Deciphering the Mystery Subpoena Case: Corporate Claims to Foreign Sovereign Immunity from U.S. Criminal Proceedings

Speculation has been rampant about the identity of the appellant in In re Grand Jury Subpoena, the case that prompted the D.C. Circuit to seal off an entire courthouse floor for oral argument. The dispute might well end up being decided at the Supreme Court, although it would be extremely unusual and perhaps unprecedented for the Court to conduct plenary review in a case that remained entirely under seal. It would also be a shame for the Supreme Court to weigh in without the opportunity for broader input. The underlying legal questions raised should not be answered definitively by the Court based solely on the exigencies of this particular case.

Knowns and unknowns about the case at hand

For those not yet following the saga or needing a refresher: Politico reported in October that an “unknown person” had been summoned before a grand jury and was fighting a subpoena, which compels witness testimony or the production of evidence. Although the identity of the “person” and the nature of the evidence sought remain unknown, some have surmised that the case has ties to Special Counsel Robert Mueller’s ongoing investigation into Russian interference with the 2016 presidential election and related matters.

On December 18, the D.C. Circuit issued an order siding with the U.S. government. Grand jury proceedings are conducted in secret, as are ancillary judicial proceedings “to the extent necessary to prevent disclosure of matters occurring before a grand jury.” The order did, however, disclose that the witness is a company (referred to as “the Corporation”) owned by a foreign state (“Country A”), and that the company is fighting the subpoena based on a claim to foreign sovereign immunity. Lawfare’s Scott Anderson has speculated that the company is likely a foreign state-owned commercial bank. The anonymous Twitter account @TheHoarseWhisperer suggested that it might be the Qatari Investment Authority, which recently acquired an almost 20% stake in Russian oil company Rosneft through a somewhat opaque series of transactions. As with all things Mueller-related, the guessing-game prompted by this dispute reflects the public’s anxiousness to discern what stage the Special Counsel’s investigation has reached and what it has uncovered. The thirst for details only increased when the company asked the Supreme Court to block the imposition of monetary contempt sanctions for its refusal to comply with the subpoena. Chief Justice Roberts issued an interim stay pending a response from the U.S. government, which U.S. government attorneys filed (under seal) on December 28, in the midst of the government shutdown. The Chief Justice acting alone, or five justices if the application is referred to the full Court, can decide to grant a stay of the contempt sanctions while the Court decides whether or not to grant full review of the D.C. Circuit’s decision.

The scope and strength of the legal challenges raised by the corporation

In addition to the foreign sovereign immunity argument, which I discuss below, the company also argued that complying with the subpoena would force it to violate foreign law. Variations on this “foreign sovereign compulsion” argument come up frequently in transnational litigation, from the antitrust context (“the foreign government forced me to act anti-competitively”) to the discovery context (“foreign law prohibits me from turning over this document”). Here, the company argued that complying with the subpoena would be “unreasonable or oppressive” because doing so would violate Country A’s laws. The D.C. Circuit rejected this argument, finding that the company “has fallen well short of carrying [its] burden” to show that Country A’s law “prevents compliance with the court’s order.” The company provided (1) the text of a provision in Country A’s law and, subsequently, (2) a submission from “a regulator from Country A seeking to explain the Corporation’s atextual interpretation.” The three-judge panel found the law unpersuasive on its face, and held that the regulator’s submission did not exhibit “indicia of reliability,” according to the criteria recently articulated by the Supreme Court in an antitrust case. The panel appears not to have been impressed by, among other criteria, “the role and authority of the entity or official offering the statement.” Some might interpret this as suggesting that the company, although owned by a foreign state, has not been receiving high-level support from that foreign state in opposing the subpoena. On the other hand, the foreign state also has not waived the company’s immunity, thereby creating the legal dispute that is now before the courts.

Foreign Sovereign Immunity

The crux of the legal dispute is whether the United States can exercise jurisdiction over the foreign company in the form of compelling compliance with the grand jury subpoena. Because a majority of the foreign company’s shares or other ownership interest is owned by a foreign state, the company claims that it is entitled to jurisdictional immunity under the Foreign Sovereign Immunities Act (FSIA), which provides that foreign states and companies owned by foreign states “shall be immune from the jurisdiction of the courts of the United States and of the States” unless an enumerated exception applies.

