Note 14. Commitments and Contingencies
In addition to the future lease commitments discussed in Note 13, "Leases," the Department is committed under obligations for goods and services which have been ordered but not yet received (undelivered orders — see Note 17, "Statement of Budgetary Resources") at fiscal year end. In FY 2005 appropriations, the Department of State received $6 million to subsidize the cost of a direct loan of up to $1.2 billion to the United Nations to cover the cost of renovating its headquarters in New York City. As of the date of this Report, the loan agreement had not been ratified.
Counter-Terrorism Rewards (a.k.a. Rewards for Justice), Narcotics Rewards and War Crimes Rewards Programs. The Department operates rewards programs for information critical to combating international terrorism, narcotics trafficking, and war crimes. The Rewards for Justice Program can offer rewards [we recommend deleting references to limitations on the amount of funds because there is no statutory cap; instead, by regulation, the Secretary has to approve awards above a certain amount] for information leading to: the arrest or conviction in any country of persons committing (or conspiring or attempting to commit, or aiding or abetting the commission of) acts of international terrorism against United States persons or property; the prevention, frustration or favorable resolution of such acts; the identification or location of key leaders of a terrorist organization; or the disruption of financial mechanisms of a foreign terrorist organization. The Narcotics Rewards Program has the authority under 22 U.S.C. 2708 to offer rewards for information leading to: the arrest or conviction in any country of persons committing (or conspiring or attempting to commit, or aiding and abetting the commission of) major foreign violations of U.S. narcotics laws or the killing or kidnapping of U.S. narcotics law enforcement officers or their family members; or the prevention, frustration or favorable resolution of such criminal acts. The War Crimes Information Rewards Program currently offers rewards for information leading to the arrest, transfer, or conviction of persons indicted by the International Criminal Tribunal for the Former Yugoslavia or the International Criminal Tribunal for Rwanda for serious violations of international humanitarian law, or their arrest or conviction in any country for such violations. Authority exists to create a similar war crimes program for information related to indictees of the Special Court of Sierra Leone.
The Department is a party in various administrative proceedings, legal actions, environmental suits, and claims brought by and against it. Some of the actions are not related directly to Department programs but the Department is involved because of its status as the U.S. Government's foreign policy agency. In the opinion of management and legal counsel, the ultimate resolution of these proceedings, actions, and claims will not materially affect the financial position or results of operations of the Department.
Claims Filed in Response to Embassy Bombings: Nearly 4,000 Kenyan nationals filed administrative tort claims against the Department alleging that Department negligence was responsible for the damages they suffered when terrorists bombed the American Embassy in Nairobi, Kenya on August 7, 1998. These claims are for sums ranging from $150 to $10,000,000 and total approximately $1.5 billion. Two lawsuits, in the amounts of $1 billion and $500 million, arising from these tort claims were dismissed this year by the Federal District Court in Washington, D.C. Both of the cases have been appealed to the D.C. Circuit Court of Appeals. After that court affirmed the District Court's dismissal of the $1 billion action in July 2003, the plaintiffs in the other, almost identical, suit abandoned their appeal. The plaintiffs in the first case have petitioned the Supreme Court for certiorari, which was denied.
In addition, the families of eleven of the twelve Americans killed in the bombing also filed administrative tort claims with the Department alleging that Department negligence led to the death of their family members in Nairobi. These claims, including those by the estates of the deceased, are for a total of $117 million. Recent Supreme Court jurisprudence has ruled out liability under the Act for injuries or deaths suffered abroad. We are reviewing the claims under the Secretary's discretion as authorized by the Basic Authorities Act and in conjunction with proposed litigation for compensation to victims of terrorism. Any settlements made under the Secretary's discretionary authority in excess of $2,500 would be funded and paid from the Judgment Fund maintained by the Treasury.
