by Jay Solomon
Perles was an expert on a U.S. law known as the Sovereign Immunity Act, which held that assets owned by foreign governments inside the United States should be protected from seizure or litigation. The statute was designed to preserve the United States’ position as the world’s preeminent financial safe haven. Perles, however, saw cracks emerge in this law in the late 1990s. President Bill Clinton endorsed legislation that allowed U.S. citizens to sue foreign governments that were on the State Department’s list of state sponsors of terrorism. This included Iran as well as Syria, North Korea, Iraq, and Libya. For decades, attempts by Americans to win compensation from these countries for direct acts of violence or material support of terrorists had been blocked by the Sovereign Immunity Act. But the Clinton law empowered these Americans and opened a thick new legal vein for lawyers to mine.
An early landmark victory for Perles in his campaign for victims’ rights was a judgment of nearly $250 million he won against the Islamic Republic of Iran in 1999 on behalf of the family of Alisa Flatow. The twenty-year-old American had been killed three years earlier when a bomb planted by the militant group Palestinian Islamic Jihad blew up on a bus she was riding during a holiday stay in Jerusalem. The attack was part of a wave of bombings by Islamic Jihad and Hamas following the 1993 Oslo Accords, which attempted to set a framework and timetable for a formal peace agreement between Israel and Palestine. Iran, using these militant groups, hoped to sabotage the accords.
Perles would argue in the Flatow case, and in future litigations, that these terrorist attacks weren’t the work of non-state actors or lone-wolf organizations; rather, Iran was the ultimate culprit. In court, he’d present the depositions of Israeli defense officials, American intelligence agencies, and Iranian dissidents that documented how Tehran trained, armed, and funded these militant groups who killed not just Americans but citizens from allied countries. Iran, with its vast oil wealth, should be forced to pay, Perles concluded.
The verdict in the Flatow case sparked a furious hunt by Perles and his legal team to find assets linked to Iran that could be seized and used to cover the judgment, which Tehran would never pay voluntarily. (Iran’s lawyers didn’t even offer a legal defense during the trial, saying Tehran didn’t recognize American law.) Perles initially tried, unsuccessfully, to seize diplomatic properties in the District of Columbia that at one time had been owned by the shah’s government. A beautiful embassy with a turquoise-colored dome sat on Massachusetts Avenue, just on the outskirts of downtown Washington. But it hadn’t been occupied since the early 1980s, and so Perles’s claim was denied. The Sovereign Immunity Act, it turned out, still held sway among many U.S. courts and judges. The Flatows ultimately received compensation from a frozen $400 million fund that the shah’s government had established in the Pentagon just weeks before the 1979 revolution, in order to purchase new American military equipment.
Perles, however, won a much larger series of judgments against the Islamic Republic—more than $4.2 billion—when he represented the families of 241 Marines killed by a Hezbollah suicide bomber in Lebanon in 1983. Perles’s team successfully argued that the Islamic Revolutionary Guard Corps created, armed, and financed Hezbollah, and that the suicide bomber was trained at a camp run by the IRGC in Lebanon’s remote Bekaa Valley. Iran and Hezbollah both denied any role in the attack, but again, neither sent defense attorneys to the trial, which was held in a D.C. federal court.
As with the case of the Flatows, Perles needed to find Iranian assets to cover this huge judgment. Many lawyers and bankers in New York scoffed that this amount of money could be found, even calling Perles an ambulance chaser who was unfairly raising the expectations of the victims’ families. Any properties previously controlled by the shah in the United States had already been seized by the U.S. government, critics argued, and the withdrawal of most U.S. oil companies from Iran after the 1979 revolution undercut Perles’s strategy of trying to seize the U.S. assets of some major energy conglomerates with revenues tied to Iran.
Perles looked into ways of gaining control of the U.S.-based holdings of Chinese, South Korean, and Japanese companies that derived revenues from businesses in Iran. But such efforts were again opposed by many American financial regulators, who cited the Sovereign Immunity Act. The United States wasn’t Switzerland, allowing countries and individuals to hide assets behind layers of complex secrecy laws. But the vibrancy of American stock and debt markets, these U.S. officials argued, was based on confidence that assets deposited in New York and elsewhere would be protected.
