United States: US Second Circuit Eases Banks’ Garnishment Burdens in Recent TRIA and FSIA Decisions

In recent years, banks have found themselves named as parties in their capacities as garnishees in enforcement litigation brought by judgment creditors of governments or entities that have been designated as terrorist parties. Two decisions from the US Court of Appeals for the Second Circuit spell good news for banks. The decisions in Calderon-Cardona, et. al v. Bank of New York Mellon1 and Hausler v. JPMorgan Chase Bank, N.A.,2 limit the number of assets subject to attachment by deferring to New York state law to define property interests.

The Foreign Sovereign Immunities Act (FSIA) provides foreign states with immunity from suits and also makes foreign government property immune from attachment and execution in US courts. The FSIA has exceptions, however, for state-sponsored terrorism. For example, Section 1605A overrides immunity for suits based on acts of terrorism. In addition, FSIA Sections 1610(f)(1)(A) and 1610(g), and Section 201 of the Terrorism Risk Insurance Act (TRIA), permit creditors who hold terrorism judgments to garnish certain types of sovereign property. Each of these exceptions has a slightly different scope, and Calderon-Cardona and Hausler clarify their applicability.

FSIA Section 1610(f)(1)

FSIA Section 1610(f)(1)(A) permits the garnishment of property "claim[ed]" by a foreign state, which is blocked or regulated under the Trading With the Enemy Act (TWEA) or the International Emergency Economic Powers Act. The remedy is limited to the enforcement of terrorism-related judgments, for which states are not immune under Section 1605A of the FSIA. The exception to immunity is further subject to a presidential waiver,3 and in 2000, President Clinton did completely waive the garnishment remedy. Accordingly, Calderon-Cardona held that Section 1610(f)(1)(A) cannot be used to execute on blocked funds.


In 2002, Congress passed the Terrorism Risk Insurance Act,4 which permits execution on "blocked assets" of a "terrorist party," to satisfy judgments for acts of terrorism. TRIA differs from Section 1610(f) in several ways. It is not subject to a blanket presidential waiver, but the President may waive it "on an asset-by-asset basis" as to assets that are subject to the Vienna Conventions on Diplomatic Relations or Consular Relations.5 TRIA is limited to judgments for compensatory damages only. Like Section 1610(f), it extends not only to state actors, but also to their agencies and instrumentalities.

One provision in TRIA that has been particularly contested is the meaning of the phrase "the blocked assets of that terrorist party," especially as applied to blocked wire transfers. Specifically, some banks have argued that the phrase permits execution only on property that belongs to the judgment debtor, as would be the case under ordinary state-law procedures. Judgment creditors, however, have argued that the phrase covers all assets that are blocked because of a "nexus" with the judgment debtor. Because federal asset control regulations require blocking many assets that would not be considered property of the terrorist under state property law—for example, the Cuban sanctions require blocking all transactions with Cuban nationals, not just property of the Cuban government—the creditors' interpretation subjected many more assets to execution.

The two Southern District of New York decisions on appeal in Calderon-Cardona and Hausler (as well as other district court decisions) came to divergent conclusions.6 The Second Circuit reversed Hausler, holding that Congress had not defined the property interests that were subject to attachment under TRIA. Because the statute did not create new property rights, but merely attached consequences to rights created under state law, the Second Circuit held that state law governs whether the creditor can reach the frozen assets. As neither the terrorist party judgment debtor nor any of its agencies or instrumentalities had transmitted any of the EFTs directly to the blocking bank, they were not attachable under TRIA.

The court did not reach that question in Calderon-Cardona because, addressing another aspect of TRIA, it found that the plaintiffs did not even have a judgment against a "terrorist party." As applied to foreign states, that term is limited to those that are designated by the State Department as state sponsors of terrorism. North Korea, the defendant in the underlying case, had once been so designated, but that designation was revoked before the plaintiffs won their judgment. The Second Circuit held that the revocation made the judgment ineligible for TRIA.

Section 1610(g)

Because TRIA did not apply, Calderon-Cardona went on to consider another exception to sovereign immunity under Section 1610(g) of the FSIA. That section permits execution on "the property of a foreign state" by the holder of a judgment based on the terrorism exception in Section 1605A. The court explained that "the fact that North Korea no longer has that [state sponsor of terrorism] designation does not bar attachment of North Korea's property, or that of its agents and instrumentalities, under § 1610(g)."

What did bar attachment was the phrase "property of a foreign state." Just as it would interpret TRIA a few days later in Hausler, the court held "that FSIA § 1610(g) does not preempt state law applicable to the execution of judgments."

