The United States Court of Appeals, Second Circuit rendered its decision on October 26th regarding the 2007 conviction of onetime United Nations Chief of the Commodity Procurement Section, Sanjaya Bahel, on bribery and fraud charges, upholding the lower court’s ruling. Mr. Bahel had been found guilty of directing UN contracts totaling 50 million dollars to companies with ties to Nanak Kohli, a friend. In return, Bahel received $5,000 per month for the duration of the contracts, first-class airfare to India, U.S. Open tickets, and a preferential rate on a three bedroom rental in Manhattan. Additionally, when he bought the apartment afterwards, the purchase price fell below the market appraisal by $600,000.

Bahel predicated his immunity defense on his UN connection. The federal appeals court, located in Manhattan, dismissed the Bahel claim that the necessary UN waiver of his immunity from prosecution by the American judiciary had not been provided specifically, countering that the UN had consented to the waiver on two separate occasions, by means of official letters in 2006 and 2008. Furthermore, the panel of three judges maintained that even in the absence of the UN waiver, Bahel himself indicated he had relinquished protection from the jurisdiction of U.S. courts, by playing an active role in preparing his case, and by his failure to bring up the immunity issue before his conviction. The court likewise cast aside Bahel’s arguments that American laws regarding honest services were not applicable to workers at the UN, and that the sentencing judge was mistaken in imposing a penalty enhancement since he did not meet the criteria for a public official specified by law. To the former assertion, and Bahel’s reliance on the Supreme Court ruling of 2010 in Skilling v. United States, whereby the honest services conviction of an ex-Enron executive was reversed, the appeals court emphasized that the basis for the reversal was the nature of the transgressions – neither bribery nor kickbacks were involved. It went on to state that Bahel’s attempt to contend that the Skilling decision established an exception for employees of international organizations was entirely without merit. The appeals court agreed with the lower court’s sentencing guidelines, including broadening the parameters of “public official” to encompass officials of public international organizations, declaring the UN to be most certainly a public international organization. It admonished Bahel’s efforts to portray himself as a lowly employee rather than a high ranking official.

Bahel has made restitution in the amount of almost one million dollars and surrendered the title to the Manhattan apartment. His release on bail occurred during this past summer.

By Daria Carmon
The complaint lodged by American oil-drilling company Helmerich & Payne on September 23 in the United States District Court for Columbia, against Venezuela and the state-controlled Petroleos de Venezuela and PDVSA Petroleo, claims violation of international law and breach of contract. The well established company, headquartered in Tulsa, Oklahoma and one of the oldest of its kind in the world, has long done business in Venezuela, in fact more than fifty years. Its counsel is David Ogden of Wilmer Cutler. Helmerich & Payne alleges that the current dispute had its beginnings in chronic nonpayment of invoices and breaches of oil and gas contracts as far back as 2008, which escalated to the June 2010 armed seizure and nationalization of its business and 11 rigs in Venezuela at the direction of President Hugo Chavez. Thus, it has petitioned for 32 million dollars in payment of the unsatisfied invoices, and hundreds of millions of dollars to cover the loss of its entire business in Venezuela along with the 11 rigs.

The complaint points out that suit was brought in an American jurisdiction as a consequence of the powerful hold Chavez exerts on the Venezuelan courts, posing an insurmountable obstacle to successful actions by American companies against his regime, borne out by the statistic that not one has succeeded in securing damages in the Chavez era. Helmerich & Payne cites 324 rulings out of 325 by the Venezuelan appellate court that would handle the case favoring the government over private citizens, and refers to its own suit being mired in Venezuela’s judiciary. More significantly, the argument is made that the inherent sovereign immunity of Venezuela does not shield it from the reach of American courts in this action since exceptions exist to the Foreign Sovereign Immunities Act. The complaint asserts that subject matter and personal jurisdiction are invested in the American courts via the commercial activity exception and the expropriation exception.