In 2008, more out of desperation than confidence, Perles subpoenaed the U.S. Treasury Department to force it to provide any details it had on Iranian assets. By now Perles’s relationships with U.S. administrations were rocky; his numerous lawsuits had at times run afoul of U.S. diplomatic efforts, particularly in the Middle East. President Clinton’s State Department complained that the suits against Iran threatened American efforts in the late 1990s to improve diplomatic relations with Tehran after the election of the reform-minded President Khatami. Similar arguments were made that such cases undercut efforts to forge an Israeli-Palestinian peace agreement.
It wasn’t until Stuart Levey came to the Treasury that Perles found an ally in the U.S. government. In early 2009, Levey surprised Perles and the families of the Marine Corps barracks bombing when his team notified the D.C. federal court that the U.S. government had traced roughly $2.25 billion of Iranian funds to a Citibank account in New York. Levey’s office believed the monies, which were largely held in the form of government bonds, were the property of Iran’s central bank, Bank Markazi. Tehran had initially placed these holdings in an account with a secretive European financial services company called Clearstream Banking SA, which is based in the Duchy of Luxembourg. The tiny landlocked country’s stringent bank secrecy laws had made it a rising European financial center but an adversary of the U.S. government in the post-9/11 era. Clearstream in mid-2009 shifted Iran’s holdings to New York, apparently to facilitate illicit trade, even though they ran the risk of being seized. Citibank’s filters missed Tehran’s links to the money because it was hidden inside other Clearstream accounts, U.S. officials concluded.
Perles wasted little time in jumping on Levey’s intelligence. He petitioned the federal court in Manhattan to freeze the Citibank account and award the money to the victims’ families to partially cover the multibillion-dollar judgment. Perles also gained clearance to submit to the court Treasury’s information detailing Bank Markazi’s ownership of the bonds.
The size of the Iranian holdings stunned both Perles and Treasury officials because it represented by far the largest single seizure of Iranian money since the Islamic Revolution. They puzzled how Iran and a sophisticated company such as Clearstream had erred by sending the funds into the U.S. banking system. It was either incompetence or arrogance, he thought. “We couldn’t believe, in many ways, what we had stumbled onto,” Perles told me. “Even in our wildest dreams, we didn’t imagine that Iran could have this amount of money sloshing around New York.”
The Iranian government’s and Clearstream’s response to the Citibank case at times seemed to run at cross-purposes. At first Clearstream’s lawyers denied that the money at Citibank was Iran’s, though they said that, as a Luxembourg-based company, Clearstream was prevented from disclosing the true owner. At the same time, Iran had succeeded in transferring $250 million out of Citibank just weeks before Levey disclosed his intelligence to the U.S. court. This raised concerns inside Perles’s team that Tehran might have been tipped off by European banks about the New York action.
A Manhattan judge ultimately ruled in favor of freezing the $2 billion at Citibank. Iran subsequently hired New York lawyers to challenge the decision, marking a U-turn from its previous position that it didn’t recognize American law. Citing the Sovereign Immunity Act, Bank Markazi’s lawyers argued that American courts didn’t have the legal rights to freeze the funds of foreign governments.
In late 2011,
however, President Barack Obama rendered this debate moot by formally sanctioning Bank Markazi for its alleged role in funding Iran’s nuclear program and support of terrorism. This ruling ordered the freezing of any assets held by Iran’s central bank inside the United States. Bank Markazi’s admission that it owned the bonds at Citibank, Perles mused, had made his job far easier. For him, the ruling provided some light at the end of the tunnel for the families of the 241 Marines killed in Beirut. The U.S. Supreme Court ultimately ruled the money belonged to the families of the victims. And Perles believes that the case spooked Iran, showing that its assets were being tracked everywhere. “The case [made] it clear to Iran that its money isn’t safe even in secretive European accounts,” Perles said.
