When Are Frozen Assets “Blocked” Assets?

Image by Sebastian Nikiel from Pixabay

The U.S. government’s efforts to quash the attachment of Iranian assets by victims of state-sponsored terrorism have been rejected by the D.C. Circuit.  In Estate of Levin v. Wells Fargo Bank, N.A., the court of appeals reversed Judge Boasberg’s decision in favor of the government, and apparently created a split with the Fifth and Seventh Circuits over when, exactly, assets are “blocked” for Terrorist Risk Insurance Act (“TRIA”) purposes.

Background

 The parties are fighting over $10 million that Taif Mining Services, a front company for the Iranian Revolutionary Guard Corps, wired to another foreign entity through Wells Fargo. After the Office of Foreign Asset Control (“OFAC”) alerted the bank that the money belonged to a state sponsor of terrorism, Wells Fargo halted the transaction. The U.S. government then began civil forfeiture proceedings against the funds and received a license from OFAC allowing it to perfect the forfeiture. That license also permitted Wells Fargo to relinquish custody of the funds, but only to the U.S. government and only after receipt of a valid forfeiture order.

Plaintiffs Levin and Owens learned about the money from a 2020 Wall Street Journal article. At the time, the government’s forfeiture proceedings against the funds were pending before Chief Judge Boasberg of the District Court for the District of Columbia. Both plaintiffs held pre-existing judgments against Iran for terrorism-related activities; they each sought to attach the funds still held by Wells Fargo as partial satisfaction for those judgments. The district court quashed the attachments on the grounds that Iran had no property interest in the funds.  The D.C. Circuit reversed, holding that the funds were “traceable” to a terrorist owner: from Taif Mining to the Iranian Revolutionary Guard Corps to Iran. On remand, the district court again quashed attachment, this time holding that Iran’s sovereign immunity barred attachment under FSIA. The District Court for D.C. also held that the government’s original forfeiture action barred additional attachment under the prior exclusive jurisdiction doctrine. The D.C. Circuit reversed both holdings.

“Blocked” & “Frozen” Assets

The assets of foreign sovereigns are generally entitled to immunity under the Foreign Sovereign Immunities Act (“FSIA”).  But TRIA abrogates the immunity of “blocked assets” that belong to state sponsors of terrorism. It defines “blocked assets” as “any asset seized or frozen by the United States” under the Trading with the Enemy Act or the International Emergency Economic Powers Act but it excludes assets that are subject to certain licenses or that are used for diplomatic purposes. The exclusion for licenses provides that “blocked assets” do not include property “subject to a license … for final payment, transfer, or disposition” in connection with a transaction “for which the issuance of such license has been specifically required by statute other than [IEEPA].”

The IEEPA allows the executive to freeze assets belonging to state sponsors of terrorism and petition OFAC for a forfeiture license.  In this case, OFAC had initially stopped the transfer of Taif Mining’s funds under IEEPA, and they were thus “frozen.” The district court reasoned, however, that the assets were no longer “frozen” because OFAC had licensed Wells Fargo to release them to the government after forfeiture proceedings concluded. If the government is authorized to seek forfeiture, the reasoning goes, then the assets are no longer frozen and therefore they are not “blocked assets.”

The court of appeals rejected this logic, pointing in part to the TRIA’s history. Initially, TRIA had allowed the president to waive the ability of individual plaintiffs to attach assets like the funds at issue here. However, in 2002 Congress amended TRIA to remove the waiver provision, thus eliminating the president’s discretion to stop individual plaintiffs from attaching funds. The D.C. Circuit reasoned that if the executive – prohibited from stopping private attachments through waiver – could prevent attachment by private parties merely by having OFAC grant a license to begin government forfeiture proceedings, it would undermine Congress’ clear intent to remove that discretion. TRIA still includes an exception that stops the attachment of assets for which the government has a forfeiture license. However, that exception requires that forfeiture licenses be granted under a statute “other than” IEEPA to qualify.

 The D.C. Circuit rejected reasoning from the Fifth and Seventh Circuits holding that the issuance of government forfeiture license meant that assets were not “blocked” under the TRIA.  The courts in those cases reasoned that the government’s effort at forfeiture, and the license that OFAC granted, fell within the exception because they were issued under “a statute other than” IEEPA. The Seventh Circuit reasoned, for example, that other statutory authority – such as the rules governing in rem admiralty actions – supported the government’s license, which it could not have granted under the IEEPA alone. It is a bit difficult on first reading to determine how different the licenses at issue in the Fifth and Seventh Circuits were from those at issue in the case before the D.C. Circuit. But even if there is some way to distinguish them technically, the opinions are clearly in tension.

After concluding that the TRIA license exception did not apply to the funds, the D.C. Circuit ruled that the funds were “blocked” and were not entitled to immunity, meaning that the government’s motion to quash attachment should be denied.

 Jurisdictional Exclusivity

The court also quickly dispensed with the motion to quash on jurisdictional exclusivity grounds. Jurisdictional exclusivity is what prevents multiple courts from attaching the same property. Traditionally, the first attachment proceeding bars any further action against a particular piece of property in other courts; this prevents conflicting judgments that grant the same property to multiple parties. The circuit court rejected the government’s contention that jurisdictional exclusivity applied here because all three cases – the government forfeiture action and the enforcement actions brought by the two individual judgment creditors – were in front of one court. There are no concerns about conflicting orders, reasoned the circuit court, because only one judge hears and rules on all three attachment efforts. Because that judge is capable of not contradicting himself, there was no need to dismiss the plaintiffs’ efforts to attach the funds.

Conclusion

Different courts of appeal have now interpreted the TRIA’s term “blocked assets” in different ways. For that reason – and because the D.C. Circuit ruled against the U.S. government – petitions for rehearing en banc and certiorari are likely.