Discovery to Aid in Execution

Discovery to Aid in Execution Under the FSIA in 2013

United States views on international law [1] in relation to Discovery to Aid in Execution Under the Fsia: (1) Discovery regarding central bank accounts

Section 1611(b)(1) of the FSIA provides:

Notwithstanding the provisions of section 1610 of this chapter, the property of a foreign state shall be immune from attachment from execution, if—(1) the property is that of a foreign central bank or monetary authority held for its own account, unless such bank or authority, or its parent foreign government, has explicitly waived its immunity from attachment in aid of execution, or from execution, notwithstanding any withdrawal of the waiver which the bank, authority or government may purport to effect except in accordance with the terms of the waiver.

Some Aspects of Discovery to Aid in Execution Under the Fsia

On May 17, 2013, the United States filed a brief as amicus curiae in the U.S. Court of Appeals for the Second Circuit in support of reversal of a district court order permitting discovery concerning, inter alia, U.S. bank accounts held by the Lao Central Bank. Thai-Lao Lignite and Hongsa Lignite v. Government of the Lao People's Democratic Republic et al., No. 13-495 (2d Cir. 2013). The case arises from efforts by two foreign corporations to satisfy a foreign arbitral award against the Lao Government that was previously confirmed by the district court. The U.S. amicus brief explains the United States' interest in protecting foreign governments from intrusive discovery targeted at central bank accounts given the many foreign central banks that hold reserves in accounts in the United States. The section of the U.S. amicus brief that follows (with citations to the record omitted) argues that the Lao Central Bank's accounts are protected from discovery by Section 1611(b)(1) of the FSIA. Another section of the brief, relating to the immunity of the Lao government's diplomatic accounts and diplomatic personnel, is discussed in section D.3., in this world legal Encyclopedia. The full text of the U.S. brief is available at (Secretary of State website) state.gov/s/l/c8183.htm.

Developments

FSIA Section 1611(b)(1) Protects the Lao Central Bank's Accounts From Discovery

The FSIA, which establishes a comprehensive and exclusive scheme for obtaining and enforcing judgments against a foreign state in civil cases in U.S. courts, see generally Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 434-35 (1989), includes a specific provision immunizing foreign central banks from attachment and execution. Section 1611(b)(1) of the FSIA provides that “the property of a foreign state shall be immune from attachment and from execution, if—(1) the property is that of a foreign central bank or monetary authority held for its own account.” This provision recognizes that “foreign central banks are not treated as generic agencies and instrumentalities of a foreign state under the FSIA; they are given special protections befitting the particular sovereign interest in preventing the attachment and execution of central bank property.” NML Capital, 652 F.3d at 188 (citation and internal quotation marks omitted). Furthermore, this Court has acknowledged that this protection extends to discovery. Id. at 194 (“FSIA immunity is immunity not only from liability, but also from the costs, in time and expense, and other disruptions attendant to litigation.”). The district court's February 11, 2013 order misapplies NML Capital, and fails to recognize the special protection due the Lao Central Bank under § 1611(b)(1).

Details

In NML Capital, this Court made three holdings with respect to central bank immunity under the FSIA. First, it held that “the plain language, history, and structure of § 1611(b)(1) immunizes property of a foreign central bank or monetary authority held for its own account without regard to whether the bank or authority is independent from its parent state….” Id. at 187-88. Second, it determined that “the plain language of the statute suggests that Congress recognized that the property of a central bank, immune under § 1611, might also be the property of that central bank's parent state.” Id. at 188-89 (emphasis in original); accord id. at 189 (” 'By referring to the property of a foreign state and the property of a central bank interchangeably, Congress indicated its understanding that central bank property could be viewed as the property of a foreign state, and nonetheless be immune from attachment.' ” (quoting amicus brief filed by the United States)). Third, the Court concluded that the phrase “held for its own account” in § 1611(b)(1) describes funds used for traditional central banking functions. Id. at 194. Recognizing that the immunity conferred by § 1611(b)(1) includes immunity “from the costs, in time and expense, and other disruptions attendant to litigation,” the Court adopted a test whereby funds held in an account in the name of a central bank are presumed to be immune from attachment absent a specific showing by the judgment creditor that the funds “are not being used for central banking functions as such functions are normally understood.” Id.

