A recent decision by a federal district court in New York prohibited sailors and their families holding a $314 million judgement against Sudan from collecting any of the judgment from funds that had been wired by a Sudanese bank to various other banks and that were then blocked under the Sudanese Sanctions Regulations. The judgment arose from Sudan’s participation in Al Qaeda’s bombing of the U.S.S. Cole on October 12, 2000. Instead, now that the Sudanese Sanctions have been lifted, those funds will go to the banks and not to the sailors and their families.
The decision is premised on a highly questionable reading of section 201(a) the Terrorism Risk Insurance Act. That section permits victims of terrorism to execute judgments arising from a terrorist act “against the blocked assets of that terrorist party,” including the blocked assets of “any agency or instrumentality of” that terrorist party.
At issue were funds transferred by El Nilein Bank. The bank was an instrumentality of the Sudanese government when the funds were blocked, which is why they were blocked in the first place, but not at the time the plaintiff sought to attach the assets. The court held that the TRIA did not apply because El Nilein was not an agency of the Sudanese government at the time the plaintiffs attempted to attach the funds and because the blocked funds, under New York law, were the property of the blocking bank and not El Nilein.
Oddly, the court reached these conclusions without even citing the definition of “blocked assets” in section 201(d)(2) of the TRIA, a definition which would seem to mandate the exact opposite conclusion.
The term “blocked asset” means— (A) any asset seized or frozen by the United States under section 5(b) of the Trading With the Enemy Act (50 U.S.C. App. 5(b)) or under sections 202 and 203 of the International Emergency Economic Powers Act (50 U.S.C. 1701; 1702)
As readers of this blog know well, OFAC takes the position that assets can be frozen under IEEPA even if they are not legally owned by the blocked party and are legally owned by another party. It is sufficient that the blocked person have some interest, direct or indirect, including a contingent interest. So an asset can be a “blocked asset” of a party even if it is not the property of that party. Moreover, under the court’s analysis, a wire blocked by an intermediate bank can never be levied against under TRIA unless the intermediate bank was itself a blocked party — an absurd result that Congress never could have intended.
This definition of “blocked asset” also is inconsistent with the Court’s idea that the blocked assets could not be seized because Nilein Bank was not an agency of Sudan at the time the plaintiffs sought to attach the blocked assets. The definition is, significantly, in the past tense. As a result, under this definition and under OFAC rules, the wires did not become unblocked when Nilein Bank was allegedly privatized. The blocked funds did not cease being the “blocked assets” of an agency of Sudan because of that privatization; they would only cease to be such blocked assets when they were unblocked. Nor is their any conceivable reason why Congress would want to create, as the Court did, a class of blocked assets of unblocked parties that are somehow exempt from the TRIA.