Deal to compensate 1998 embassy bombings, lift sanctions on Sudan unravels, imperiling country's democratic transition

A bipartisan deal in Congress to compensate victims of the 1998 U.S. embassy bombings and assist Sudan in its fragile transition to democracy has fallen apart at the last minute.

The breakdown risks those victims and their families not receiving any compensation after decades of litigation or Sudan remaining on the U.S. state sponsor of terrorism list, a designation that blocks U.S. and international investment, including from the World Bank.

Senate Minority Leader Chuck Schumer led that intervention amid concerns over how the deal would impact victims of the Sept. 11 terror attacks, their families and their right to sue Sudan.

Several congressional and State Department officials told ABC News 9/11 victims would maintain their right to litigation, but under new procedures. They also accused Schumer of doing the bidding of insurance companies who would be left out -- a charge his office and other congressional aides denied.

"The embassy bombing victims who have waited 22 years for justice, compensation and accountability are about to be screwed and left out in the cold," said one congressional aide. "And we are potentially derailing a democratic transition in a very dangerous neighborhood in East Africa."

Sudan, Africa's third-largest country, is at a tenuous crossroads. Mass demonstrations in 2019 led to a military coup that ousted strongman Omar al-Bashir and eventually agreed to a transition to civilian rule. But the country's transitional government remains stymied by international sanctions and instability and beset by flooding and the coronavirus pandemic.

The U.S. could help by lifting the state sponsor of terrorism designation and opening the door to international assistance. The Trump administration has said that it will do so only when a deal is finalized for victims of the 1998 attacks on the U.S. embassies in Tanzania and Kenya.

The blast in Nairobi killed 213 people, including 12 Americans, and injured an estimated 4,000, while the simultaneous attack in Dar es Salaam killed 11 people and injured 85. Five years earlier, the U.S. had designated Sudan a state sponsor of terrorism for the support it had provided Hezbollah and other Islamist extremist groups, and al-Bashir's government was found to have harbored the al-Qaida militants responsible for the 1998 bombings.

The deal tentatively reached between the U.S. and Sudan's new government would create a $335 million fund for those victims. It would pay out $10 million for Americans killed in the blast, $3 million for those injured, $800,000 for foreign citizens working at the U.S. embassy who were killed and $400,000 for those foreigners injured -- as well as a private settlement for the USS Cole attack and the murder of USAID employee John Granville.

Those numbers may vary in the final version and between individual victims, versus a victim's family or estate, according to congressional aides.

The disparity between Americans and others has slowed approval of the deal by lawmakers who called it inequitable. But proponents have said it's the best the U.S. can do, given the precedent set by previous compensation deals for U.S. terror victims, the other funds available to victims and Sudan's poverty.

For the money to start flowing, Congress must approve of the compensation deal and pass legislation that restores Sudan's sovereign immunity, a legal principle that means a government cannot be sued.

Under the Foreign Sovereign Immunities Act, that immunity doesn't apply to countries that are designated state sponsors of terrorism. In 2016, Congress also passed the Justice Against Sponsors of Terrorism Act, or JASTA, which now allows Americans to also sue countries that aren't designated if they have aided acts of terrorism against the U.S.

While the pieces seemed to finally be lined up this week, the needed language was not included in drafts of the continuing resolution Congress is working on to fund the federal government. Without must-pass legislation to hitch onto, it seems unlikely to pass until at least later this year, according to the congressional aides.

In the last week, a handful of lawyers for Sept. 11 victims and their families objected to restoring Sudan's sovereign immunity. Sudan has never been found liable by U.S. courts or the U.S. government for the terrorist attacks, but the lawyers charged the deal would "strip the 9/11 community of its rights."

According to one congressional aide and a source familiar with the negotiations, that was because of a last-minute intervention from insurance companies that would not be able to file claims under the deal.

Schumer's office denied that was true, with one lawyer for 9/11 families calling it "profoundly false and shockingly unfair."

"The State Department lawyers screwed this up massively. That's a reality," said Jack Quinn, who represents more than 2,500 Sept. 11 families. "They're trying to cover their tracks by throwing the 9/11 victims' families overboard, and it's just wrong, it's so wrong. Congress should not be in the business of extinguishing private legal rights that are the subject of ongoing litigation in order to settle entirely separate claims."

The tentative agreement would not fully extinguish those rights, but require that they take a different avenue. The deal would prohibit future litigation under the Foreign Sovereign Immunities Act, but victims of 9/11 and their families could still sue under JASTA.

"Ensuring that 9/11 victims have the opportunity to pursue claims against Sudan and the rescission of Sudan's State Sponsor of Terrorism designation are not mutually exclusive," a State Department spokesperson told ABC News, pointing to JASTA and adding the agency "will continue our ongoing efforts to protect the interests of 9/11 victims."

The legislation would also extend the statute of limitations under JASTA and create an enforcement mechanism, so that if any plaintiffs won, they could seize Sudanese government assets. And it would extend a U.S. government fund for victims of state-sponsored terrorism for five years, totaling $1 billion, according to congressional aides.

But to Quinn, it's not enough because the two laws require different standards -- comparing it to someone taking away your left shoe, but saying you still have your right: "Why do they want to take those rights away? It’s not acceptable."

Congressional aides conceded the deal is not perfect, but argued it's the best chance to secure compensation for victims, leave an opportunity for 9/11 victims to pursue litigation and support Sudan's transitional government.

In Khartoum, time is running out, according to some aides and officials. Sudan's economy remains in tatters, especially after historic flooding in the last few weeks and COVID-19. The longer the economic pain lasts, the more volatile the political situation will be, analysts warn, even as the civilian government makes progress.

Because the legislation isn't part of the current funding bill, known as the continuing resolution, it likely won't get a vote until November or December, according to congressional aides.

That may be too late. In a letter obtained by ABC News, Secretary of State Mike Pompeo told Congress last week, "This legislation needs to be enacted no later than mid-October in order to ensure that payment of compensation to victims can occur as soon as Sudan's State Sponsor of terrorism designation is rescinded."