By Daria Carmon
The September 1 ruling by the United States District Court for the District of Columbia, in proceedings declared to constitute the closing curtain on major Nazi art cases, has dealt a serious blow to Hungary’s ongoing efforts to maintain possession of the world-class art collection of Baron Herzog housed in its state-controlled museums and university, and keep it out of the hands of the baron’s scions. The baron himself was Mor Lipot Herzog, an Hungarian Jewish art collector whose impressive holdings of paintings and sculptures were secreted away by his children in the basement of a Herzog factory in rural Hungary in a futile attempt to circumvent Nazi confiscation. Prize works made their way to the pinnacle of the Nazi hierarchy, Adolf Eichmann. The remainder of the collection came to reside in the Budapest Museum of Fine Arts, the Hungarian National Gallery, and the Budapest University of Technology and Economics, among other locations. All told, more than 40 pieces, including paintings by El Greco, Francisco de Zurbaran, and Lucas Cranach the Elder, and appraised in excess of 100 million dollars, lie at the heart of the dispute. The Herzog heirs have waged a protracted battle to regain ownership, initially thwarted by the Communist authorities. Last year three of those heirs brought action in the aforementioned jurisdiction.

During the course of the litigation, Hungary did not deny that the Herzog art holdings were relinquished unwillingly but it refused to consider restitution. Its case was predicated heavily on the principle of foreign sovereign immunity and the shield from American judicial jurisdiction embodied in the United States Foreign Sovereign Immunities Act. Judge Ellen Huvelle’s 46 page ruling disallowed the sovereign immunity defense and the court threw out Hungary’s motion to dismiss the suit. Judge Huvelle maintained that the baron’s collection had been appropriated without fair remuneration and for discriminatory reasons. She emphasized that even if Hungary’s deeds did not represent a violation of international law, the Nazi role in the dispersal of the collection fit the criteria. The judge upheld the assertions made by the Herzog attorney, Michael Shuster of Kasowitz Benson Torres & Friedman, that the art confiscation divested the Herzog heirs of their citizenship, was an attack on their human rights, as well as the argument of improper Hungarian commercial benefit by means of American ticket and merchandise revenue derived from the art. She also rejected Hungary’s attempt to bring forum into question, since it insisted the action should be heard there instead of in America. The court offered no final decision on the statute of limitations issue, but the judge stressed that Hungary had stalled proceedings in that jurisdiction for years.

The sole part of the suit that was dismissed involved 11 of the paintings, which had figured in a prior case in Hungary of an American Herzog heiress who claimed direct inheritance. The complaint at that time had been set aside on the grounds of a 1973 American-Hungarian settlement that provided remuneration to the mother of said heiress. The 11 paintings are some of the finest in the collection and number among them works by El Greco, Cranach, and Courbet. Thaddeus Stauber of Peabody Nixon, Hungary’s lead attorney, stated that as a result of the court’s reliance on the Hungarian ruling, Hungary planned to mount an appeal of the current decision based on the forum issue.

By Daria Carmon

The United States Court of Appeals, Eleventh Circuit, issued its decision in the Lubian v. Cuba suit four days ago, on September 21, affirming the district court’s ruling that all claims be dropped in the action brought by Cuban medical personnel against the nations of Cuba and Venezuela, and the state-controlled Petroleous de Venezuela, and alleging forced labor. It agreed with the lower court’s findings that the facts of the case did not meet the criteria for exceptions to the Foreign Sovereignties Immunities Act (FSIA), required for subject matter jurisdiction when the plaintiffs are foreign citizens and the defendants are foreign sovereignties. The court stressed that the FSIA confers immunity from the jurisdiction of American courts on sovereign nations, inclusive of their agencies and instrumentalities, thus shielding all defendants in this suit, unless statutory exception could be applied. It then proceeded to address plaintiffs’ assertion that the commercial activity exception and the terrorism exception had operated to grant jurisdiction to the district court. The ruling rejected said argument on both counts, holding that the commercial activity exception could not be invoked since the alleged forced labor and false imprisonment relative to police actions clearly were not commercial in scope nor was the prerequisite of a direct effect in the United States satisfied. Plaintiffs’ counsel had maintained that the labor of the Cuban medical personnel contributed to the influx of money and oil into Cuba, which translated to greater military financing and a direct danger to America. Furthermore, according to plaintiff’s attorney, the transactions of Petroleous de Venezuela in the oil business, and the arrangement between Cuba and Venezuela, had a direct impact on American gas prices. The court went on to deny the applicability of the terrorism exception on the basis that no allegations were made of personal injury or death resulting from torture, hostage taking, or sabotage of a plane by foreign agents. Even had there been such claims, it stipulated three more criteria had to be fulfilled and were not: 1) the foreign nation must be identified as a state sponsor of terrorism at time of the occurrence; 2) the claimant had to be a citizen, soldier, or employee of the United States at time of the occurrence; and 3) the claimant had to allow the foreign nation sufficient time to arbitrate prior to filing suit.