A threshold question is whether the FSIA applies at all. As the U.S government did in a previous dispute over a grand jury subpoena issued to a foreign state-owned company, the government appears to have taken the position here that the FSIA does not apply to criminal proceedings, including investigations. The Court of Appeals, like district court Chief Judge Beryl Howell who initially heard this argument, “decline[d] to resolve whether foreign sovereigns are entitled to claim the protection of the Act’s immunity provision, 28 U.S.C. § 1604, in criminal proceedings.” Instead, the court “assume[d] that immunity extends to the criminal context.” If the Supreme Court reviews the D.C. Circuit’s opinion, it could also decline to resolve this question. The Supreme Court often prefers to wait until an issue has “percolated” sufficiently in federal courts of appeals before it decides to weigh in.

Although there are lower court opinions that reach opposite conclusions on whether the FSIA applies to criminal proceedings, practice is relatively sparse. As I noted before, the question of criminal immunity for foreign states has arisen most often in the context of civil liability under the Racketeer Influenced and Corrupt Organizations Act (RICO), which requires the plaintiff to show that the defendant has engaged in a pattern of indictable acts. The Tenth Circuit found in a 1999 case that the FSIA provides jurisdiction over civil RICO claims, whereas the Sixth Circuit reached the opposite conclusion in 2002. The Tenth Circuit read the FSIA’s silence about criminal proceedings as meaning that criminal proceedings fall outside the scope of the statute. There is some support for that line of reasoning in the Supreme Court’s 2009 decision in Samantar v. Yousuf. In that case, the Court interpreted the FSIA’s silence regarding the immunities of individual foreign officials to mean that those immunities fall outside the scope of the FSIA, and are governed instead by the common law. The Sixth Circuit read the same silence to mean that there is noexception for criminal proceedings in the FSIA, and therefore no jurisdiction in U.S. courts. By contrast, as I also noted earlier, recent U.S. indictments related to malicious cyber activity have been issued on the assumption that foreign defendants, whether they are natural persons or state-owned entities, are not immune from U.S. criminal jurisdiction when they act on behalf of foreign states.

The United Kingdom, Canada, and Australia all have state immunity acts that explicitly exclude criminal proceedings from their scope. The primary purpose of all of these acts, like the FSIA, was to codify the restrictive theory of foreign sovereign immunity, under which one state can exercise jurisdiction over another state’s commercial acts. Although the Supreme Court has observed that “the text and structure of the FSIA demonstrate Congress’ intention that the FSIA be the sole basis for obtaining jurisdiction over a foreign state in our courts,” it made that observation in the context of a civil suit for damages. The Court has also described the Act as providing “a comprehensive set of legal standards governing claims of immunity in every civil action against a foreign state or its political subdivisions, agencies, or instrumentalities.” David Stewart, one of the American Law Institute’s reporters on the topic of foreign sovereign immunity, has written that “[t]he reference to ‘civil actions’ does not suggest, however, that states or their agencies or instrumentalities can be subject to criminal proceedings in U.S. courts; nothing in the text or legislative history supports such a conclusion.” Yet, as his co-reporter, Ingrid Wuerth, has observed, there is “an unmistakable trend toward the criminal prosecution of foreign organizations with ties to foreign governments.” At some point, the jurisdictional basis for those prosecutions will need to be placed beyond doubt. In the meantime, in the mystery case, the D.C. Circuit found, based in part on evidence submitted by the government ex parte, that there was a “reasonable probability” that the FSIA’s commercial activity exception applied. The exception to immunity, cited by the court, applies in “any case” in which the proceedings are “based upon” an act outside U.S. territory “in connection with a commercial activity” of the foreign state-owned company elsewhere, and that act causes a “direct effect” in the United States.

