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

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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.

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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.

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New Lease Threat Made
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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.

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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