May 14, 2021 | Insight

Rescinding the IRGC’s Terror Designation Would Harm American Victims of Terrorism

May 14, 2021 Insight

Rescinding the IRGC’s Terror Designation Would Harm American Victims of Terrorism

As part of negotiations in Vienna, Iran’s clerical regime has reportedly requested that the Biden administration rescind the U.S. government’s formal designation of the Islamic Revolutionary Guard Corps (IRGC) as a Foreign Terrorist Organization (FTO). If President Joe Biden agrees, he would not only relieve economic pressure on Iran’s primary terror-sponsoring organ, but would also spurn American victims of Iran-sponsored terrorism, as well as their families.

A rescission of the FTO designation would undermine U.S. national security. It would deprive wounded American warfighters and the families of those murdered of the chance to hold the IRGC accountable through civil litigation. Undermining the deterrent of criminal prosecution and civil litigation could also encourage future attacks on U.S. servicemembers.

In short, removing the IRGC from the FTO list – an ill-advised move the Biden administration already took with the Iran-backed Houthis in Yemen – should provoke a bipartisan backlash on Capitol Hill and across the nation.

Background on FTO Designations and Civil Litigation

Under the Antiterrorism Act (ATA), the secretary of state has authority to designate as FTOs foreign entities that “engage in or retain the capability and intent to engage in terrorism” and that “threaten the security of United States nationals” or the “national defense, foreign relations, or economic interests of the United States.” Under the law, U.S. persons and persons subject to U.S. jurisdiction can be charged criminally if they provide material support to a terrorist or an FTO.

In 1992, Congress amended the ATA to allow victims of international terrorism to file civil suits for their injuries. In 1996, Congress went further and criminalized nearly all knowing support for FTOs, including commercial activities and humanitarian assistance. This includes any person or entity that knowingly provides “material support or resources” to a terrorist or an FTO – to include property or services, including financial services.

Designating an entity as an FTO brings far greater criminal exposure under the “material support” provision than a mere sanctions designation. Companies that do business or interact in any way with an FTO immediately face increased legal, financial, and reputational risk, pressuring them to rapidly sever those ties. The day after the IRGC’s FTO designation, for example, Instagram blocked the accounts of former IRGC Quds Force commander Qassem Soleimani and several other senior IRGC leaders. Soleimani had already been designated a Specially-Designated Global Terrorist – an individual designation that did not directly influence corporate behavior.

The civil litigation risk for companies and individuals working with the IRGC is today substantial. Congress has repeatedly made it easier for American victims of terrorism to sue aiders and abettors of terrorism. In 2016, Congress expanded the ATA to provide an additional path for victims to sue – civil aiding-and-abetting and civil conspiracy liability – alongside the existing material-support threshold. In October 2018, Congress narrowed the “act of war” exception in the ATA’s civil liability provision by making it inapplicable to conflicts involving FTOs and SDGTs. Although the IRGC was responsible for the deaths of hundreds of American service members in Iraq, some civil defendants have continued to assert that the “act of war” exception applies to attacks committed by the IRGC’s proxies. Going forward, if the IRGC continues to kill or injure U.S. citizens in conflict zones such as Iraq and Syria, the IRGC’s FTO designation would make it far more straightforward for the victims or their families to bring civil actions against not only the IRGC but also anyone who provided material support to the IRGC.

Impact of IRGC Designation for U.S. Victims of Terrorism

In the months before the IRGC’s FTO designation, a district court in New York dismissed a civil action against several European banks alleged to have criminally conspired with the IRGC’s agents to launder hundreds of billions of dollars through the U.S. financial system. The court held that the connection between the banks’ conduct and the acts of terrorism was too attenuated to create liability, in part because the IRGC itself was not designated as a terrorist organization at the time of the attacks and was not solely engaged in terrorism.

With the FTO designation, that defense no longer applies, particularly given the Supreme Court’s affirmation of Congress’ contention that “foreign organizations that engage in terrorist activity are so tainted by their criminal conduct that any contribution to such an organization facilitates that conduct.” Designation of the IRGC and governmental scrutiny of its economic empire paves the way for successful civil actions against banks or other companies that knowingly do business with the IRGC’s expansive business network but often escape prosecution thanks to willful blindness to the IRGC’s relationship with their business partners.