Subject-Matter Jurisdiction

The source of jurisdiction for these criminal proceedings against the corporation can also shed light on the source of any immunities the corporation may claim. In civilactions, 28 U.S.C. § 1330(a) provides U.S. courts with personal and subject-matter jurisdiction over foreign states, as long as (1) an enumerated exception in the FSIA applies and (2) service has been effectuated using the proper procedures. The question is, where does subject-matter jurisdiction come from over criminalproceedings? The government’s answer to this question, which the D.C. Circuit found compelling, is 18 U.S.C. § 3231, which provides federal district courts with original jurisdiction over “all offenses against the laws of the United States.” A straightforward reading of this provision is compatible with the government’s apparent argument that any immunities from criminal proceedings that might exist are a matter of common law, not statute. It was therefore arguably unnecessary for the Court of Appeals (or district court) to look for a statutory exception to immunity in the first place. That said, because it found such an exception in §1605(a), it concluded that the company’s suggestion that there is nosubject-matter jurisdiction over any criminal proceedings against corporations that are majority-owned by foreign governments “seems in far greater tension with Congress’s choice to codify a theory of foreign sovereign immunity designed to allow regulation of foreign nations acting as ordinary market participants.” Denying immunity for a foreign state’s commercial activities would also be consistent with the pre-FSIA regime articulated by Acting State Department Legal Adviser Jack Tate in 1952. In addition, although the U.S. government’s filings in the grand jury disputes are not publicly available, the government has indicated in filings related to foreign official immunity that the common law entails applying “principles of immunity articulated by the Executive Branch.” As the Eleventh Circuit observed in upholding the denial of immunity to Manuel Noriega, “by pursuing Noriega’s capture and this prosecution, the Executive Branch has manifested its clear sentiment that Noriega should be denied head-of-state immunity.” The same is presumably true of the U.S. government’s decision to initiate other types of criminal proceedings.

As a side note: Although most proceedings against foreign states are governed by the FSIA, there is at least one other U.S. code provision outside the FSIA that denies immunity to foreign states in certain circumstances: §106 of the bankruptcy code, as amended in 1994. The FSIA is thus not quite as comprehensive as has often been assumed.

Contempt Sanctions

A further issue addressed by the D.C. Circuit’s opinion, albeit only in a few lines, is whether monetary contempt sanctions are available against foreign states. This is another question upon which lower courts have disagreed, with the D.C. Circuit previously upholding such an order and the Fifth Circuit vacating one as incompatible with the FSIA. In those cases and others, the United States has opposedthe imposition of civil contempt sanctions on foreign states. (It is unclear whether the government has taken a position on the imposition of contempt sanctions here.) A separate legal regime governs the immunity of foreign state assets from execution to satisfy monetary judgments, including any accrued sanctions. Over time, these amounts can become substantial. Here, the panel relied on circuit precedent to uphold the imposition of sanctions, and bracketed the question of execution for future resolution.

Given that the subpoena appears to fall within the commercial activity exception to the FSIA, the most prudent—and still legally defensible—course of action would be for the Supreme Court to let the D.C. Circuit’s decision stand. The Court should not attempt to resolve the core underlying question of the relationship between the FSIA and criminal proceedings in a sealed case that could be related to a potentially politically divisive investigation. If it does take up the dispute, the best answer is that the FSIA does not apply to criminal proceedings. However, the myriad additional questions such a holding would raise argue in favor of continuing to avoid the issue, at least for now. If the Court declines review and allows the D.C. Circuit’s decision to stand (assuming the panel’s decision is not overturned by an en banc court), the effect of contempt sanctions on the company’s eventual compliance with the subpoena remains to be seen—or inferred by investigative journalists, as the case may be. If it grants full review, the Court should not lose sight of the many interconnected pieces of the foreign sovereign immunity puzzle that could be affected by any definitive resolution of the underlying issues raised by this dispute.

Photo of U.S. Supreme Court by Eric Baradat/AFP/Getty Images.

 

About the Author(s)

Chimène Keitner

Alfred & Hanna Fromm Professor of International Law at UC Hastings College of the Law. She served as Counselor on International Law at the U.S. Department of State 2016-2017. Follow her on Twitter (@KeitnerLaw).