(CN) - Funds held by major banks as part of the economic sanctions against Iran cannot serve to satisfy a $591 million judgment won by the family of a master sergeant killed in a 1996 terrorist attack, the D.C. Circuit ruled.
In 1996, an explosion at the U.S. Air Force housing complex Khobar Towers, in Dhahran, Saudi Arabia, killed 19 American military personnel, and wounded hundreds of others.
An investigation found that the Lebanese political organization Hezbollah was responsible for the attack, with major support from Iran.
The estate of Michael Heiser, one of the victims, sued Iran, and won a default judgment now worth $591 million.
In an effort to collect on this judgment, the estate issued writs of attachment to Bank of America and Wells Fargo, seeking funds collected as a result of blocking regulations against Iran.
As part of the economic sanctions against Iran, no electronic bank transfers can be made to Iranian banks. Instead, such fund transfers are blocked and deposited in a separate account.
Heiser's estate argues that these funds can be used to satisfy the judgment against Iran because Iranian banks would have a future interest in the monies.
A federal judge agreed last year, ordering the banks to pay Heiser's estate $364,500, but the D.C. Circuit reversed Tuesday.
The U.S. government had appeared as amicus curiae for the banks in the case, backing their claim that plaintiffs have no claim because the money does not belong to Iran itself, only to beneficiaries that use Iranian banks.
A judgment against a terrorist party cannot be satisfied by attaching property that the terrorist party does not own, the court ruled.
"Adopting plaintiffs' interpretation of § 201 and § 1610(g) risks punishing innocent third parties," Judge Arthur Randolph wrote for a three-judge panel. "Plaintiffs' position is that these sections allow a creditor to satisfy a judgment with property the debtor does not own. But if the debtor does not own that property, then someone else must. And that someone could, and very well might, be an innocent person who then unjustly bears the costs of the debtor's wrong."
The economic sanctions against Iran block all monetary transfers, including personal remittances sent to an Iranian bank that could be intended to pay tuition, or support an aged family member, as well as monies intended to be used for terrorism.
"The record does not disclose whether the originators or beneficiaries in this case are entirely innocent," Randolph wrote. "But they may be. And that prospect would be contrary to Congress's intent. If potentially innocent parties pay plaintiffs' judgment, then the punitive purpose of these provisions is not served. Quite the opposite. To the extent innocent parties pay some part of a terrorist state's judgment debt, the terrorist state's liability is ultimately reduced. Congress could not have intended such a result."
Read the Top 8
Sign up for the Top 8, a roundup of the day's top stories delivered directly to your inbox Monday through Friday.