A recent Supreme Court decision affirmed that victims suing the IRGC directly (thanks to an exemption to the Foreign Sovereign Immunities Act) may obtain retroactive punitive damages from Iran for attacks that occurred prior to the IRGC’s FTO designation. Now victims suing under the ATA may be able to attach such assets to IRGC-connected economic activity. Since the IRGC mainly operates in foreign jurisdictions beyond the reach of U.S. courts, the prime targets of ATA civil actions are foreign companies and banks proven to have knowingly transacted with the IRGC.

International shipping companies and banks that provide trade finance or otherwise knowingly process financial transactions for the IRGC or its agents may also be subject to potential civil suit in the United States, regardless of where the transactions take place. Transactions with shipping terminals and port authorities controlled by designated IRGC affiliates – such as Iranian port operator Tidewater Middle East Company, which the United States designated as an IRGC-controlled entity in 2011 – could result in exposure to civil liability.

A recission of the IRGC’s FTO designation may have far-reaching detrimental consequences for the ability of U.S. victims of Iranian terrorism to pursue their claims. Currently, there are well over $50 billion in default judgements against Iran on behalf of U.S. victims of terrorism, as well as assets in the United States identified as owned by the Government of Iran. These assets include 650 5th Avenue in New York City and $1.67 billion in assets held by the Luxembourg-based bank Clearstream SA. The Biden administration and Congress should do everything possible to enable victims to execute judgements against these assets – not undermine them.

The fact sheet accompanying the IRGC’s FTO designation confirmed that “Iran is an outlaw regime that uses terrorism as a key tool of statecraft and that the IRGC, part of Iran’s official military, has engaged in terrorist activity or terrorism since its inception 40 years ago.” This finding, which remains accurate and highly relevant, strongly supports the legal arguments of U.S. citizens and service members pursuing civil actions. It establishes a framework for supporting current civil litigants, by providing the official historical record of the IRGC’s terrorism support. This framework should not be dismantled.

What’s Next?

In its ill-conceived drive to rejoin the Iran nuclear deal, the Biden administration must not dishonor the American victims of Iran-sponsored terrorism. That means leaving the IRGC’s FTO designation in place. If anything, the administration should work with Congress on a bipartisan basis to further strengthen and clarify secondary liability under the ATA.

There is a need to act quickly in light of an April decision by the Second Circuit Court of Appeals that threatens to establish a much more restrictive standard for liability. Specifically, the court held that aiders and abettors cannot be held civilly liable, even for knowingly transferring tens of millions of dollars to charitable front organizations of an FTO. According to the decision, an aider and abettor of an FTO can be held liable only if the defendant is specifically informed that particular funds will be used for “terroristic purposes,” or if the plaintiffs can trace the particular funds sent by the defendant to an FTO front organization and through that organization to the particular attacks that injured them. Of course, companies that knowingly transfer funds or provide services to front groups for organizations such as the IRGC, the Islamic State, or Hamas rarely document the transactions with a notation that such services “are meant for support of terrorist acts only.”

From a policy perspective, this decision has the potential to open the floodgates for using the U.S. financial system to bankroll terrorist organizations across the globe – from the IRGC to al-Qaeda and the Islamic State – through front organizations. Now more than ever, Congress should clarify its counterterrorism statutory framework to disrupt financial support for FTOs such as the IRGC by denying them access to the U.S. financial system. Providing terror victims and their families the ability to seek compensation is an important component of this effort.

Regardless of differing views on the nuclear deal with Iran, supporting American victims of Iran-sponsored terrorism is an issue on which Republicans and Democrats should find common ground.

Matthew Zweig is a senior fellow at the Foundation for Defense of Democracies (FDD), where Richard Goldberg is a senior advisor. They both contribute to FDD’s Iran Program and Center on Economic and Financial Power (CEFP). For more analysis from the authors, the Iran Program, and CEFP, please subscribe HERE. Follow the authors on Twitter @MatthewZweig1 and @rich_goldberg. Follow FDD on Twitter @FDD and @FDD_Iran and @FDD_CEFP. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.

Issues:

Iran Iran Global Threat Network Iran-backed Terrorism Sanctions and Illicit Finance