By Daria Carmon

A decision rendered by the United States District Court for the Central District of California on August 24 denied Robert Eringer, who had been a foreign intelligence liaison to Prince Albert II of Monaco, legal redress against the principality in an employment dispute, by reason of the sovereign immunity embodied in the Foreign Intelligence Surveillance Act. Mr. Eringer entered the employ of the current Monegasque ruler and Sovereign Prince, in 1999, when Albert held the title of Hereditary Prince, and thereafter was placed on a retainer that was in effect for the period of 2002 through 2008. He quit his position over alleged nonpayment of his quarterly fee of 40,000 euros and consequently brought suit.

U.S. District Judge Gary Feess examined Eringer’s job responsibilities in depth in his ruling in order to lay the groundwork for the application of the sovereign immunity principles promulgated by the Foreign Intelligence Surveillance Act. In addition to serving as intelligence advisor, Eringer’s other principal duties were to foster relations with the foreign intelligence community and to investigate people who sought access to the prince’s social circle, affiliation with an organization of which he was a patron, or employment in the government. Eringer also was called upon to carry out a variety of other assignments, including mediating in the matter of the mother of the prince’s illegitimate daughter, probing press leaks regarding the prince, and assisting a woman who accused the prince of rape. However, he conceded that the demands of his position lessened in 2007, centering primarily on tasks related to his work as foreign intelligence liaison, but that he did take on select investigations for the prince. The judge concluded that the referred to responsibilities did not fulfill the requirements for the commercial exclusion to sovereign immunity found in the Foreign Intelligence Surveillance Act, particularly the duties of foreign intelligence liaison. He asserted that interaction with the intelligence agencies of other countries can be traced directly to service to a sovereign nation. Furthermore, while the court admitted that a credible argument could be made that the private investigator aspect of Eringer’s job might be construed to be commercial activity, it maintained that the added dimension of protecting the prince raised said activity to an entirely different level. The decision stressed that even if the secondary task of undertaking special investigations at the prince’s behest was deemed commercial, the court still would hold that Monaco was shielded by sovereign immunity.

By Daria Carmon

Singapore’s restrictive immunity policy, whereby suit can be brought against sovereign states regarding commercial and contractual matters, is the impetus for its efforts to best Hong Kong in international arbitration activity. Steps it has taken to gain a greater foothold in the arena of settling cross-border conflicts, and a subsequent multi-billion dollar return, include granting foreign law firms access to its legal market and extending tax incentives. Singapore’s position was strengthened further by the August 26th decision of China’s Standing Committee of the National People’s Congress that upheld Hong Kong’s interpretation of the Basic Law in accordance with the Chinese application of absolute immunity. James Berger, a New York attorney with the firm of Paul Hastings Janofsky & Walker, underscored the negative implications of the ruling’s ban on lawsuits against foreign nations in Hong Kong. He pointed out that Hong Kong has become an unacceptable setting for mediating international conflicts, and that the inability to enforce arbitration judgments there will lead foreign states to resort to other venues, such as Singapore. Recent statistics seem to support Mr. Berger’s assertion, for although 25 percent more international actions made their way through the courts in Hong Kong than those in Singapore in 2010, that figure represents a sharp decline from the almost three to one edge of Hong Kong in arbitration matters during the previous year.

