Iran's effort to recover some $1.75 billion frozen in a US bank faces a new obstacle due to a law President Barack Obama signed last month, potentially further squeezing Tehran's economy and exacerbating tensions between the two countries.
When Obama signed the National Defence Authorisation Act on December 31, a provision required him to freeze any money held by or for Iranian financial institutions in the United States and to prohibit any future transactions.
The $1.75 billion was uncovered in 2008 in a New York branch of Citibank, part of Citigroup, having been deposited by a Luxembourg-based bank.
A US court froze the funds when survivors and victims' families from the 1983 Beirut bombing of barracks housing US and French soldiers in a multilateral peacekeeping force argued it should help pay a $2.65 billion judgement against Iran for its alleged role in that attack.
If the administration does impose its own freeze and seizes the money, that could set off a frenzy by Americans who have won default financial judgements against Iran in US courts as they try to get a slice of the cash.
Obama and his team will have to decide whether they want to distribute that money or use it as a lever in negotiations with Tehran, which has been at loggerheads with the West over its nuclear program.
"You'll see the funds frozen or remain frozen, but that Washington would be reluctant to see a payout at this particular moment in time," said Suzanne Maloney, a former State Department adviser and now a senior fellow at the Brookings Institution.
There have been hundreds of billions of dollars in default judgements against Iran levied by US courts in favour of Americans, but there are broader foreign policy issues that will likely give the Obama administration pause, she said.
With such a large sum on the line and with Iran beset by economic sanctions from Western countries skeptical of its assertion that it does not seek to develop atomic bombs, Iran's central bank plans to file a motion for the funds next month.
The central bank, known as Bank Markazi, will argue the funds, because they were being used as currency reserves, are protected from seizure under the US Foreign Sovereign Immunities Act, according to a New York-based lawyer for the central bank.
"My view is that the funds will not be distributed for the benefits of the plaintiffs (suing to get the Iranian money) as this was not the purpose" of the new law, said Ingrid Wuerth, a law professor at Vanderbilt University.
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