BOIES
SCHILLER
FLEXNER

BSF

 

March 2, 2017

Prime Minister Xavier Bettel
4, rue de la Congregation
L-1352 Luxembourg
Luxembourg
ministere.Etat@me.etat.lu

Dear Mr. Prime Minister:

We write concerning a matter of great importance to Luxembourg and the United States.

As you may know, our law firm represents victims ofthe terrorist attacks of September
11, 2001 and other judgment creditors of the Islamic Republic of Iran. Last year, acting
in the Luxembourg courts on behalf of the victims of the 9/11 attacks, our legal team
froze at least three accounts at Clearstream in Luxembourg containing more than $1.6
billion in assets belonging to Bank Markazi, the Central Bank of Iran.1

Markazi, supported by Clearstream, has moved to dissolve the freeze order in a
summary proceeding even before related litigation concerning the ultimate
disposition ofthe funds begins in earnest. And at a hearing earlier this week in
Luxembourg, attorneys for Markazi indicated that if their application to dissolve the
lawful freeze order is granted, the billions in dispute could and would be moved out of
Luxembourg, where Markazi could shield those funds from the judicial process provided
by Luxembourg and, accordingly, from individuals like our clients who hold lawful claims
against such funds.

Such a result would be contrary to the interests ofjustice and, we believe, the interests
of both our nations. This is particularly the case in light of Markazi and Clearstream?s
apparent improper conduct, as described below, in concealing their activities from the
US. Government, and in concealing assets subject to lawful execution byjudgment
creditors of Iran. As a former US. Ambassador and White House counterterrorism
official (Mr. Wolosky), and former senior White House and State Department official
(Mr. Gottlieb), we can assure you that these matters are of great importance to the
United States, and we hope that you will agree to our proposal for a meeting to discuss

 

1 Markazi and Clearstream have both confirmed that one of the frozen accounts currently holds
approximately $1.6 billion. As described below, Markazi held approximately $4.6 billion in one
of the other two accounts several years ago, but we have not yet been able to determine
whether or to what extent the other two accounts still contain assets.

SCHILLER FLEXNER LLP

 

575 Lexington Avenue, New York, NY 10022 212 446 2300 212 448 2350 





how your government may provide appropriate support for our efforts to obtain a just
result for the victims of the September 11, 2001 attacks.

I. Factual Background.

Our clients, the 9/11 Plaintiffs, are comprised of representatives of forty?seven
decedents? estates and one hundred ten individual family members ofthose decedents,
all of whom were victims ofthe terrorist attacks of September 11, 2001. The 9/11
Plaintiffs filed suit against Iran and other related defendants on February 19, 2002. They
obtained a first default against Iran and certain of its agencies2 on December 23, 2002.
After amending their complaint on September 7, 2006 to add additional defendants, the
9/11 Plaintiffs obtained a second default on December 22, 2011. The second default
was entered against both the original defendants who had defaulted on December 23,
2002 and also against Markazi and certain other Iranian agencies and instrumentalities
who had been added in the Second Amended Complaint.3 The United States District
Court for the Southern District of New York entered a final judgment against Iran,
Markazi, and fourteen other Iranian agencies, instrumentalities, and leaders on October
12, 2012. The final judgment awarded the 9/11 Plaintiffs approximately $2 billion in
compensatory damages and interest.

Clearstream, as you are aware, is 3 Luxembourg banking company that operates one of
the world?s largest securities settlement systems and clearinghouses (?System?).
Clearstream provides securities settlement, custody, and other services for 2,500 clients
that consist of central banks and regulated banks in 110 countries. In 2014, the value of
assets under Clearstream?s management averaged ?122 trillion, and it processed 120
million settlement transactions through the System. Clearstream?s business methods
have led to accusations that it facilitates money laundering and other financial crimes
for its clients. Its business practices have also resulted in several regulatory and criminal
investigations, some of which are described below. Markazi has been a long-time
Clearstream client.