The operation of restrictive sovereign immunity in Singapore was demonstrated clearly by the 2008 decision of its Supreme Court in the matter pertaining to the disputed ownership of the purported criminal assets of the late Ferdinand Marcos. It ruled against the invocation of state immunity by the Philippines as the government pursued the release of the former president’s aforementioned assets. In contrast, Hong Kong’s High Court relied on the principle of absolute immunity in rendering judgment in June of this year in the case turning on the attempt of FG Hemisphere, a buyer of distressed debt, to recover two arbitration awards from the Democratic Republic of Congo through worldwide suits. This decision and the Chinese approval that followed have been called upon in evaluating the judicial independence pledged to Hong Kong by the Basic Law for a minimum of 50 years when it reverted to the Chinese fold in 1997. Yu-Jin Tay, who heads the international arbitration in Asia division of Shearman & Sterling in Singapore, stated that Hong Kong will be viewed as less objective than Singapore in international conflicts linked to China’s interests. However, Robert Pe, who heads Asia dispute resolution at Orrick, Herrington & Sutcliffe, and was advisor to Congo, maintained that doubts over Hong Kong’s judicial independence were without basis since its top court has handed down as many decisions unfavorable to the Chinese government as favorable ones. In addition, a World Economic Forum study placed Hong Kong ahead of Singapore in rating 139 nations on judicial independence, with the former being 15th while the latter came in 21st. It is generally agreed that the onetime British colonies possess the foremost Asian judiciaries.

The Supreme Court of India has ruled that government-owned foreign airlines are not shielded by sovereign immunity from actions brought in India. The complaint of Ganesh Narain Saboo against Ethiopian Airlines asserted that its extreme delay in delivery of a consignment of reactive dyes from Mumbai to Tanzania in September 1992 resulted in deterioration of said dyes. Ethiopian Airlines invoked the principle of sovereign immunity in response to Saboo’s claim for damages, contending its state-owned status conferred immunity from suits.

The decision of Justices Dalveer Bhandari, M K Sharma and A R Dave refuting Ethiopian Airlines’ argument, cited the Warsaw Pact of 1929, the 1955
Hague Convention regarding transport by air, and the Carriage by Air Act of 1972. The court stressed that the global nature of modern trade, commerce, and business precludes absolute sovereign immunity, and holds nations accountable to the dictates of the marketplace. Thus, Justice Bhandari stated Ethiopian Airlines would have to answer for its commercial transactions in India. The ruling struck a note of caution that if state-owned entities were cloaked in immunity relative to commercial enterprises, a diminished rule of law would issue, and international commerce would come to a standstill. Finally, the justices referred the matter to the state consumer forum for adjudication, urging that proceedings be undertaken promptly.

By Daria Carmon

The recent decision by the U.S. Court of Appeals for the Second Circuit, New York’s highest federal court, that the Central Bank of Argentina’s assets in the U.S. could not be used to satisfy creditors, has dealt a significant blow to holders of defaulted Argentine bonds in their quest for remuneration. The Argentine government’s sovereign default of 2001, totaling 100 billion dollars, led to a discounted bond swap in 2005 and again in 2010, whereby investors could recoup their losses at the rate of approximately 33 cents on the dollar. More than ninety percent of the debt was satisfied in this manner, but that still left about 4.5 billion dollars in defaulted bonds believed to be held by the holdouts, prompting suits brought against Argentina worldwide. Two of the plaintiffs adversely affected by the appellate ruling were holdouts NML Capital and EM Ltd.
The court’s decision was firmly rooted in the principle of sovereign immunity, as it asserted the Central Bank of Argentina’s assets were subject to the defense against creditors afforded by the Foreign Sovereign Immunities Act, which allows confiscation of deposits made by foreign central banks in the U.S. only when said funds figure in commercial transactions. The ruling reversed that of a lower court compelling Argentina to relinquish the Central Bank funds, in partial settlement of cases decided in favor of the bondholders for billions of dollars. The appellate court consequently lifted the freeze, dating to 2006, on the roughly 100 million dollars in Central Bank of Argentina funds kept at the Federal Reserve Bank of New York. U.S. District Judge Thomas P. Griesa had decreed that the Central Bank was not a separate entity from the Argentine government since President Cristina Kirchner paid creditors from Central Bank coffers.