New York Uniform Commercial Code

According to the Second Circuit, the New York UCC provides that usually neither the originator nor the beneficiary of a midstream wire owns the funds; the claim is limited to the bank or other entity immediately preceding the bank that blocked the wire. That conclusion follows from the UCC Article 4A's treatment of wire transfers as essentially a series of bilateral transactions from a sender to a receiver: "Because [wire transfers] function as a chained series of debits and credits between the originator, the originator's bank, any intermediary banks, the beneficiary's bank, and the beneficiary, the only party with a claim against an intermediary bank is the sender to that bank, which is typically the originator's bank."7 And state law determines whether the property belongs to the judgment debtor.

Thus, under both TRIA (as interpreted in Hausler) and Section 1610(g) (as interpreted in Calderon-Cardona), judgment creditors of a foreign state may seize blocked wires "only where either the state itself or an agency or instrumentality thereof (such as a state-owned financial institution) transmitted the [wire] directly to the bank where the [wire] is held pursuant to the block."

Significance of These Decisions

These decisions should sharply curtail litigation over blocked assets. Since the assets subject to execution have varied from courtroom to courtroom in the Southern District, creditors typically have sought turnover of every blocked account. This has led to costly litigation for intermediary banks, especially on wire transfers that have numerous potential claimants. Now that the only blocked wire transfers available under the FSIA are those in which a terrorist state or its agency sent the money directly to the US bank, fewer assets should be at issue.

In fact, it is possible that few, if any, wire transfers will be subject to turnover. That is because a wire transfer requires privity (usually maintenance of an account) at each step of the chain, but US banks are prohibited from maintaining accounts for sanctioned parties. That makes it unlikely that the party immediately upstream from a U.S. bank in a blocked wire transfer will be a party that is subject to sanctions. A wire might still be blocked because a party two or more steps removed from the US bank is on a sanctions list, but under the new Second Circuit rule, that asset is not "property" of the sanctioned party subject to turnover. Yesterday, Judge Castel denied an unopposed motion for turnover in Harrison v. The Republic of Sudan, ruling in part that plaintiffs "may not execute on blocked accounts for which a Sudanese agency is on the beneficiary side."8

Some doubt remains as to how these rulings will be received outside of the Second Circuit. In Gates v. Syrian Arab Republic,9 a Northern District of Illinois judge found that Hausler and Calderon-Cardona did not prevent turnover of a wire for which a Syrian state-owned bank was both originator and beneficiary and where the intermediary bank immediately preceding the blocking bank had disclaimed any interest in the account. Gates raises the broader question of whether assets to which a judgment debtor does not have a claim under the UCC could still be deemed an asset "of" that party where competing claimants waive their rights or simply fail to appear.

Yet another twist appears in the Eleventh Circuit's 2013 decision in Stansell v. FARC.10 There, the court denied turnover to judgment creditors of the Colombian rebel group, as to a blocked wire on which a federally designated narcotics trafficker was the intended beneficiary. It focused on the cancellation provisions of UCC Article 4A, holding that the wire's blocking under the narcotics sanctions led to an automatic cancellation of the wire five business days later. That negated any interest of the beneficiary in the blocked funds—upon release of the block, the funds would be returned to the originator, not forwarded to the beneficiary. But the court also pointed out that under Section 4A-402(d), the originator is subrogated to the right of the originating bank to receive any refund. That point was immaterial in Stansell itself, where none of the originator-side parties were judgment debtors, but it suggests that plaintiffs could seek turnover where the originator (but not the originator's bank) is a judgment debtor. That fact pattern is not uncommon.

Rehearing petitions are likely to be filed in both Second Circuit cases, and several district court cases have been stayed pending final resolution on appeal.

Learn more about our Banking & Finance Litigation practice.

1 No. 12-0075, 2014 WL 5368880 (2d Cir. Oct. 23, 2014).
2 No. 12-1264, 2014 WL 5420141 (2d Cir. Oct. 27, 2014).
3 28 U.S.C. § 1610(f)(3).
4 Codified as a note to 28 U.S.C. § 1610.
5 The waiver authority does not extend to proceeds from the sale of diplomatic or consular property, or to such property that has been used for non-diplomatic purposes.
6 For more information, see our December 11, 2013, legal update, " Recent TRIA Decision Could Ease Garnishment Burden."
7 Calderon-Cardona, 2014 WL 5368880, at *6.
8 No. 13-cv-3127 (S.D.N.Y. Nov. 13, 2014).
9 No. 11 C 8715, 2014 WL 5784859, at *1 (N.D. Ill. Nov. 6, 2014).
10 Stansell v. Revolutionary Armed Forces of Columbia, No. 13-11339, 2014 WL 5293562 (11th Cir. Oct. 16, 2014).

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2014. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions