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Qaddafi's Victims Hope for Compensation From Frozen Funds Qaddafi's Victims Hope for Compensation From Frozen Funds

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National Security / LIBYA

Qaddafi's Victims Hope for Compensation From Frozen Funds

Libyan leader Moamer Kadhafi speaks at a ceremony of loyalists to mark 34 years of 'people power' in Tripoli on March 2, 2011 during which he vowed to fight an uprising against his 41-year rule to 'the last man, the last woman', as rebels repulsed an attack by his forces on an eastern town. His speech came as the UN refugee agency made a plea for hundreds of planes to end a gridlock at the Tunisia border with Libya, where 'acres of people' fleeing the violence are still waiting to cross in freezing conditions. AFP PHOTO / MAHMUD TURKIA (Photo credit should read MAHMUD TURKIA/AFP/Getty Images)(MAHMUD TURKIA/AFP/Getty Images)

photo of Sophie Quinton
September 14, 2011

A flight bound for New York City is held hostage by Libyan-sponsored terrorists for 16 hours. Twenty passengers are shot and killed; 100 severely injured. A child had to clamber over the body of her dead father in order to escape the carnage.

That child who survived the 1986 hijacking of Pan Am Flight 73, along with scores of other American victims of Muammer el-Qaddafi’s state-sponsored terrorism, still awaits compensation from the Justice Department’s Foreign Claims Settlement Commission. And the FCSC’s Libya Claims Program is running out of money.  

A 2008 settlement agreement between the Bush administration and Qaddafi was supposed to end lengthy litigation over the Qaddafi regime’s assets. Instead, the deal that dismissed the federal court cases of American victims and referred them to the FCSC has sparked a new fight.


Tapping the deposed dictator’s frozen assets, advocates for the victims say, would be the best way to address the commission’s funding shortfall.

The problem though, is the fledgling Transitional National Council wants that money, too.

“The TNC believes this matter was fully resolved” back in 2008, said David Tafuri, a lawyer at the Washington firm Patton Boggs who represents the TNC in Washington. Tafuri said the TNC believes that American claimants need to bring their complaints to the U.S. government, rather than asking for Libya’s money.

Assets totaling $33 billion linked to the regime have been frozen by the U.S. alone since Libya’s democratic uprising began. The TNC has argued that all the former regime’s assets should be channeled into humanitarian and nation-building projects in Libya.

American victims of state-sponsored terrorism have been able to file suit against foreign governments since 1996, and since 2000 there have been cases where courts or Congress have tapped frozen assets in order to compensate victims. What Qaddafi’s American victims are asking for isn’t unprecedented, but Libya has become a special case.

The 2008 settlement deal, signed into law by the Libyan Claims Resolution Act, removed terror-related cases against the Qaddafi regime from federal courts in exchange for $1.5 million, provided by Qaddafi. Because of that settlement, Qaddafi’s victims receive awards according to a strict formula laid out by the State Department. The FCSC does the paperwork; it doesn’t set the policy.

To let awards go unfulfilled “would be inconsistent with congressional intent expressed in the 2008 Libyan Claims Resolution Act and would be fundamentally unfair, particularly since these victims can no longer seek redress in federal court,” said nonvoting Rep. Pedro Pierluisi, D-Puerto Rico.

Mary Kathyrn Hasset lost her youngest daughter, Margaret, when Libyan-sponsored terrorists hijacked UTA Flight 772. Margaret was on her way home after serving two years in the Peace Corps when her Paris-bound flight exploded over the Sahara desert.

“For years I thought, what can I do?” Hassett said of the time after her daughter’s death. Joining with other victims of UTA 772 to sue Libya made her feel like she had the “personal ability to hold Qaddafi accountable.”

The UTA 772 victims won their court case, Pugh v. Libya. But they never saw a dime of the multimillion-dollar court judgment. Before an appeal to the decision could be resolved, the settlement agreement was finalized. Hassett is still waiting for the FCSC to award her and her daughter’s estate the amount the State Department recommended.

The agreement between Bush and Qaddafi erased a growing source of concern for both Libyan and American businesses: litigation against Qaddafi’s regime. Terror-related lawsuits not only hurt the Libyan dictator and his cronies, but also made American businesses working with the oil-rich nation vulnerable. 

