The recent decision of the US Supreme Court to uphold the turnover of $2 billion of Iranian assets to US plaintiffs has added one more complication to the nascent relationship between the United States and Iran.  Iran’s Foreign Minister Javad Zarif called the decision “highway robbery” and sent a letter to the United Nations Secretary General asking for UN intervention to stop what he called Washington’s unlawful act.  

This issue will fester the longer it goes without resolution.  For more than two decades, the United States and Iran have largely delayed action on outstanding terrorism-related judgments in US courts and no substantial payouts had been made to US persons.  With the Supreme Court’s decision, however, the issue can no longer be delayed.  

It is time for the United States and Iran to engage in a difficult conversation over how the claims in each other’s courts can be satisfactorily resolved.  Understandably, that conversation may not find resolution in the time remaining in President Barack Obama’s administration.  But ideas can be raised so that a future administration both understands the issues and the proposed solutions on offer.  Failing to do this risks delaying the inevitable solution in a manner detrimental to the interests of both countries.

It is a fundamental principle of international law that foreign sovereigns are generally immune from the jurisdiction of the courts of another.  This was spelled out most recently in Jurisdictional Immunities of the State (Federal Republic of Germany v. Italy) (2012), where the International Court of Justice determined that state immunity was a broadly accepted “customary rule of international law.”  In that case, the Court ruled that Italy had acted in violation of this rule “by allowing civil claims to be brought against [Germany] based on violations of international humanitarian law committed by the German Reich between 1943 and 1945.”

Despite this customary rule, Congress created an exception to foreign sovereign immunities by permitting lawsuits against US-designated state sponsors of terrorism for acts that resulted in the injury or death of US persons.  Because Iran has been a US-designated state sponsor of terror since 1984, this permitted US persons to bring claims against Iran for its material support for groups such as Hamas, Hezbollah, Palestine Islamic Jihad, and even al-Qaeda.   

Iran has long held that such lawsuits violate its immunities and has refused to defend itself in US courts.  This has led to a situation where most judgments against Iran in US courts have been by default – the alleged facts being taken for granted and judgments being awarded on that basis.  In this manner, US plaintiffs have accumulated outstanding judgments against Iran totaling close to $50 billion.  

However, few of these judgments have been paid out.  US plaintiffs have had a difficult time executing their judgments as so few Iranian-owned assets have been found within US jurisdiction.  Most US plaintiffs have gone years – some a decade or longer – without recompense or else have received compensation http://usatoday30.usatoday.com/news/washdc/june01/2001-06-14-terror-usat.htm from US taxpayers. 

The situation changed with the discovery of close to $2 billion in an account held in New York in which Iran was said to have a beneficial interest.  One group of US plaintiffs holding outstanding judgments against Iran sought to attach and execute against those assets.  Congress eased their path by enacting a provision in 2012 that changed the operative law governing the issue of beneficial ownership.  This led to the recent Supreme Court decision, which ruled that Congress had not usurped the judicial branch’s power. 

Iran has not been a silent observer of these developments.  Soon after Congress created an exception to foreign sovereign immunities, Iran’s parliament responded with a reciprocity statute that subjected the United States to lawsuits in Iran’s own courts for acts in violation of international law that caused the injury or death of Iranian persons.  The law also permitted Iranians to bring lawsuits for past wrongs. 

As a result, Iranians now hold judgments against the United States in an amount similar to that outstanding in US courts. Iran’s purpose was to right a wrong and restore balance to the US-Iran relationship so that any future claims-settlement process would have to deal with the fact that outstanding judgments exist on both sides.  That was made obvious by Iran’s decision to cap judgments against the United States to the sum outstanding against Iran in US courts.  

Iran has raised a diplomatic uproar over the pending turnover of close to $2 billion of its assets to US plaintiffs.  Beyond Zarif’s sharply-worded letter, Iran has threatened to look into the possibilities of bringing the United States before the International Court of Justice for its violation of state immunities.  (Some reports indicate that Iran has already made initial filings before the ICJ regarding the matter.)

The US government has responded that there is no need for mediation as a diplomatic channel already exists to address outstanding issues between the two countries.  The Obama administration has also held that its terrorism-related exception to foreign sovereign immunities is in line with international law.  Nonetheless, Iran’s threatened lawsuit should provoke concern in Washington.  If Iran is able to find a jurisdictional basis to bring the US before the ICJ – a feat that will require some creative lawyering, as the US has withdrawn from the Court’s compulsory jurisdiction – then the Court’s own precedent would suggest that the US law would be regarded as a violation of Iran’s state immunities and in need of being revoked.  

A lawsuit – while giving Iran the moral grounding to press its case  – would not resolve the fundamental issues at stake, which is how to resolve outstanding claims and cut off future claims.  Such a resolution can only occur through a settlement process involving renewed diplomatic engagement.  

What a claims-settlement agreement would look like is not so opaque.  A solution would involve the United States paying out claims against Iran outstanding in US courts and vice versa for Iran.  In this way, the burden will fall on the states themselves for abridging the sovereign immunities of the other.

Certain past proposals have adopted this scheme and rationale.  For instance, the Clinton administration helped draft and implement a provision that paid out a percentage of the claims outstanding against Iran.  This satisfied a significant number of claimants, as it promised them actual compensation for their loss and injuries while reducing the number of claimants and the sum total of their claims against Iran.  However, its fatal defect was that it did not cut-off future terrorism-related lawsuits against Iran.  The Bush administration proposed its own solution to the problem, which would have capped and paid out damages in an amount significantly lower than current claims against Iran.  

The most useful scenario going forward would be for Congress to revoke the terrorism-related exception to foreign sovereign immunities and come back into line with prevailing law.  It should be obvious that the exception is not working as planned.  The US administration is currently bogged down in negotiations with Cuba over similar claims – talks made more difficult by the fact that Cuba’s claims against the US far surpass US claims against Cuba. 

Moreover, it is past time that Congress relieve US victims of terrorist violence from the false idea that they will be able to recover damages from US-designated state sponsors of terror. Congress should more responsibly settle on a legislative scheme aimed at compensating victims of terrorism – perhaps via civil penalties issued against sanctions violators.  Even those US courts that have issued damages against Iran for its material support of terrorism have implicitly reprimanded Congress for instilling false hope in US victims and extending the grieving period for families ad infinitum.     

A claims settlement procedure is inevitable.  Iran will not pay out the claims pending against it in US courts, just as the US will not turn over its assets to satisfy the claims in Iranian courts.  Each side will have to resolve the outstanding judgments to the satisfaction of claimants – a feat that will require political will and compromise. Until this issue is resolved, any normalization process will be postponed. 

No one is predicting magic solutions, but without early and sustained engagement on this issue, there is a serious risk of further deterioration that will increase exponentially the future costs of any diplomatic settlement.

This piece originally appeared in the Atlantic Council.