6. The Algiers Accords also provide for direct negotiations between U.S. banks and Bank Markazi Iran concerning the payment from Dollar Account No. 2 (the interest-bearing escrow account established at the Bank of England in January 1981 with the deposit of $1.418 billion of previously blocked Iranian funds) of nonsyndicated debt claims of U.S. banks against Iran. Since my last report, Continental Illinois National Bank and Trust Company of Chicago reached a settlement with Iran, bringing to 30 the total number of bank settlements involving payments from 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.

As mentioned in my previous report, attorneys from the Department of the Treasury and the Federal Reserve Bank of New York have been negotiating an "Agreed Clarification'' with Bank Markazi to allow for the payment from Dollar Account No. 2 of certain amounts still owing on Iran's syndicated debt. Agreement on the text of this ``Agreed Clarification'' was reached in June, and Treasury instructed the Federal Reserve Bank of New York, as fiscal agent of the United States, to sign the document; however, the Bank Markazi representatives were not prepared to sign. They claimed the delay was due to the need to obtain additional formal clearances in Tehran and that there was no substantive problem with the agreement. The Department of the Treasury is hopeful that the necessary approval in Tehran will be forthcoming.

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

8. Pursuant to a June 7, 1982, Directive License from the Department of the Treasury, the Federal Reserve Bank of New York had been deducting two percent from amounts received from the Security Account in satisfaction of awards rendered by the Tribunal in favor of U.S. claimants. The purpose of the deduction was to reimburse the U.S. Government for a portion of the expenses incurred in connection with the arbitration of claims of U.S. persons against Iran before the Tribunal and the maintenance of the Security Account from which such claims are paid. In ordering the deduction of this user fee, Treasury relied solely on the authority of the Independent Offices Appropriation Act (the ``IOAA''). The amounts deducted, which as of August 16, 1985, totaled $7.3 million, had been paid into the Treasury as miscellaneous receipts. Last May, in a case brought by Sperry Corporation, the U.S. Claims Court issued a bench ruling holding that the two percent fee did not comply with the requirements of the IOAA and hence was invalid. No judgment has yet been issued, and, in light of the new legislation described below, it is unlikely that one will be issued.

On August 16, 1985, the President signed the Foreign Relations Authorization Act for Fiscal Years 1986 and 1987, Public Law 99 - 93, Title V of which deals with claims against Iran. Section 502 of this legislation directs the Federal Reserve Bank of New York to deduct one and one-half percent from the first $5 million awarded on each claim paid from the Security Account, and one percent from any amount over $5 million, and to deposit the amounts deducted into the Treasury to the credit of miscellaneous receipts. The constitutionality of this legislation has been challenged, however, in a continuation of the litigation by Sperry. By its terms, Section 502 is effective as of June 7, 1982. Consequently, the Department of the Treasury is in the process of refunding to those claimants that have received awards paid from the Security Account the difference between the two percent fee already deducted and the one and one-half/one percent fee authorized by Section 502 of Public Law 99 - 93. These refunds will total approximately $2.6 million.

Title V of Public Law 99 - 93 also grants standby authority to the Foreign Claims Settlement Commission to determine the validity and amounts of any claims against Iran that are settled en bloc by the United States and Iran, and provides certain limited exceptions to the disclosure provisions of the Freedom of Information Act for Tribunal-related documents within the possession of the U.S. Government.

9. Financial and diplomatic aspects of the relationship with Iran continue to present 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 regulating that relationship 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,
November 13, 1985.