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THE U.S. SANCTIONS CAMPAIGN against Iran had created a chain reaction across the globe, reinforcing itself on many levels. Treasury’s warnings to banks and businesses forced them to sever ties with Iran or risk their access to the world’s largest market. U.S. courts were vigorously enforcing the Treasury’s regulations. And people such as Robert Morgenthau and Steve Perles were punishing banks and companies that weren’t complying. Altogether, the United States was driving Iran out of the global economy.
Treasury’s financial war against Iran proved singularly lethal, thanks to the canny use of American influence. Indeed, it proved an effective tool in combating a mercurial foe who didn’t play by the rules. Its effects were immediate and harsh, more so than Treasury officials had even anticipated. Red lines had been established to curb Iran’s activities, and unlike so many others, they were rigorously enforced.
CHAPTER 7
The Clenched Fist
The United States was beginning to enforce what would become a crippling war on Iran’s economy. But at the same time, Obama was clear that he wanted a diplomatic channel to Iran, and in particular to its paramount political figure, Supreme Leader Ayatollah Ali Khamenei. The U.S. leader called it his two-track policy toward Iran: increase financial pressure while giving its leaders a diplomatic opening to reach a deal on the nuclear issue, which since the revelations of 2002 was the paramount national security issue of the United States.
In the winter and spring of 2009, just months after taking office, Obama sent two secret letters to Khamenei. These were born out of a painstaking back-and-forth between the new president’s closest advisors. To their surprise, Iran’s most powerful politician and cleric actually responded. It was the first time that an Iranian supreme leader had ever communicated directly with the United States.
President Obama aimed at setting a new tone with Iran’s leadership. He had campaigned on breaking sharply with the Bush Doctrine of promoting regime change overseas and utilizing military force, saying that he would reach out to the United States’ staunchest enemies, whether the Castro family in Cuba or Myanmar’s generals. The outreach to Iran, in a U.S. bid to end Tehran’s nuclear program, was the beginning of Obama’s hallmark foreign policy initiative during his presidency. The White House believed ending Iran’s nuclear threat could open up a pathway for Washington and Tehran to cooperate on stabilizing combustible countries in the Mideast, including Iraq, Afghanistan, and later Syria. Rapprochement could also help build bridges to the wider Muslim world.
The letters, which were described to me by officials who helped draft them, were addressed directly to Khamenei. This marked a major shift from previous U.S. overtures to Iran, which consisted of attempts to seek out “moderates” in Tehran’s Islamist government in a bid to forge a rapprochement. They had hoped to work around the rabid anti-Americanism espoused by both Khamenei and Khomeini. But Washington could never be certain about how much sway the moderates really had in Tehran. Bill Clinton’s administration had thought it had a partner in Iran’s president at the time, Mohammad Khatami, who openly talked about establishing a “dialogue” between civilizations and promoted an opening of Iran’s political system and press. But Khamenei steadily weakened Khatami during his second term, to the point where Khatami couldn’t make good on most of his promises of reform. Successive U.S. administrations seemed to underestimate the power of the supreme leader’s office, something Obama and his advisors sought to correct.
Obama’s letters amplified a key platform of the new Obama administration’s foreign policy: Washington wasn’t seeking to promote “regime change” in Tehran. Khamenei regularly ranted about the West’s efforts to promote a soft revolution in his country. The invasions of Iraq and Afghanistan reaffirmed his fears that the United States was seeking to encircle Iran. Obama, almost immediately after taking office, attempted to reassure Tehran’s leadership that the United States was prepared to live with and recognize the Islamic Republic, provided that it addressed the West’s concerns.
“In particular, I would like to speak directly to the people and leaders of the Islamic Republic of Iran,” Obama said in a message beamed into Iran in March 2009 to commemorate Nowruz, the Persian New Year. The speech preceded the letters Obama would send Khamenei a few months later, and it marked the first time a sitting U.S. president had ever addressed Iran as the “Islamic Republic,” a signal from Obama that he wasn’t seeking to promote a conflict.
