Commercial Activity in the United States

Commercial Activity in the Context of Foreign Sovereign Immunities Legislation

The phrase “commercial activity” refers to “the character of the foreign state’s exercise of power rather than its effects” (Rong v. Liaoning Provincial Gov’t, 452 F.3d 883, 888 (D.C. Cir. 2006)). The court helds that there “is no indication that Congress intended the presence of a profit motive on the part of the sovereign to be a threshold requirement for applying the commercial activity exception. In this regard the Legislative History merely states that ‘[c]ertainly, if an activity is customarily carried on for profit, its commercial nature could readily be assumed.’ See H.R. Rep. No. 1487, 94th Cong., 2d Sess. 16, reprinted in 1976 U.S. Code Cong. & Admin. News 6604, 6615.” Joseph v. Office of Consulate Gen. of Nigeria, 830 F.2d 1018, 1024 (9th Cir. 1987).

Foreign Sovereign Immunities Commercial Activity Exception

Definition of commercial activity

According to research about Terminox from the Federal Judicial Center: Section 1603(d) defines “commercial activity” as “either a regular course of commercial conduct or a particular commercial transaction or act.”115 It is important to note that the provision also provides that “[t]he commercial character of the activity shall be determined by reference to the nature of the course of conduct or particular transaction or act, rather than by reference to its purpose.” (emphasis added).

This “nature not purpose” criterion is fundamental to the exception. In Republic of Argentina v. Weltover, the U.S. Supreme Court stated: [W]hen a foreign government acts, not as regulator of a market, but in the manner of a private player within it, the foreign sovereign’s actions are “commercial” within the meaning of the FSIA. Moreover, because the Act provides that the commercial character of an act is to be determined by reference to its “nature” rather than its “purpose,” 28 U.S.C. § 1603(d), the question is not whether the foreign government is acting with a profit motive or instead with the aim of fulfilling uniquely sovereign objectives. Rather, the issue is whether the particular actions that the foreign state performs (whatever the motive behind them) are the type of actions by which a private party engages in “trade and traffic or commerce.”

Thus, a state remains immune with respect to its sovereign or public acts (jure imperii) but not with respect to its acts that are private or commercial in character (jure gestionis). [A] state engages in commercial activity under the restrictive theory where it exercises “only those powers that can also be exercised by private citizens,” as distinct from those “powers peculiar to sovereigns.” Put differently, a foreign state engages in commercial activity for purposes of the restrictive theory only where it acts “in the manner of a private player within” the market. The phrase “commercial activity” thus refers to “the character of the foreign state’s exercise of power rather than its effects.” Applying these criteria in given factual situations has generated a substantial body of case law. A few of the main issues are summarized here below in:

• Contracts
• Illegal acts
• Employment contracts
• Charitable donation
• Trade promotion
• Regulatory or “police powers”
• Human rights violations and terrorism

Contracts

A contract between a foreign state and a private party for the purchase and sale of goods and services is presumptively commercial.  Even “a contract to buy army boots or even bullets is a ‘commercial’ activity, because private companies can similarly use sales contracts to acquire goods.” A motor vehicle lease is a “commercial” activity, even where usage is limited to official business of a foreign government mission to the United Nations. Contracts for legal services have been held to fall within this exception.

Distinctions are fact-based and sometimes difficult. In Globe Nuclear Services and Supply GNSS, Ltd. v. AO Techsnabexport, a Russian company wholly owned by the Russian Federation was held not to be entitled to immunity in respect of its contract to supply an American company with uranium hexafluoride extracted from dismantled nuclear warheads, because the transaction was the type of commerce engaged in by private parties. The court rejected the defendant’s argument that it was not merely dealing in uranium but was regulating its supply in a manner that no private party could do. In UNC Lear Services, Inc. v. Kingdom of Saudi Arabia, a contract for the provision of training and support services to the Royal Saudi Air Force for its fleet of F-5 fighter aircraft (including, for example, flight operations services; training in survival skills; and ejection over sea, desert, or mountain terrain) was deemed non-commercial, while a related contract for repair services, parts, and components for those aircraft was found to fall within the commercial activities exception.