 

2 The first default was entered against Iran, the Iranian Ministry of Information and Security, the
Islamic Revolutionary Guard Corps, Hezbollah, the Iranian Ministry of Petroleum, the Iranian
Ministry of Economic Affairs and Finance, the Iranian Ministry of Commerce, the Iranian Ministry
of Defense and Armed Forces Logistics, and the Ayatollah Ali Hoseini-Khamenei.

3 The second default was entered against the original group identified in footnote 3 above
and also the following new defendants: Markazi, Ali Akbar Hashemi Rafsanjani, the National
Iranian Tanker Corporation, the National Iranian Oil Company, the National Iranian Gas
Company, the National Iranian Petrochemical Company, and Iran Airlines.

 





At some point before 2007, Clearstream began providing Markazi with securities
settlement services relating to two groups of global bonds. The first group involved
bonds that were being held in the United States (?Citibank Bonds?). The second group
included bonds that were issued by foreign institutions and held in foreign countries
Bonds?). According to the contractual terms applicable to both groups of bonds,
issuers ofthe bonds were required to make principal and interest payments in U.S.
dollars from their accounts at banks in New York City, and were then required to deposit
those payments into Clearstream accounts at banks in New York City. Payments relating
to the Citibank Bonds were deposited into an account held by Clearstream at Citibank in
Manhattan. Payments relating to the JPM Bonds were deposited into an account held
by Clearstream at JPMorgan Chase in Manhattan. Clearstream recorded Markazi?s
interest in these bond payments by making book entries at Clearstream in Luxembourg.

By late 2006, the U.S. Government had begun a broad-based effort to exclude Iran and
Iranian financial institutions from U.S. financial markets and services as part ofthe
sanctions regime against Iran for its nuclear weapons and terror financing activities.4 As
part ofthat effort, the United States Treasury Department's Office of Foreign Asset
Control began an investigation to determine whether the financial services
Clearstream was providing to Markazi violated U.S. sanctions set forth in the Iranian
Transaction Regulations, 31 C.F.R. 560.101, et seq. (2008). Although Clearstream
disclosed and discussed with OFAC its business dealings with Markazi concerning the
Citibank Bonds, it concealed from OFAC its business dealings with Markazi relating to
theJPM Bonds.5

In December 2007, the U.S. Congress was in the process of amending the U.S. Foreign
Sovereign Immunities Act (FSIA) to make it easier for individuals, like the 9/11 Plaintiffs,
to enforce terror-related judgments against Iran. The proposed amendments were
intended to authorize individuals holding terrorism judgments against a foreign nation
to enforce those judgments against assets belonging to that nation?s political
subdivisions, agencies, or instrumentalities, regardless of whether the judgment
creditors had judgments specifically against those, juridical entities. For Markazi, the
proposed amendments opened the door for terror victims to enforce their judgments
against Iran by executing on Markazi?s assets.

 

4 By the end of 2007, the U.S. Treasury Department had sanctioned eleven Iranian banks,
including certain state?owned banks, though it had not yet sanctioned Markazi.

5 See January 15, 2014 Settlement Agreement between U.S. Department of the Treasury's Office
of Foreign Assets Control and Clea rstream Banking, S.A. 
Clearstream settlepdf).

 





In December 2007, while Congress was debating the FSIA amendments, Clearstream and
OFAC met to discuss Clearstream?s continued financial services to Markazi. During the
meeting, Clearstream represented to OFAC that it would terminate its business
relationship with Markazi. However, Clearstream did not. Instead, it worked with
Markazi to devise a scheme to conceal Markazi?s ownership in the Citibank and JPM
Bonds from the US. Government and to hinder, delay, and defraud judgment creditors
seeking to execute on Markazi?s assets in satisfaction of their terrorism-related

judgments.