A German suit being brought by the servant of a Saudi diplomat, amid allegations of severe mistreatment and physical abuse by her employer, strikes at the very heart of the conventions of diplomatic immunity and promises what could be a watershed decision regarding its application. The specifics of the case involve a 30 year old Indonesian woman who had been working in Germany since her employer’s posting to the embassy in Berlin in April 2009 and whose allegations ranged from appalling working conditions – putting in seventeen hour days, sleeping on the floor, no time off whatsoever for the duration of her employment with the Saudi family – to beatings with a stick every day and being punched and kicked. Her responsibilities had been largely to see to the diplomat’s wife, who was confined to a wheelchair, and his four daughters, and she claimed to have been called upon to even put on the shoes of the siblings daily, although the youngest was twelve years old.

The principle of diplomatic immunity has figured prominently in the proceedings thus far, with a preliminary hearing’s outcome being that the court dropped the slavery charge entirely by reason of the alleged offender’s diplomatic standing. The case now makes its way to the state court and then the constitutional court. As legal preparations are well underway, comes the release of a lengthy study by the German Institute for Human Rights detailing reported far-flung mistreatment and victimization of diplomats’ domestic servants in Britain, Austria, Belgium, France, Switzerland, and Germany. The issue received further scrutiny this week in an American published report with similar findings. The Vienna Convention on Diplomatic Relations of 1961
promulgates diplomatic immunity and the shield it provides diplomats from prosecution is at this juncture under attack by the human rights attorneys handling the case in question. The most serious punishment for diplomatic transgressions is expulsion home and they want this action to serve as the impetus for prosecution of foreign embassy personnel throughout the world. Attorney Klaus Bertlsmann of Hamburg and the German Institute for Human Rights are bankrolling the case in the hopes that it will afford legal recourse against diplomats who abuse their domestic employees. Mr. Bertlsmann asserted that human rights take precedence over diplomatic immunity in international law as they constitute a higher good.

By Daria Carmon

A claim staked by human rights victims of the Marcos regime to 35 million dollars from the late dictator’s Arelma account at Merrill Lynch, has been thrown out by the New York Supreme Court Appellate Division, due to the Philippine government’s unwillingness to join in the suit, a stance the court asserted was backed by that government’s sovereign immunity. The funds in dispute, the Arelma deposits, can be traced to a securities trading account at Merrill Lynch initiated thirty nine years ago with a first deposit of 2 million dollars provided by Ferdinand Marcos, who was acting together with Filipino businessman Jose Yao Campos and Swiss banker Jean Luis Sunier. Sunier set up the Panamanian business, Arelma, Inc. as a means to conceal the true identity of the account’s owner. A New York federal court decision in 1987 granted a petition by the Philippine government to impose a freeze on the Arelma account. The Swiss Federal Supreme Court ruled on two occasions that Marcos was in charge of the account and thereby held the authority to dispose of it.

The recent appellate court decision to dismiss the Marcos victims suit stressed the crucial role played by the principle of sovereign immunity in the outcome of the case. Sovereign immunity carries with it the prerogative of required consent to being brought into an action. In the absence of the Philippine government’s consent, the court maintained it was left no recourse but to dismiss as a consequence of nonjoinder of a necessary party. It cited the sovereign’s needed participation in the claim found in CPLR 1001 and referred to an earlier United States Supreme Court decision in Republic of the Philippines v. Pimentel, pertaining to the same contested assets, where the principle of sovereign immunity was upheld and a dismissal was handed down on the basis of CPLR 1003 and 3211 (a)(10). The latest ruling clearly reverses that of New York Supreme Court Justice Charles Ramos in November 2009 permitting the Marcos victims’ action to proceed even though it was not joined to the Philippine government’s rival claim, pursuant to a United States Supreme Court decision in 2007 that held New York courts are not constrained by the federal interpretation of sovereign immunity and the Philippine government’s authority to seize the criminal assets of the Marcos regime. The Philippine government’s refusal to be made a party to the Marcos victims’ suit stems from a 1955 law in that country subjecting all property of public officials acquired through misuse of office to immediate forfeiture and the premise that the Arelma account emanated from ill-gotten Marcos property. Furthermore, the Philippine Constitution mandates the criminal funds of the Marcos regime be applied to the Comprehensive Agrarian Reform Program.