“In this season of new beginnings,” Obama said in his video address, “I would like to speak clearly to Iran’s leaders. We have serious differences that have grown over time. My administration is now committed to diplomacy that addresses the full range of issues before us, and to pursuing constructive ties among the United States, Iran, and the international community. This process will not be advanced by threats. We seek instead engagement that is honest and grounded in mutual respect.”
In his speeches and letters, Obama stressed to Khamenei that his overture wasn’t open-ended, according to the U.S. officials who helped draft the communications. Iran’s nuclear program was advancing rapidly, the president believed, and the point when Tehran’s program would reach “breakout”—the capability of producing enough fissile material for an atomic weapon—was fast approaching. At that point, Obama said, a dialogue between the long-standing enemies might no longer be possible. Tehran’s nuclear program would be too advanced and the purpose of any negotiation eclipsed. Obama had publicly not ruled out taking military action. Indeed, U.S. officials said the administration was pushing forward with the development of the cyber weapons it used to attack Iran’s facilities. It was also developing a bomb called the Massive Ordnance Penetrator, which could wipe out Iran’s underground atomic facilities.
Khamenei closely scrutinized the new president’s messages, according to UN diplomats who met with the Iranian leader. He was intensely skeptical of any U.S. administration, believing that entrenched interests in Washington would upend the initiatives of leaders with even the best intentions. Khamenei believed U.S. policy was squarely under the thumb of the Israeli government and the Sunni Arab states, all of whom opposed any rapprochement between Washington and Tehran. “They chant the slogan of change, but no change is seen in practice,” Khamenei told a gathering of tens of thousands of Iranians in the holy city of Mashhad in his first public response to Obama’s Nowruz speech. “We haven’t seen any change.”
But as Obama’s personal letters arrived at Khamenei’s offices in Tehran in the ensuing months, the supreme leader became more intrigued, according to Western diplomats who met with him around that time. In May he personally wrote Obama, delivering his communication through the Swiss embassy in Tehran, which was the United States’ formal diplomatic representative in Iran, since there was no American embassy. Khamenei’s letter outlined the litany of abuses the supreme leader believed the United States had committed against the Iranian people over the past sixty years. He mentioned Washington’s military alliance with the shah and the human rights abuses the shah had committed against his people. Khamenei also cited U.S. intelligence support for Saddam Hussein during the Iran-Iraq War, which Iranians argue enabled Baghdad to eventually launch chemical attacks against Iranian forces. Khamenei also griped abou
t U.S. support for the 1953 coup against President Mohammad Mossadegh.
But the supreme leader didn’t rule out some sort of accommodation with Washington on the nuclear issue. He stressed his theme of “mutual respect” between the two countries as possibly opening up a pathway. “He left the door open,” said an American diplomat who read the letter at the time. This fed sentiments in the White House that the diplomacy should proceed.
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IRAN WAS PERHAPS THE MOST contentious foreign policy issue debated during the 2008 presidential campaign. The conflicts in Iraq and Afghanistan had created war fatigue among many voters, which Barack Obama seized on during the Democratic primaries and then his run against the Arizona conservative John McCain. Unlike George W. Bush with his overtly confrontational policies, Obama said, he would restore America’s image and prestige overseas by offering to talk with Iran, along with Syria, North Korea, Cuba, and Venezuela.
Obama’s position placed first Hillary Clinton and then John McCain in a strategic bind. Clinton had voted for the Iraq War, so she was determined to distance herself from its failures. She criticized the management of the Bush administration’s campaigns in Iraq and Afghanistan. And she stressed that if elected she would focus on restoring the American economy over the next decade. But she viewed Obama’s position on Iran as vulnerable. In one of the more contentious debates during the campaign, she called her Democratic challenger “naive” for thinking he had the charisma and personal charm to wipe away decades of enmity with Tehran by personally embracing its leaders. She said Obama risked elevating the Islamic Republic’s international status by dealing directly with Khamenei, tarnishing the White House in the process. “I think I would closely coordinate with my advisors before approving any direct talks with Iran,” she said during the debate. “This isn’t something that should be taken lightly, as my opponent suggests.”