In January 2008, just days before the FSIA amendments became law, Clearstream and
Markazi implemented their scheme:

In January 2008, Markazi owned an account at Clearstream ("Markazi?
Clearstream Account?). The Markazi-Clearstream account is believed to
have held, in January 2008, at least $4.6 billion, including Markazi?s
interest in the Citibank Bonds and the JPM Bonds.

On January 17, 2008, Markazi opened a new account ("Markazi?UBAE
Account?) at Banca UBAE, in Rome, Italy. UBAE is a Libyan
bank with its headquarters in Rome. In 2008, Mohammar Gadhafi owned
a majority interest in UBAE and controlled the bank?s operations.

On January 18, 2008, UBAE opened a new account at Clearstream in
Luxembourg, account number 13061 (?Account 13061?).

In February 2008, Markazi instructed Clearstream to transfer the $4.6
billion in financial assets from the Markazi-Clearstream Account to
Account 13061. The assets were transferred "free of payment,? which
meant that UBAE did not provide any consideration to Markazi through
the System in connection with the transfer. Markazi?s interests in the
Citibank Bonds and the JPM Bonds were among the assets transferred to
Account 13061.

After the transfer, payments of principal and interest relating to the
Citibank Bonds and the JPM Bonds were booked into Account 13061
instead ofthe Marakazi-Clearstream Account.

By placing legal title to Account 13061 in the name of UBAE, Clearstream
and Markazi could represent to the US. Government and to Iran?s
judgment creditors, like the 9/11 Plaintiffs, that Markazi did not own any
assets at Clearstream.

At the same time, although account 13061 was titled in the name of
UBAE, Markazi continued to own all beneficial economic interest in the
assets therein.

 

a;



In June 2008, a group of individuals (?Peterson Plaintiffs?) who held terrorism judgments
against Iran used the new authority provided by the 2008 FSIA amendments to attach
and begin executing on the payments of interest and principal related to Markazi?s
interest in the Citibank Bonds. The Peterson Plaintiffs? efforts included using the US.
courts to serve writs of execution and restraining notices on Clearstream in the United
States District Court for the Southern District of New York (SDNY) and then filing suit
against Markazi, Clearstream, UBAE, and Citibank to compel them to turnover Markazi's
interest in the Citibank Bonds. After more than eight years of litigation, the US.
Supreme Court last year affirmed the turnover of approximately $2.1 billion relating to
the Citibank Bonds to the Peterson Plaintiffs. Markazi v. Peterson, 136 S. Ct. 1310
(2016).6

In 2009, Clearstream, under tightening international scrutiny and pressure due to Iran?s
nuclear program, blocked Markazi assets under its control.7 Accordingly, Clearstream
opened account number 13675 in Luxembourg (?Account 13675?). Clearstream has
represented to the United States District Court in the Peterson Plaintiffs? enforcement
action that Account 13675 was a ?sundry blocked account? created for the purpose of
holding blocked payments of interest and principal relating to the JPM Bonds. Between
June 2009 and the last deposits in October 2012, approximately $1.6 billion relating to
the JPM Bonds was booked in Account 13675.

In July 2010, the United Nations and the European Union expanded certain sanctions

against Iran. Among others, the expanded sanctions included freezing Markazi?s assets
relating to bonds like the Citibank and JPM Bonds. In hearings before the Luxembourg
court in the proceedings commenced by our legal team, Clearstream and Markazi have

 

6 The Supreme Court decision caused Iran to launch a diplomatic tirade against the United States
only a few months after the implementation of the Joint Comprehensive Plan of Action (JCPOA),
from which, significantly, issues involving Iran?s support for terrorism were excluded. See
?Supreme Court Rules Iran Bank Must Pay for Terrorist Attacks?, New York Times, April 20, 2016

?Iran Threatens Lawsuit in Hague Court Over U.S. Ruling on $2 Billion?,
New York Times, April 25, 2016 


 

7 In 2008, the UN Security Council passed Resolution 1803, which called for heightened diligence
in dealing with Iranian banks, and the EU passed calling for the same. In the
United States, the Comprehensive Iran Sanctions, Accountability, and Divestment Act was
introduced in April 2009, which sanctioned foreign financial institutions for facilitating Markazi?s
activities, and the DOJ, Treasury, and US. Attorney for SDNY began investigating foreign banks
for violations of sanctions on Iranian banks.

