27 October 1999

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

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

Let me begin by expressing the Administration's 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 today's 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

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

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.

Attachment of Blocked and Diplomatic Property

I want to begin by explaining the Administration's 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;

-- 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.

Elimination of the Effectiveness of Our Blocking Programs

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 $3,400 million.

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 $10,000
million 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 Carter's 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 $7,500 million 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 Vietnam's 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

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.

Our Obligation and Interest in Protecting Diplomatic Property

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 Iran's diplomatic and
consular properties could also result in substantial U.S. taxpayer
liability. Iran's 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.

Equity Among Claimants

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 Iran's 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 Government's 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

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.

Breaching the Sovereign Immunity of the United States

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

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 Iran's 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.

Eliminating Legal Separateness of Agencies and Instrumentalities

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.