Bush agreed to drop all litigation against the Qaddafi regime if Qaddafi provided enough money to satisfy the existing claims of American citizens against him. Then-Secretary of State Condolezza Rice assured Congress that the $1.5 billion Qaddafi provided would be enough to compensate everybody. It was supposed to be a win-win for all concerned.

The $1.5 billion was distributed in stages. The State Department immediately compensated the most high-profile victims, those affected by the 1988 Lockerbie hijacking and the 1986 bombing of German nightclub La Belle Discoteque. The estates of those killed in Qaddafi’s attacks—including Margaret’s estate-- each received $10 million.

The remaining victims—like Hassett, her other children, Margaret’s father, and the survivors and families of Pan Am 73— were referred to the FCSC. The State Department divided the claimants into categories and described awards appropriate for each category. It was understood that funds would be divided up on a pro-rata basis if the $1.5 billion started to run low.

Last week, victims waiting for their FCSC awards received letters from the Treasury informing them that they would be receiving an “initial” $1,000 payment and 20 percent of the balance of their award. Hassett, who has yet to be issued her award, did not receive a letter. But the daughter who survived Pan Am 73, whose $1 million award was approved last Wednesday, may soon find such a letter in her mailbox.

“It is now the official position of the U.S. Treasury that there is a serious shortfall,” said Stuart H. Newberger, a partner at Washington law firm Crowell & Moring, of the letters. The 20 percent figure “doesn’t mean there’s an 80 percent shortfall, but there could be, depending on the nature and amounts of the awards,” said Newberger, who has represented multiple victims of Qaddafi's attacks.

Crowell & Moring attorneys anticipate a likely shortfall of up to $500 million, affecting every claim at the FCSC. In the context of the billions of the regime’s assets frozen by the U.S. Treasury, making sure victims receive the full balance of the awards they were promised would be just a “footnote,” Newberger said.

The shortfall is partly due to a State Department decision to recognize a new class of claimants in 2009. At that time, persons killed or injured by Qaddafi’s attacks who did not have claims pending in court at the time of the agreement were also referred to the FCSC.    

Families and their lawyers have been lobbying Capitol Hill to take action on the shortfall for months. Some members of Congress have decided to champion the issue, and they have all pointed to Qaddafi’s frozen assets as the best solution.

"If the Libya Claims Program Settlement Fund is unable to cover U.S. victims of Qaddafi terrorism, then the shortfall should come from Qaddafi's pockets," said House Foreign Affairs Committee member Eliot Engel, D-N.Y.

Six members of the House sent Secretary of State Hillary Clinton a letter last week, drawing her attention to the shortfall and asking her to consider using frozen funds to address it. Engel and Pierluisi both signed the letter.

Two members of the Senate Foreign Relations Committee, Sens. Johnny Isakson, R-Ga. and Marco Rubio, R-Fla., have introduced a measure that would force the transfer. Their proposed amendment to the Senate’s authorization of NATO action in Libya probably won’t make it to floor debate, Isakson said, although it was adopted by the committee.

But Isakson isn’t giving up.  “As longs as I can find a vehicle, this issue will be up for debate,” he said.  

Jurisdiction over the deposed dictator’s money remains enormously unclear. Who should decide what to do with the money, securities, and property frozen by the United States? The State Department, the president, or Congress? The United Nations, or Libya’s new government?

“We really need a bill, we need Congress in on this, because it’s too complicated,” Newberger said.

But a law authorizing a transfer of Qaddafi’s money to compensate American citizens would create diplomatic problems. The TNC has already opposed the move, and American appropriation of Qaddafi’s assets could also undermine agreements with other states.

Isakson said there has been “some concern” at the State Department that if the United States demanded more of Qaddafi’s money after apparently settling the claims against him, it would “create difficulties in negotiating future contracts with other countries.”  

The State Department has maintained that it’s far too early to talk about congressional action on the frozen assets. The State Department “would prefer to go through U.N. channels” and unravel the asset freeze from the top down, department spokeswoman Victoria Nuland said last month.

When asked about the funding shortfall at the FCSC, Nuland referred the National Journal to the Justice Department.  

Meanwhile, in a small, quiet room in a federal building in Washington, lawyers keep reading from briefs that dredge up painful history. And the two FCSC commissioners continue to approve awards that they can no longer guarantee.

It’s “not that money can take the place of a life,” Hassett said. But she wants the time and energy her family has sunk into lawsuits to be recognized. Her daughter died twenty-two years ago this Sept. 19.




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