 





confirmed that Account 13675 still contains approximately $1.6 billion and that the
funds remain frozen by our legal team's asset freeze.

On January 15, 2014, OFAC concluded a civil investigation into whether Clearstream
deceived the U.S. Government by participating in a scheme to conceal Markazi?s
continued ownership interest in the Citibank Bonds. Under the terms of a settlement
agreement reached with OFAC, Clearstream agreed to pay a $152 million fine to the
United States. Shortly after entering into the settlement agreement, the U.S.
Government learned that Clearstream had been concealing its business dealings with
Markazi relating to the JPM Bonds. As a result, on April 1, 2014, the U.S. Attorney?s
office for Southern District of New York began a criminal investigation into
Clearstream?s activities relating to both the Citibank and JPM Bonds. After several years
of inactivity, the U.S. Attorney?s office has reportedly renewed its investigation into
Clearstream?s business dealings with Markazi. According to recent news reports, U.S.
Attorney Preet Bharara?s office "will soon decide whether to charge Clearstream with
violations of sanctions laws and making false statements to U.S. regulators about those
alleged violations.?8

As set forth above, last year, our legal team, on behalf of the 9/11 Plaintiffs, began
proceedings in the Luxembourg courts to compel the turnover of all Markazi assets held
by Clearstream. As permitted by Luxembourg law, pending the final legal disposition of
those assets and to prevent them from being transferred and concealed once again, our
team obtained an order freezing all Markazi assets held at Clearstream, including at
least all assets in: (1) the Markazi?Clearstream Account; (2) Account 13061; and (3)
Account 13675.

Soon after, Markazi filed a motion asking the r?f?r? court to dissolve the asset freeze.
Clearstream is supporting Markazi?s motion. The parties have engaged in multiple
rounds of briefing, and a hearing took place on Monday, February 27. The judge has
promised a final disposition by March 22.

II. The Asset Freeze Should Be Maintained.

By appealing to the r?f?r? court to lift the asset freeze on a summary basis, Markazi and
Clearstream are attempting to do an end run around the exequatur and saissez-arret
proceedings commenced by the 9/11 Plaintiffs last year to effectuate the lawful
turnover to them of the billions of dollars now in Luxembourg that is owed to them by

 

8 "Deutsche Boerse Unit?s Iran Ties Said to Face Renewed Probe?, Bloomberg, February 21, 2017



 





Iran in satisfaction oftheir U.S. judgments. That is because the adjudication ofthe
exequatur and saissez?arret proceedings could take a year or longer by which time
Markazi will have moved the assets used to satisfy the judgment out of Luxembourg if
the asset freeze is lifted.

We are well aware of your government?s rapprochement with Iran in the months after
the implementation of the JCPOA. However, we would urge you to take all appropriate
steps in the courts and through applicable executive action to ensure that valid U.S.
judgments held by victims of terrorism are enforced by Luxembourg. I would ask that
we have the opportunity to meet with you or your representative in person some time
prior to March 15 to discuss how your government may provide such assistance.

The scourge of terrorism impacts Americans and Europeans alike, and we look forward
to discussing how your government can help to cut off the financial lifeblood of
terrorism?s state sponsors. We look forward to hearing from you.

Sin rel 

Lee Wolosky
Michael J. Gottlieb

Cc: President Donald J. Trump
General H.R. McMaster, Assistant to the President for National Security Affairs
Thomas Bossert, Assistant to the President for Homeland Security

John Eisenberg, Deputy Assistant to the President and Deputy Counsel to the
President for National Security Affairs