COURT ISSUES JUDGMENT AGAINST AMERICAN SCHOOL;

C O N F I D E N T I A L SECTION 01 OF 02 TUNIS 000473 SIPDIS FOR M, NEA, L E.O. 12958: DECL: 07/15/2019 TAGS: ASCH AMGT PREL TS SUBJECT: COURT ISSUES JUDGMENT AGAINST AMERICAN SCHOOL; SEIZURE OF ASSETS COULD ENSUE QUICKLY REF: A. TUNIS 461 ¶B. TUNIS 456 ¶C. TUNIS 339 AND PREVIOUS Classified By: Ambassador Robert F. Godec, reasons 1.4 (b) and (d) ¶1. (U) This is an action cable - see paragraph 7. ¶2. (C) Summary and Action Request: A Tunisian court ruled July 14 in favor of the Ministry of Finance stating that the American Cooperative School of Tunis (ACST) owes 9.1 million Tunisian dinars in taxes, ignoring the negotiated settlement in principle between the USG and the GOT lowering that figure to TD 4.126 million. The court decision was issued in record time, and the court chose to skip over a series of normal conciliation procedures. Local lawyers say the speed of the court's actions is unprecedented for this kind of case. Once the final written judgment is issued, which can happen at any time, the Ministry of Finance will be free to seize the school's assets irrespective of any appeal. We need to raise the pressure on the Tunisians. We recommend that the Department call in Ambassador Mansour and inform him that: -- the GOT must honor the tax agreement it negotiated; -- the GOT must reply in writing to our many demarches and proposed texts; and -- if the GOT proceeds to move to seize ACST assets or to reinstate the TD 9.1 million tax bill then suspension of FMF military assistance as well as additional steps with important repercussions on our bilateral relations will occur. The Ambassador will also raise this issue with the Foreign Minister at a meeting scheduled for July 17 and brief friendly ambassadors on the current situation. End Summary -------------- Judgment Issued Against ACST -------------- ¶3. (SBU) The American Cooperative School of Tunis learned July 15 that a Tunisian court decided on July 14 that the 9.1 million Tunisian Dinars (USD 6.8 million) tax bill presented by the Ministry of Finance in March was immediately enforceable. The Ministry has pursued a case against the school despite an agreement in principle that was negotiated in May that lowered the bill to TD 4.126 million and applied new taxes to the school effective July 1. Instead of responding to multiple requests to negotiate the remaining issues, the future status of the school and unilateral attempts by the GOT to change its lease, the Tunisians unleashed the Ministry of Finance to seek the original sum. Implementation of the agreement has been held up by the GOT's unwillingness to respond concretely to our multiple efforts both here and in Washington to resolve those issues. -------------- Draft Agreement Delivered -------------- ¶4. (SBU) Most recently, the Embassy provided a full draft bilateral agreement (cleared by the Department) on July 10 that incorporates the tax agreement, status and lease issues. Immediately previously, July 8, the Ministry of Finance attempted to order to school to sign a settlement document sight unseen no later than July 9, saying the text would be presented at the time of signature. Otherwise the previously agreed terms would no longer have standing. In a two hour meeting with Embassy and school representatives that day, the Director General of Fiscal Affairs rejected the USG position that all issues need to be settled saying that he viewed the issue from the narrow legal point of view that the initial downpayment of the taxes (20 percent of the TD 4.126 million) needed to be paid with a certified check that day, otherwise the court would reimpose the TD 9.1 million tax bill. He rejected any linkage between the tax issues and the other issues the school faces. The Ambassador raised the issue with Minister of State Ben Dhia July 9 and discussed it with the Prime Minister July 10 (refs A and B). He will raise the issue with the Foreign Minister at a meeting already scheduled for July 17 and brief ambassadors of friendly countries on the current situation. -------------- New Lease Threat Made -------------- TUNIS 00000473 002 OF 002 ¶5. (SBU) Separately, on June 30, the Ministry of Public Land sent a letter demanding that ACST agree to a rent increase from TD 16,000 a year with an annual 5 percent increase to TD 90,500 a year effective next March with an annual 7 percent increase. The letter stated that if the school did not agree by July 14, then its lease would not continue effective July 16, 2010. The school responded on July 14 that it was willing to raise its rent to TD 30,000 a year but sought to maintain the 5 percent annual increase. The Ministry's letter in effect moved up the deadline from its March letter to mid-July. Previously it had called for negotiations to be completed by the end of the calendar year. Mid-June, the school informed the ministry that it had no desire to change its lease terms in response to the March letter. -------------- Seizure Could Happen at any Time -------------- ¶6. (C) The GOT has put itself in the legal position of being able to seize the school's assets at any time. We do not know if it intends to proceed but it now has the legal right to do so. In practical terms, the school has about TD 100,000 in the bank locally, with the rest of its cash in the United States. We are working to implement contingency plans in place to move copies of the school's vital records onto the Embassy compound in advance of any seizure to prevent them from being lost. Seizure of the school would have serious consequences within the American and expatriate community and may result as well in the reimposition of a hold on the school's funds by its American bank. It appears that the GOT has decided to in effect repudiate the draft agreement and ignore the lease and status issues by attempting to bypass the USG and force the school to succumb to direct pressure. As the Department is aware, the school does not have the TD 9.1 million being sought. Any enforcement of the court order would effectively close the school by bankrupting it. ¶7. (C) Recommendation: We believe the Department should call in Ambassador Mansour and deliver a stern message as follows: -- The United States wants a negotiated settlement of all the issues concerning ACST. -- We have previously reached an agreement in principle on the tax issues. We do not understand why the Government of Tunisia is ignoring that agreement by pursuing ACST in the courts. The court decision to reimpose a bill that the GOT has already negotiated is unacceptable and raises strong questions as to whether the GOT negotiated in good faith. -- The Government of Tunisia has refused to reply to our multiple demarches and proposed texts to close this matter and to resolve the status and lease issues that remain. We have not received any written replies despite multiple meetings both in Tunis and in Washington. The most recent text submitted, on July 10, needs to be acted on immediately. -- Any action to seize any assets of ACST or to reimpose a 9.1 Million Tunisian dinar bill will result in the immediate suspension of all FMF military assistance as well as additional steps that will have important repercussions on our bilateral relations. The current court case must be suspended by the GOT and we must move immediately to conclude a bilateral agreement before serious damage to our bilateral relationship results. End Recommendation Godec