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Here, the district court improperly ordered discovery concerning the Lao Central Bank's U.S. accounts. The district court determined that the Lao Central Bank had provided “ample statutory evidence” that it was a separate entity (with a separate claim to sovereign immunity) from the Lao Government, and that unlike the Lao Government, the Lao Central Bank had not waived its immunity. The district court further determined that it had “not established jurisdiction over the Lao [Central] Bank as a separate entity.” Moreover, the district court acknowledged “that specific details of accounts held by the Lao [Central] Bank are immune from discovery as well as attachment.” And lastly, the district court recognized that in order to rebut the presumption that the Lao Central Bank's accounts are immune under FSIA § 1611, Thai-Lao and Hongsa must “show, with specificity, 'that the funds are not being used for central banking functions as such functions are normally understood.' ” (quoting NML Capital, 652 F.3d at 194)).

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Yet despite these observations, the district court concluded that petitioners were entitled to discovery because the Lao Central Bank “[did] not conclusively establish that these accounts are the Lao [Central] Bank's property, and not [the Lao Government's],” pointing to a Lao law that it characterized as requiring the Lao Central Bank “to act as a custodian for the Lao Government's assets abroad.” On this basis, the district court concluded that “Petitioners are thus entitled to discovery regarding [the Lao Government's] accounts, even though they may be held in the name of the Lao [Central] Bank.”

Discovery to Aid in Execution Under the FSIA in 2013 (Continuation)

United States views on international law [1] in relation to Discovery to Aid in Execution Under the Fsia: The district court's ruling misapplied NML Capital by focusing on whether the Lao Central Bank accounts belonged to the Lao Central Bank or the Lao Government, a question that this Court has made clear is irrelevant to § 1611(b)(1) immunity determinations. NML Capital, 652 F.3d at 189. As this Court stated in NML Capital, the FSIA recognizes that central bank funds will often also be the property of the foreign state. Id. Furthermore, the Declaration of Oth Phonhxiengdy, Deputy Director General of the Lao Central Bank's Banking Operations Department (“Oth Declaration”), made clear that the Lao Central Bank's accounts in the United States are held in its own name, rather than the Lao Government's. Thus, applying the test set forth in NML Capital, the funds in the Lao Central Bank accounts are “presumed to be immune from attachment under § 1611(b)(1).” 652 F.3d at 194. Thai-Lao and Hongsa could rebut this presumption only “by demonstrating with specificity” that the funds in question were “not being used for central banking functions as such functions are normally understood.” Id.

More about Discovery to Aid in Execution Under the Fsia

Thai-Lao and Hongsa provided no “specific showing” of facts that would provide a basis to rebut this presumption. To the contrary, the Oth Declaration provides further support for the presumption that funds in the Lao Central Bank account are in fact being used for central banking functions. The Oth Declaration explained that the Lao Central Bank is authorized to engage in traditional central banking functions, including issuing legal tender and regulating the money supply, holding and managing foreign currency reserves, acting as a lender of last resort, and serving as the Lao Government's agent in dealing with international financial institutions such as the International Monetary Fund. Furthermore, and in particular, the Oth Declaration clarified that the Lao law cited by the district court merely establishes that the Lao Central Bank holds the Lao Government's foreign currency reserves—a paradigmatic traditional central banking function. See NML Capital, 652 F. 3d at 195 (noting that the accumulation of foreign exchange reserves is a “paradigmatic central banking function[ ]”); accord Weston Compagnie de Finance et D'Investissement, S.A. v. La Republica del Ecuador, 823 F. Supp. 1106, 1113 (S.D.N.Y. 1993) (“When the central bank acts as a bank for its parent foreign state…, it is engaged in a central banking and governmental function.”). By failing to accord the Lao Central Bank a presumption of immunity, and allowing discovery to proceed despite the absence of any evidence that the funds at issue were not used for central banking functions, the district court incorrectly applied § 1611(b)(1).

