Text: S.3323 — 114th Congress (2015-2016)All Bill Information (Except Text)

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Introduced in Senate (09/14/2016)


114th CONGRESS
2d Session
S. 3323


To improve the Foreign Sovereign Immunities Act of 1976, and for other purposes.


IN THE SENATE OF THE UNITED STATES

September 14, 2016

Mr. Grassley introduced the following bill; which was read twice and referred to the Committee on the Judiciary


A BILL

To improve the Foreign Sovereign Immunities Act of 1976, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. Short title.

This Act may be cited as the “State-Owned Entity Transparency and Accountability Reform Act of 2016”.

SEC. 2. Findings.

Congress finds the following:

(1) As Congress expressed when it enacted the Foreign Sovereign Immunities Act of 1976 (Public Law 94–583; 90 Stat. 2891), under international law, foreign states are immune from the jurisdiction of the courts of the United States and of the States, subject to certain exceptions. One of these exceptions, the “commercial activity” exception, generally subjects foreign states to the jurisdiction of courts of the United States in actions relating to a foreign state’s commercial activities.

(2) As the Supreme Court observed 7 years after Congress enacted the Foreign Sovereign Immunities Act of 1976, “increasingly … governments throughout the world have established separately constituted legal entities to perform a variety of tasks”. First National City Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611 (1983) (referred to in this section as “Bancec”). These state instrumentalities are “typically established as … separate juridical entit[ies], with powers to hold and sell property and to sue and be sued”. Run by states as “distinct economic enterpris[es]”, they operate “on an enterprise basis” while enjoying “a greater degree of flexibility and independence from close political control than is generally enjoyed by government agencies. These same features frequently prompt governments in developing countries to establish separate juridical entities as the vehicles through which to obtain the financial resources needed to make large-scale national investments”.

(3) Because government instrumentalities “established as juridical entities distinct and independent from their sovereign should normally be treated as such”, courts have accorded them “a presumption of independent status” for purposes of assessing jurisdiction under the Foreign Sovereign Immunities Act of 1976.

(4) However, the Supreme Court explained in Bancec that courts have “consistently refused to give effect to the corporate form where it is interposed to defeat legislative policies”. As a result, courts will refuse to presume an instrumentality’s independence from a foreign state if “a corporate entity is so extensively controlled by its owner that a relationship of principal and agent is created” or respecting the corporate form “would work fraud or injustice”. Transamerica Leasing, Inc. v. La Republica de Venezuela, 200 F.3d 843, 848–49 (D.C. Cir. 2000).

(5) As state instrumentalities have developed over time, their corporate structure has commonly become more complex. In many cases, the structure of state instrumentalities has also become more opaque. At the same time, as a result of globalization, such entities are increasingly involved in commerce and trade involving companies and consumers of the United States. The result is that companies and consumers of the United States seeking to sue a foreign state-owned entity under the “commercial activity” exception of the Foreign Sovereign Immunities Act of 1976 may struggle to determine which juridical entity—for example, which member or affiliate of an instrumentality—to sue.

(6) As they have grown larger, more opaque, and more involved in commercial activity with companies and consumers of the United States, state instrumentalities have continued aggressively to assert that they are immune to suit in courts of the United States.

(7) In some cases, courts also have struggled to determine the correct juridical entity subject to their jurisdiction based on the “commercial activity” exception. In others, courts have rejected claims against instrumentalities for failure to show an intra-instrumentality alter ego relationship.

(8) In light of the sometimes opaque structure of state instrumentalities and their increasing interactions with companies and consumers of the United States, it is necessary to preserve potential claims of people of the United States against such entities based on their commercial activities. Therefore, for purposes of determining jurisdiction under the “commercial activity” exception to the Foreign Sovereign Immunities Act of 1976 only, companies and consumers of the United States should not be required to prove an alter ego relationship between members of an instrumentality to establish subject-matter jurisdiction, as follows.

SEC. 3. Amendment.

Section 1603(d) of title 28, United States Code, is amended—

(1) by inserting “(1)” before “A”; and

(2) by adding at the end the following:

“(2) For purposes of section 1605(a)(2), a commercial activity of an agency or instrumentality of a foreign state shall be attributable to any corporate affiliate of the agency or instrumentality that—

“(A) directly or indirectly owns a majority of shares of the agency or instrumentality; and

“(B) is also an agency or instrumentality of a foreign state.”.