Many of the lawsuits affected by the compromise under discussion involve “human shield” victims whom Saddam Hussein placed at government sites in the hope that doing so would prevent the U.S. from bombing those sites.

In mid-2002, 180 of the 420 “human shield” victims obtained court judgments totaling $94 million. They were able to file suit against Iraq after Congress passed a 1996 law that permits American victims of terrorism to seek redress against rogue nations.

Another 240, however, have yet to be settled, and carving out an exception for Iraq could affect those suits. According to Wolf, their awards would amount to at most $100 million.

Democrats are pressing to complete work on the provision soon because defense authorizers want military pay increases in the bill to be enacted as soon as possible. The bill contains too many important provisions for the military for lawmakers to stage a standoff against the administration, according to one congressional source.

The measure has reignited a debate between Congress and the White House over foreign assets vulnerable to lawsuits.

Congress, on behalf of terror victims, has argued that countries involved in terror acts need to be held accountable for them, while the president and State Department have said that such lawsuits would hurt American diplomatic efforts and interests.

 Of the $10.5 billion awarded in damages to victims in terror lawsuits, about $511 million were paid out to victims as part of the 2000 Victims of Trafficking Act, according to a Congressional Research Service report. That act was a compromise between the Clinton administration and Congress that allowed rental money accrued from Iranian diplomatic property in the U.S. Treasury to be used for payments of victims. If they accepted the payouts, victims were required to give up their rights to go after other Iranian properties.

 At least four other lawsuits seeking damages from the Iraqi government are pending, including ones brought by airmen shot down during the Gulf War and a lawsuit by CBS reporter Bob Simon, whose crew was held hostage during the first Gulf War.

 Many victims who have won judgments in court against state sponsors of terror have not been paid. Thomas Fay, a lawyer for families of U.S. Marines killed in the 1983 Beirut bombing, said that though a court awarded his clients a $2.6 billion settlement, none have received money from Iran.

 “The idea that a terrorist nation should have immunity from any kind of lawsuit when they murder an American … is just ridiculous,” Fay said.

 Steve Perles, another lawyer representing the families of the bombing victims, said that the provision would give them access to up to $6 billion in Iranian funds surreptitiously held in the United States. It is impossible to get to those assets under current law, which requires plaintiffs to prove that those assets are managed on a day-to-day basis by the Iranian government. The provision would change that threshold to proof of ownership rather than managerial control.

The Beirut families’ lawsuits, which along with other suits formed the impetus for the provision under debate, would still benefit even with an Iraq exception.

The defense bill provision would destroy one legal argument used by the U.S. government to prevent payments. In the past, when victims have won multi-million dollar judgments, Justice Department lawyers have argued that a foreign government’s assets are not available for use as compensation because this would violate the foreign government’s sovereign immunity. This is the principle that a government cannot be a defendant in a civil suit.

 Critics of the administration’s veto charge that the State Department has always fought cases against foreign governments in an effort to prevent private citizens from dictating foreign policy through lawsuits and other efforts.

 Moreover, since Congress in 1996 allowed federal courts to consider such cases, State is defending its turf, according to several sources familiar with the issue.

While the executive branch is opposing the cases against Iraq, it is allowing foreign corporate creditors to collect on their debts with Iraq at a lower rate through U.S. banks.