Last month, the US Supreme Court unilaterally ordered that around $2 billion in frozen Iranian assets be handed over to Americans affected by attacks which Iran stands accused of organizing over past decades, particularly the 1983 bombing of the US barracks in Beirut that killed 241 people.
Within a short space of time the Iranian Parliament predictably retaliated with a list of compensation demands for “63 years of spiritual and material damage,” including the 1953 CIA-sponsored coup and support for Iraq against Iran in the 1980s, culminating in attacks against Iranian oil platforms and shipping.
The US and Iran have not traded with each other for a long time and neither has invested significant assets in the other’s economy. So although such claims may thwart Obama’s desire for improved relations, the impact of such reciprocal compensation demands is mostly symbolic.
However, what happens when two countries with very tightly enmeshed economies start making compensation claims against each other? In many cases this would not be possible because most developed nations with sophisticated legal systems have laws in place preventing trials being pursued against other states; in particular the principle of sovereign immunity.
This may be about to change.
On May 17, the US Senate unanimously passed a bill stating that foreign states could be put on trial if they were found culpable for terrorist attacks that killed American citizens. Those Republican senators who forced this bill through make no secret of the fact that they are targeting Saudi Arabia, using flimsy circumstantial evidence to claim that Saudi officials aided and abetted the al-Qaeda terrorists responsible for 9/11.
The 9/11 Commission stated clearly that there was “no evidence that the Saudi government as an institution or senior Saudi officials individually funded” the terrorists. Leading figures from the Commission, speaking to CNN and other media outlets in recent days, rubbished such rumours and stressed that no evidence exists for any kind of Saudi complicity. However, certain powerful US figures detest Saudi Arabia and the Muslim world and are willing to believe any number of bizarre conspiracy theories.
Often laws are in place for very good reasons. This is certainly the case regarding sovereign immunityBaria Alamuddin
Obama’s Administration has made it clear that they plan to veto this bill. Furthermore, Saudi Foreign Minister Adel al-Jubeir warned that if the legislation passes the Kingdom could withdraw up to $750 billion in Treasury securities and other assets to avoid any risk of them being frozen. You don’t have to be an economic expert to realize what effect the sudden withdrawal of this volume of assets would have on the US economy!
While it appears unlikely that such an attack on the principle of sovereign immunity could succeed, with certain US presidential candidates taking opportunistically anti-Saudi stances in their campaigning, who knows what may happen?
A major problem with individuals pursuing partisan compensation claims is that they ignore the national interest. Although Obama is often slow to recognize it, the US-Saudi relationship is paramount if the US seeks to have an effective relationship with the Arab world and an influence on events. It would be dangerous to allow litigation battles to poison this already somewhat fraught relationship.
We recognize how traumatic 9/11 was for America, but misinformed attacks against the Kingdom make America less safe, by jeopardizing its relationship with the powerbroker in the region with the strongest record in combatting militancy, while countering Iran’s aggressive support for terrorist proxies in the region. Obama has said it himself – The close intelligence-sharing relationship has thwarted attacks and saved American lives.
Those pursuing this attack on sovereign immunity have been so focused on their own partisan interests that they have spared no thought to the danger of such a precedent if their efforts were successful.
The removal of sovereign immunity would allow someone to walk into a US court and - with the assistance of a good lawyer - claim that Venezuela, Azerbaijan or Bosnia-Herzegovina had engaged in state-sponsored terrorism against them. Mechanisms could then be set in motion, freezing all financial asset belonging to those countries within the US sphere of influence.
As we have seen when America unilaterally seized $2bn in Iranian assets – no country will fail to react to such a provocation. Their first reaction would be to withdraw all vulnerable assets and their second move would be to take retaliatory measures against US assets – changing their own domestic laws if necessary.
The White House Press Secretary raised this exact concern, saying: "This legislation would change long-standing international law regarding sovereign immunity and the President of the United States and continues to harbor serious concerns that this legislation would make the United States vulnerable in other court systems around the world."
The expression that “people who live in glass houses shouldn’t throw stones” has never applied so strongly. As was pointed out in an LA Times editorial: “The potential exposure such a measure would bring to the US is inestimable. Expect to see civil claims by victims of collateral damage in military attacks, lawsuits by people caught up in the nation's post-9/11 detention policies, including Guantanamo Bay, and challenges over atrocities committed by US-backed Syrian rebels. Pretty much anywhere that US policies have led to damages, those who suffered could potentially seek redress in their own courts, jeopardizing American assets overseas, where the rule of law sometimes is solid, but in other cases is a tool wielded for political purposes.”
Qatar, Russia and other oil-rich states have invested hundreds of millions of British pounds in UK property. We are all too familiar with spurious media claims that funding for Syrian entities indirectly allows arms to reach extremist groups responsible for attacks on Westerners. It is not an issue of whether these claims are credible. It is simply a question of whether someone with a good enough legal team is willing to force this issue in court. Even a slight prospect of such actions would make major investors reluctant to invest abroad in long-term assets. We don’t have to follow the logic of this thought experiment too far to see the makings of a global financial cold war.
Just as trade wars can have disastrous and escalatory consequences for the economies of rival nations – resulting in trade barriers, retaliatory tariffs, price wars and economic blockades – such a war of litigation between states would spiral out of control. Particularly given the ease with which entities with a grudge could embark on marathon court battles and enforce indefinite freezing of assets amounting to a substantial proportion of a national economy or state budget – as is the case with the Saudi assets invested in US Treasury bonds.
It is right that individual Syrian, Iranian or Russian officials are targeted for asset freezes in the case of war crimes and breaches of international law. Freezing or confiscating the assets of an entire state is a very different situation with grave consequences for millions of citizens in all countries concerned and the global economy as a whole.
Often laws are in place for very good reasons. This is certainly the case regarding sovereign immunity. Members of the US Senate and the Congress as a whole would do well to think very carefully before going any further in opening up Pandora’s Box.
Baria Alamuddin is a journalist and commentator on Middle East current affairs.