The United States asked judges at the International Court of Justice (ICJ) to throw out a claim by Iran to recover $1.75bn in national bank assets seized by American courts.
The US Supreme Court ruled in 2016 the assets must be turned over to American families of victims of the 1983 bombing of a US Marine Corps barracks in Beirut, among others.
US plaintiffs accused Iran of providing material support to Hezbollah, the Iran-backed Shia political and military group blamed for the truck-bomb attack at the Marine compound in Lebanon's capital. Iran denies any links to the blast.
"Iran comes to the court with unclean hands. Indeed, it is a remarkable show of bad faith," Richard Visek, a US State Department legal official, told the court on Monday.
"The actions at the root of this case centre on Iran's support for international terrorism ... Iran's bad acts include supports for terrorist bombings, assassinations, kidnappings and airline hijackings," he said.
Visek also accused Iran's "most senior leaders" of the "encouragement and promotion of terrorism" and "violation of nuclear non-proliferation, ballistic missile and arms trafficking obligations".
'Fallen heroes'
The hearings at the tribunal were separate from Iran's claim relating to current US sanctions against Teheran.
Iran's claim in both cases is based on a 1955 Amity Treaty, which was signed 24 years before Iran's Islamic Revolution, which turned the two countries into arch enemies.
US Secretary of State Mike Pompeo accused Tehran of misusing the world court for political and propaganda purposes.
"We owe it to our fallen heroes, their families, and the victims of Iran's terrorist activities to vigorously defend against the Iranian regime's meritless claims this week in The Hague, where we will show that Iran's case should be dismissed," Pompeo said in a Monday statement.
Washington announced last week it would withdraw from the Amity Treaty after the tribunal ordered the United States to ensure that sanctions against Iran do not affect humanitarian aid or civil aviation safety.
It will take a year for a withdrawal from the Amity Treaty to take effect, and Iran's case against the asset seizure, which was filed in 2016, will continue regardless.
Asset seizures
The hearings in The Hague will run until Friday and focus on US objections to the UN's highest court's jurisdiction. No date for a ruling has been set.
But Monday's showdown risks deepening the Trump administration's rift with international justice.
Last Wednesday, Trump's national security adviser, John Bolton, announced that Washington was also quitting the international accord relating to the UN top court's jurisdiction.
That followed Iran's shock victory last week when the ICJ ruled the United States must lift sanctions against Tehran targeting humanitarian goods like food and medicine.
The step also came after the Palestinians went to the ICJ to challenge the US move of its Israel embassy to Jerusalem.
Trump last month at the United Nations virulently rejected the authority of the International Criminal Court - a separate court based in The Hague of which the US is not a member - over a probe into US forces in Afghanistan.