North American Free Trade Agreement (NAFTA) Arbitrations: The United States is currently defending itself against more than one hundred claims submitted to arbitration - and facing approximately $1.1 billion in potential liability - under chapter Eleven (investment) of the North American Free trade Agreement (NAFTA). The United States also has received two notices of intent to submit claims to arbitration, in the amounts of $513 million and $8 million, respectively. The United States has successfully defended itself against four individual claims and one consolidated claim (involving three claimants) submitted to arbitrations. Any adverse award in any of these cases would be paid out of the Judgment Fund.
Fluor Intercontinental Inc. (Astana Embassy Project): The claimant has asserted three claims, totaling $36,032,537, for work on one contract in building the new embassy compound in Astana, Kazakhstan related to the installation of piles for the foundation, the perimeter wall, and the impact of the alleged delay in the construction of the infrastructure. The Contracting Officer has denied the claims, and the Department awaits appeal of the denial. Claimant is unlikely to be able to provide its claims, which appear to be very inflated. It is not possible at this time to accurately access within a predictable range the estimated amount of losses which would be probable or reasonably possible.
Fluor Intercontinental Inc. (Kingston Embassy Project): Claimant is seeking return of $12.2 million in two separate claims for alleged Government delay in the construction of the new embassy compound in Kingston, Jamaica. The Contracting Officer has denied the claims, and the claimant has appealed to the Civilian Board of Contract Appeals. Because the issues are complex and depend in part on schedule analysis, it is not possible at this time to assess within a predictable range the estimated amount of losses which would be probable or reasonably possible.
Fluor Intercontinental Inc. (Frankfurt Project): Flour Intercontinental has asserted numerous discrete claims pertaining to renovation of Air Force Hospital in Frankfurt for use as the Consulate General, plus large delay and constructive acceleration claims said to arise from impact of the discrete claims on the construction schedule. The total amount of the global claim is anticipated to be approximately $18.4 million. This claim has now been settled for $4.2 million, plus interest, to be paid from the Judgment Fund.
Inversa, S.A. (Leases): Claimant has asserted $45 million in claims arising out of the lease of the Embassy Panama office building annex between 1990 and 2004 and a claimed breach of a letter of intent to lease housing units. The untimely termination claim (approximately $275,000) decided in favor of the lessor by the Court of Federal Claims will be paid from the Judgment Fund ($241, 000 plus interest) when the quantum is agreed upon or determined by the Court of Federal Claims. The Civilian Board of Contract Appeals granted summary judgment in favor of the Government on Inversa's $30 million claim for breach of the letter of intent. The remaining claims, which amount to just under $10 million, are currently scheduled to go to trial in the Civilian Board of Contract Appeals next February. The claimant's appeals of claims denied by the court of Federal Claims are likely to fail.
Zachry Caddell Joint Venture (Beijing Embassy Project): Claimant has asserted two overarching claims and one Request for Equitable Adjustment, totaling $35,202,899, concerning multiple aspects of the new embassy compound in Beijing, China. The two claims are in litigation at the Board of Contract Appeals, but that litigation has been stayed pending action on the Request for Equitable Adjustment. The contracting officer has settled a number of the direct cost claims, but about $30 million in claims remain outstanding. The Department received the Request for Equitable Adjustment in July 2007 and is preparing a response. It is not possible at this stage to assess within a predictable range the estimated amount of losses that would be probable or reasonably possible.
Chattler et al. v. United States of America: Plaintiffs filed a class action complaint against the United State and the Department on August 7, 2007. The putative plaintiff class seeks a refund of expedite fees, along with damages, prejudgment interest, and attorneys' fees arising from the Department's alleged failure to process within three days, and/or return within two weeks, passport applications for which an expedite fee was paid. The U.S. Government filed a motion to dismiss the complaint on October 9, 2007, and plans to contest the claims vigorously. The estimated amount or range of potential loss may be $50 million to $70 million.
Certain legal matters to which the Department is a party are administered and, in some instances, litigated and paid by other U.S. Government agencies. Generally, amounts to be paid under any decision, settlement, or award pertaining to these legal matters are funded from the Judgment Fund. None of the amounts paid under the Judgment Fund on behalf of the Department in 2006 and 2005 had a material effect on the financial position or results of operations of the Department.