Omnibus Bill Creates One Billion Dollar Fund for Victims of Terrorism (and allows up to $250 million to go to their attorneys)

Buried at the end of the Consolidated Appropriations Act signed by President Obama on December 18 is a long and complex provision that creates a new “United States Victims of State Sponsors of Terrorism Fund.” According to articles in the New York Times and Washington Post, the Fund will provide up to $4.4 million in compensation for each of the 53 Americans who were held hostage and physically abused by Iran after the takeover of the U.S. Embassy in 1979 (and another $600,000 for a spouse or child of each hostage). The Fund will also pay up to $20 million to victims of international terrorism (up to $35 million to them and their family members) who have received final court judgments against Iran, Cuba, Sudan, Syria, North Korea, and other state sponsors of terrorism under the Foreign Sovereign Immunities Act. To fund these payments, the legislation appropriates $1.025 billion in U.S. taxpayer funds in the Treasury. Separately, the legislation states that the $3.8 billion civil penalty collected by the Department of Justice in July from BNP Paribas for violations of U.S. sanctions against Iran, Sudan, and Cuba may be used only for the Terrorism Victims Fund and 9-11 victim compensation programs reauthorized by Congress in the Omnibus; the legislation specifically states that the BNP Paribas monies may not be used for a compensation program that the Department of Justice announced it was considering in May (that had apparently met with disfavor by the drafters of this legislation). Although not mentioned in the press articles, the legislation also allows attorneys for the victims to receive up to 25 percent of the payments from the Fund (which would total more than $250 million for the attorneys), a surprising earmark from a Republican-controlled Congress.

The Terrorism Victims Fund is created in Section 404 of Division O of the Omnibus. It was included in the final conference report without prior hearings and apparently without consultation with the Executive branch. Section 404(b) requires the Attorney General to appoint a “Special Master” who shall receive claims and make payments to holders of “eligible claims,” which include 1) claims by the Iran hostages, their estates, and their family members, and 2) claims for “compensatory damages awarded to a U.S. person in a final judgment…issued by a United States district court under State or Federal law against a state sponsor of terrorism” for acts of international terrorism under the “state sponsor” exception to the Foreign Sovereign Immunities Act. (It is not clear whether eligible judgments include judgments originally issued by state courts, which are not “United States district courts.”) The Special Master is required to make pro rata payments from the monies in the Terrorism Fund to eligible claimants who have filed claims within 90 days of publication of procedures governing applications (or within 90 days of a final judgment if the judgment is rendered after publication of the procedures).

The 53 Iran hostages (or their estates) would each be eligible to receive $10,000 for each of their 444 days in captivity; this would total $235 million in compensation. The spouse and each child of each hostage would be eligible to receive a lump sum payment of $600,000. (The Iran hostages, who suffered terribly during their ordeal, and their lawyers have long blamed the State and Justice Departments of “blocking” their ability to sue Iran; State and Justice lawyers have for many years been required to remind U.S. courts that the Algiers Accords signed by Iran and the U.S. in January 1981 (which allowed for release of the hostages) prohibit U.S. nationals from filing claims against Iran in U.S. courts arising from the hostage-taking.)

It is not immediately clear how many individuals hold unsatisfied court judgments against state sponsors of terrorism, or how large these judgments may be. Since Congress added the terrorism exception to the FSIA in 1996, dozens of lawsuits have been filed and judgments (generally default judgments) secured against Iran, Iraq, Libya, Cuba, Syria, Sudan, and North Korea. In 2008, the Congressional Research Service prepared a report on lawsuits against state sponsors which listed judgments totaling $19 billion. I am not aware of a more recent comprehensive list. Iraq, Libya, and North Korea were all removed from the state sponsor list during the Bush Administration; Cuba was removed earlier this year by the Obama Administration. Libya and Iraq have each settled claims by victims of terrorist acts allegedly committed or directed by their governments; when I was Legal Adviser, the Legal Adviser’s office negotiated a $1.5 billion settlement with Libya for the families of the victims of the bombing of Pan Am 103 (amounting to $10 million for each victim).

Section 404(d)(3)(A) of Division O of the Omnibus provides that eligible claims to the Fund are limited to $20 million for each terrorism victim (or $35 million for a victim and family members) even if the victim or family member holds a court judgment in a larger amount.

Section 404(e)(5) provides that “There is appropriated to the Fund, out of any money in the Treasury not otherwise appropriated, $1,025,000,000….” Section 405 states that the $3.8 billion paid into the Treasury by BNP Paribas as part of its $8.8 billion settlement for sanctions violations (nearly $5 billion was paid to the State of New York, New York City, and the Federal Reserve System) may not be used for any purpose other than the Terrorism Fund or 9-11 victim compensation programs reauthorized by Congress in the Omnibus. Section 405 further states that the Bank Paribas forfeiture monies may not be used by the Department of Justice for the compensation program it had announced it was considering for persons who had been harmed by Iran, Sudan, or Cuba. After the initial funding from the Treasury, subsequent funding for the Terrorism Fund is to come from criminal and civil penalties and forfeitures “paid to the United States after enactment of this Act” for violations of regulations under the International Emergency Economic Powers Act or the Trading with the Enemy Act for transactions with state sponsors of terrorism.

Because the Special Master must pay the eligible claimants pro rata from the available monies in the Fund, it is not clear whether the Iran hostages (or their estates) will each receive the full $4.4 million, or whether judgment holders against state sponsors will receive up to $35 million each.

Magnitude of Compensation? The substantial compensation amounts for the Iran hostages and other terrorism victims have generated some public criticism; several individuals who posted comments in response to the Washington Post article complained that the payments to civilians are far greater than the amounts paid by the U.S. to families of members of the military who have been killed (including servicemembers who were killed in the failed 1980 mission to rescue the Iran hostages), wounded, or held as POWs in overseas conflicts. The amounts are also much larger than the amounts recommended in draft terrorism victim compensation legislation submitted to Congress in 2003 by the Bush Administration, which would have provided compensation equivalent to benefits for public safety officers killed in the line of duty, which was approximately $262,000 at the time (and is currently $339,000). The amounts are also considerably greater than the compensation provided by the UK government to British victims of overseas terrorist attacks (compensation is capped at 500,000 British pounds).

Windfall for Attorneys? Section 404(f) of the legislation provides that “No attorney shall charge, receive, or collect, and the Special Master shall not approve, any payment of fees and costs that in the aggregate exceeds 25 percent of any payment under this section.” This amount is less than the common contingency fee of 33-40% for plaintiffs’ lawyers. However, some may be surprised that a fiscally conservative Republican-controlled Congress would authorize payments of more than $250 million from the U.S. Treasury to private attorneys, even on behalf of victims of terrorism deserving compensation.

Other Questions. Section 404’s complex provisions raise many other questions. For example, will the Special Master pay, or challenge, court judgments that are procedurally or jurisdictionally defective (for example, some of the default judgments against Cuba relate to actions taken by Cuba in the 1960s and 1970s before the country was designated as a state sponsor in 1982)? Will judgment holders continue to try to attach the assets of state sponsors for amounts in excess of payments they receive from the Fund (Section 404(d)(5)(B) provides that judgment holders retain their creditor’s rights for unpaid amounts, including for interest and punitive damages)?