Publications

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Throughout 2009, news outlets have been reporting that Iran is increasing its presence in Latin America. The bonds between Iran and Venezuela are particularly notable, but a number of media outlets also report that Iran is also strengthening its ties to other Latin American countries and that Iranian-sponsored terror organizations are forming links with a number of South American guerilla movements and using Latin America as a refuge and base.

Why does this matter to your business? Because, last year, the US Congress amended the Foreign Sovereign Immunities Act (FSIA or the Act) to facilitate the ability of US terror victims and their families to collect on default judgments against designated terror states—one of which is Iran.

The new provisions, which address the so-called “state-sponsored terrorism exception,” expand the scope of property that may be attached in aid of execution to satisfy these judgments. Under the new exception, Latin American companies who may, even inadvertently, have commercial dealings with agencies or instrumentalities of current or former terror state designees and who also have US operations may find themselves the target of FSIA action.

Knowledge of the amendments and their implications is important for all companies doing business in the US, but in the current political climate, such awareness bears increasing importance.

About the Exception

The so-called "state-sponsored terrorism exception" to the FSIA departs from the well-established rule of international law that a foreign state is immune from the jurisdiction of the courts of another state. 28 U.S.C. §1602. Created by Congress in 1996, the exception allows civil suits by US terror victims and their families against foreign states designated by the US State Department as state sponsors of terrorism. Currently, four countries are so designated: Iran, Cuba, Sudan and Syria.

While Congress intended the FSIA to aid in the attachment and execution of terrorist states' assets, numerous problems in the Act have hindered its applicability. First, soon after the Act's passage, one federal court held that the FSIA's waiver of sovereign immunity created no federal cause of action. Flatow v. Islamic Republic of Iran, 999 F. Supp. 1 (D.D.C. 1998). In response, Congress passed the Flatow Amendment, by which it purportedly created such a cause of action. Years later, however, a federal appeals court held that, while the Flatow Amendment created a federal private right of action against the officials and employees of terrorist states, it created no federal private right of action against terrorist states themselves or their agencies or instrumentalities. Cicippio-Puleo v. Islamic Republic of Iran, 353 F.3d 1024 (D.C. Cir. 2004). Thus, a plaintiff's ability to obtain relief against those governments depended on state law, resulting in significant disparities in the relief available to terror victims and their families.

The FSIA Amendments and the Federal Private Right of Action

To correct these and other problems in the Act, in January 2008, Congress amended the FSIA by passing, among other measures, Section 1605A, which both incorporates the terrorist state exception (previously codified at 28 U.S.C. 1605(a)(7)) and creates a new federal private right of action against state sponsors of terrorism and their officials, employees or agents acting within the scope of their office, employment or agency. 28 U.S.C. §1605A(c). These recent amendments also allowed FSIA litigants who had been unsuccessful in previous actions, on account of the earlier problems in the Act, to re-file their earlier actions under the new Section 1605A within sixty days of the date of the Act's enactment. Numerous previous FSIA litigants took advantage of this new provision.

Congress also expanded the scope of assets that may be attached in aid of execution of an FSIA judgment. Previously, an FSIA judgment creditor could attach the US assets of only the foreign state itself – as opposed to an agency or instrumentality of the state – and only then if the state exercised day-to-day control over the assets (First National Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611 (1983)). This rule, known as the Bancec doctrine, led to numerous roadblocks in victims' attempts to enforce FSIA awards.

Under the recent amendments, however, FSIA judgment creditors may attach those assets belonging directly to the foreign state as well as "the property of an agency or instrumentality of such a state, including property that is a separate juridical entity or is an interest held directly or indirectly in a separate juridical entity." 28 U.S.C. §1610(g). Attachment and execution are permitted regardless of how much economic or daily control the government or officials exercise over the property or how much the government profits or benefits from the property. 28 U.S.C. §1610(g)(1)(A-E).

Additionally, under Section 1605A(g), upon the filing of a notice of pending action pursuant to Section 1605A, a lien of lis pendens is automatically established for all real or tangible property that is located within the judicial district, is subject to attachment in aid of execution under Section 1610 and is held in the name of a defendant state sponsor of terror or agency or instrumentality under its control. The lien of lis pendens binds would-be purchasers of property that is the subject of the litigation to the outcome of the litigation as if they were parties to the lawsuit from the start.¹

Collecting Awards

The concern for companies with US assets, of course, is how courts will interpret the new provisions in the Act for re-filed and newly filed cases under Section 1605A as terror victims and their families attempt to collect FSIA awards. If a company happens to do business with a designated a state sponsor of terror, or its agencies or instrumentalities, that company could find that its US assets are attached – or at a minimum could find itself in litigation over the issue, whether or not such attempts at attachment ultimately succeed. The company need not even have knowledge of the underlying situation to face such action.

Despite Congress's goal of facilitating the collection of FSIA awards – which today total approximately $19 billion – it remains to be seen whether the recent amendments to the FSIA will accomplish their intended effect. Certainly, the federal private right of action under the FSIA makes it possible to maintain civil suits against state sponsors of terrorism. However, once FSIA judgments are awarded, collection may still elude the plaintiffs. Through the amendments, Congress sought to ease the process of attaching property of designated terrorist states, but in reality, much of this property in the United States has already been frozen, is already subject to substantial limitations on its transfer or has already been liquidated to pay judgment creditors.

However, should the 2008 amendments fail to make it possible for terror victims and their families to collect FSIA judgments, it is highly unlikely that Congress will abandon the effort. Additional, expansive and far more aggressive amendments to the FSIA may well be forthcoming.