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905 - Case laws - Miscellaneoous
Banque San Paolo v. Iraqi State Co. 93 Civ. 5259 (KTD), 1996 U.S. Dist. LEXIS 18914 (S.D. N.Y. Dec. 20, 1996) Assignee of proceeds brought action against OFAC to lift the freeze on funds owed to it by an Iraqi issuer bank held in a New York reimbursing bank. |
| Topics: Freeze of Foreign Assets; Reimbursement. Principals: Plaintiff/Assignee: Banque San Paolo; Defendant/Buyer/Applicant: Iraqi State Co.; Defendant: Office of Foreign Asset Control; Defendant/Reimbursing Bank: The Bank of New York. Transaction: Purchase of meat. LC: Commercial L/C to cover the purchase price of the meat. Silent as to whether subject to UCP. Procedural History: The United States District Court for the Southern District of New York, Duffy, D.J., granted OFAC's motion for summary judgment and suspended the action until it could be shown that a valid license lifting the freeze on the funds had been granted. Rule: OFAC not obligated to grant a license to release frozen funds where the letter of credit was not confirmed. Assignee had no right to be reimbursed where the reimbursing bank does not hold sufficient funds of the issuer. History: To fiance the purchase of meat from a French supplier, the buyer arranged for the issuance of a letter of credit from an Iraqi bank. The letter of credit named a French negotiating bank and provided for reimbursement in U.S. dollars from the funds of the Iraqi bank held in a New York bank. To finance the transaction, the French supplier assigned the proceeds of the letter of credit to another French bank, the plaintiff in this case. The supplier made two shipments, and two conforming presentations to the French advising bank. That bank sent reimbursement claims to the New York bank. Upon receipt of the claims, the reimbursing bank notified the advising bank of a Presidential order which froze the Iraqi funds held at the reimbursing bank. The assignee never received any funds under the letter of credit. The assignee applied for, and was denied a license to lift the freeze. The assignee then brought an action to compel OFAC to issue the license. The funds are also claimed by a Canadian corporation in unrelated litigation. OFAC moved for summary judgment and the court granted the motion. The assignee argued that OFAC's regulations were illegally retroactively applied to it and favored U.S. banks. Briefing: 1. 31 C.F.R. -575.510: The court refused to compel OFAC to grant the license. The court noted that OFAC based its refusal on 31 C.F.R. -575.510 which only provides for licenses where the letter of credit involved was issued or confirmed by a U.S. bank or the reimbursement was confirmed by a U.S. bank. The court then pointed out that in response to an inquiry from the advising bank, the reimbursing bank had clearly stated that the reimbursement was "without responsibility or obligation" on their part. The court also held that the assignee would have had no rights under OFAC's prior regulations and, thus, the retroactive application did not strip the assignee of any rights. Further, the court pointed out that the regulations could operate to prohibit all transfers of Iraqi assets and therefor did not discriminate against foreign entities. 2. Reimbursement: The court rejected the assignee's argument that it was entitled to funds from the reimbursing bank even if the issuer had no funds on deposit, noting that it was contrary to banking law and practice. |