In contrast, a private firm’s acts in providing basic health insurance to foreign government workers and monitoring compliance with the governmental mandate under the national social security program was held to be non-commercial.

Illegal acts

While a commercial activity (at least for FSIA purposes) is presumptively one in which a private person can engage lawfully, in some situations even illegal or unenforceable contracts may be considered commercial. Money laundering, for example, has been held not to fall within the commercial activity exception. As recently stated by one court, “abuses of official power for corrupt ends … could not be undertaken by private parties in a marketplace” and therefore cannot fall within the commercial activity exception. However, criminal acts in the course of business or trade, such as bribery, forgery, or fraud, can constitute commercial activity if they are conduct in which private parties can engage.

Employment contracts

Employment relationships with foreign governments, embassies, missions, or other offices may or may not be considered “commercial,” depending on whether the duties in question involve official or “civil service” functions.

Charitable donation

While a charitable intent behind a purchase is irrelevant under the “nature, not purpose” rule, a donation to charity may not be a “commercial activity.”

Trade promotion

A government’s efforts to foster trade, commerce, and investment with a particular region within its territory is a “quintessential” government function and therefore not commercial activity.

Regulatory or “police powers”

Regulation of the market, licensing the export of natural resources, seizure of goods for law enforcement purposes, or similar exercises of state authority (including eminent domain) are typically found to be non-commercial, since they are not the kinds of actions by which private parties engage in trade, traffic, or commerce. Failure to investigate allegations of fraudulent commercial activity has been held to fall outside this exception. Governmental expropriations and nationalizations of private property by foreign governments are presumptively considered non-commercial. In Elbasir v. Kingdom of Saudi Arabia, the court concluded that a government’s provision of health care to its citizens and residents is not a “commercial” activity, but left open the possibility that promises of financial assistance might be, depending on the specific circumstances.

Human rights violations and terrorism

Efforts to use the commercial activity exception in § 1605(a)(2) to reach human rights violations and terrorist activities have not been successful.

Commercial Activity with a U. S. Nexus in International Civil Litigation

Analysis of the Commercial Activity with a U. S. Nexus in relation with the Foreign Sovereign Immunity and Jurisdiction of U.S. Courts over Foreign States.

Cases

Read more information about Commercial Activity in the cases REPUBLIC OF ARGENTINA v. WELTOVER, IN MOL, IN v. PEOPLE?S REPUBLIC OF BANGLADESH HONDURAS AIRCRAFT REGISTRY, LTD v. GOVERNMENT OF HONDURAS . See Notes on Weltover, MOL, and Honduran Aircraft in this American Encyclopedia of Law.

Commercial Activity in the Context of Foreign Sovereign Immunities Legislation

Commercial Activity with a U. S. Nexus in International Civil Litigation

Analysis of the Commercial Activity with a U. S. Nexus in relation with the Foreign Sovereign Immunity and Jurisdiction of U.S. Courts over Foreign States.

The Based Upon and In Connection Requirements

Read more information about The Based Upon and In Connection Requirements, SAUDI ARABIA v. NELSON . See Notes on Nelson in this American Encyclopedia of Law.

Commercial Activity in the Context of Foreign Sovereign Immunities Legislation

Commercial Activity with a U. S. Nexus in International Civil Litigation

Analysis of the Commercial Activity with a U. S. Nexus in relation with the Foreign Sovereign Immunity and Jurisdiction of U.S. Courts over Foreign States.

The Nexus Requirements

Read more information about The Nexus Requirements in the cases REPUBLIC OF ARGENTINA v. WELTOVER, and IN SAUDI ARABIA v. NELSON in this American Encyclopedia of Law.