Foreign Immunities Legislative History in the United States

Agencies or Instrumentalities in the Foreign Sovereign Immunities Act of 1976

Separate legal entity

According to research about Foreign Immunities Legislative History from the Federal Judicial Center:The FSIA’s legislative history clearly reflects that the term “agency or instrumentality” was intended to be interpreted broadly: [The] criterion, that the entity be a separate legal person, is intended to include a corporation, association, foundation, or any other entity which, under the law of the foreign state where it was created, can sue or be sued in its own name, contract in its own name or hold property in its own name. . . . As a general matter, entities which meet the definition of an “agency or instrumentality of a foreign state” could assume a variety of forms, including a state trading corporation, a mining enterprise, a transport organization such as a shipping line or airline, a steel company, a central bank, an export association, a governmental procurement agency or a department or ministry which acts and is suable in its own name. In this regard, the statute reflects a fundamental policy of respecting the distinction between the state itself and its separate creations or appendages. This policy was elucidated in First National City Bank v. Banco Para El Comercio Exterior de Cuba,77 where the U.S. Supreme Court noted Congress’s intent that “duly created instrumentalities of a foreign state are to be accorded a presumption of independent status.” It also said: Freely ignoring the separate status of government instrumentalities would result in substantial uncertainty over whether an instrumentality’s assets would be diverted to satisfy a claim against the sovereign, and might thereby cause third parties to hesitate before extending credit to a government instrumentality without the government’s guarantee. As a result, the efforts of sovereign nations to structure their governmental activities in a manner deemed necessary to promote economic development and efficient administration would surely be frustrated.78 As stated by the district court in Seijas v. Republic of Argentina, The principal-agent exception of Bancec has generally been characterized as referring to the question of whether the instrumentality is an “alter ego” of the sovereign. The alter ego relationship may exist if (1) the instrumentality was established to shield the sovereign from liability, (2) the sovereign ignored corporate formalities in running the instrumentality and the sovereign exercised excessive control over the instrumentality, or (3) the sovereign has directed the instrumentality to act on its behalf, and the instrumentality has done so. An alter ego finding is not, however, justified merely because the sovereign wholly owns the instrumentality or exercises its power as a controlling shareholder.79The Court’s reasoning in Bancec was guided by its understanding of the underlying goal of including agencies or instrumentalities in the FSIA. In so doing, Congress intended primarily to focus on “public commercial enterprises”—such as state trading corporations created for the purpose of doing business on behalf of the state. The different treatment of agencies and instrumentalities (as opposed to the state itself) serves two purposes in this regard: (1) it acknowledges the importance of separate corporate form (and the need to treat such entities as separate from the government itself), and (2) it permits the judicial resolution of disputes arising from commercial transactions and events for which no immunity is provided. In Bancec, the specific question was whether the separate instrumentality could be held liable (as an “alter ego”) for the actions of the foreign state. Bancec had been created as an official, autonomous credit institution for foreign trade, wholly owned by the Cuban government. When it sued in U.S. court to collect on a letter of credit issued in its favor by First National City Bank, the bank counterclaimed and asserted a right to set off the value of its assets in Cuba which had been nationalized by the government. Under the circumstances, the Court held, the presumption of separate status could be overcome. [W]here a corporate entity is so extensively controlled by its owner that a relationship of principal and agent is created, we have held that one may be liable for the actions of the other. . . . In addition, our cases have long recognized “the broader equitable principle that the doctrine of corporate entity, recognized generally and for most purposes, will not be regarded when to do so would work fraud or injustice.” . . . Giving effect to Bancec’s separate juridical status . . . would permit the real beneficiary of such an action, the Government of the Republic of Cuba, to obtain relief in our courts that it could not obtain in its own right without waiving its sovereign immunity and answering for the seizure of Citibank’s assets—a seizure previously held by the Court of Appeals to have violated international law. Courts occasionally confront the reverse situation, that is, whether the acts of the separate entity can be attributed to the state itself. The Ninth Circuit recently addressed that issue, noting that the presumption of the foreign state’s separate juridical status can only be overcome when the complaint alleges “day-to-day, routine involvement” by that state in the separate entity’s affairs, or when the presumption would work a fraud or an injustice.81

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