Development

It is critically important that district courts properly apply this Court's test with respect to the immunity of foreign central banks under § 1611(b)(1). The United States has an interest both in promoting reciprocal international principles of central bank immunity to ensure that U.S. reserves held by the Federal Reserve abroad receive adequate protection, and also in protecting foreign central banks engaged in central banking activities from interference by unwarranted litigation in U.S. courts. Many foreign central banks choose to hold their reserves in dollardenominated assets in accounts in the United States. Foreign central banks invest their reserves in the United States because of the stability of the U.S. dollar, the unparalleled depth and liquidity of our financial markets, and the reliability of our political and judicial institutions. Equally critical has been the assurance long provided by United States law that central bank funds held in this country and used for traditional central banking functions are immune from attachment, save for very narrow exceptions, and not subject to discovery. If this traditional immunity is weakened through a misinterpretation of the FSIA and misapplication of this Court's binding precedent, foreign central banks might be led to withdraw their reserves from the United States and place them in other countries, and the preeminence of the U.S. dollar as a reserve currency could be jeopardized. See generally Ernest T. Patrikis, Foreign Central Bank Property: Immunity from Attachment in the United States, 1982 U. Ill. L. Rev. 265, 265-71 (1982); see also H.R. Rep. No. 94-1487, at 25 (explaining that the purpose of FSIA § 1611 is to protect the “funds of a foreign central bank . . . deposited in the United States,” because “execution against the reserves of a foreign state could cause significant foreign relations problems”). Any significant withdrawal of these reserves could have an immediate and adverse impact on the U.S. economy and the global financial system.

Details

(2) Discovery regarding sovereign assets outside the United States

On December 4, 2013, the United States filed a brief as amicus curiae in support of the petition for writ of certiorari filed in Argentina v. NML Capital, Ltd., No. 12-842. For background on the case, see this world legal encyclopedia (in relation to issues that took place in the year 2012) at 315-19. The U.S. brief was filed in response to a Court order inviting the United States' views, and it urges the Court to grant review of a decision by the U.S. Court of Appeals for the Second Circuit that permitted blanket discovery into a foreign state's assets located outside the United States, even though such property could not be attached or executed upon by the district court, or any United States court, under the FSIA. The brief argues that the Court of Appeals also erred in holding that the fact that the discovery was directed to third parties eliminated any sovereign immunity concerns. The U.S. brief identifies a circuit conflict between the Second Circuit's decision and the Seventh Circuit's holding in Rubin v. Iran (discussed in this world legal encyclopedia (in relation to issues that took place in the year 2011) at 318-21), notes that the issues are important and recurring, and asserts that the Court of Appeals' decision raises foreign policy concerns for the United States. Excerpts follow from the U.S. amicus brief, which is available in full at (Secretary of State website) state.gov/s/l/c8183.htm.

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1. The FSIA codifies, with some modifications, long-recognized foreign sovereign-immunity principles by establishing two general rules of immunity. First, a foreign state is immune from the jurisdiction of the court unless an enumerated exception to immunity applies. See 28 U.S.C. 1604, 1605, 1605A, 1607 (2006 & Supp. V 2011). Second, the property of a foreign state is immune from attachment and execution unless an exception to that immunity applies. 28 U.S.C. 1609-1611 (2006 & Supp. V 2011).

Resources

Notes

1. Discovery to Aid in Execution Under the FSIA in the Digest of United States Practice in International Law

Resources

Notes

1. Discovery to Aid in Execution Under the FSIA in the Digest of United States Practice in International Law