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4000 - Advisory Opinions

"Act of State" Doctrine and the Freezing of Accounts is an Insured Institution Wholly Owned by Foreign Subsidiaries


September 22, 1993

Walter P. Doyle, Counsel

Thank you for your recent letter asking what action FDIC could take to prevent the "freezing" of accounts in an insured institution wholly owned by foreign interests.

If the freezing represents unlawful action taken by private interests, the remedy would most likely have to be pursued in domestic or foreign courts by those adversely affected. FDIC has no general statutory mandate to intervene in or attempt to adjudicate legal disputes between an insured institution and its customers.

If, on the other hand, the freezing of accounts is imposed under authority of a foreign government, the so-called "act of state" doctrine may apply. This doctrine precludes American courts from passing judgment on the validity of foreign governmental action taken within such government's own territory unless the action violates international law. While a taking of property within the United States by a foreign government is not covered by the "act of state" doctrine, the situs of a deposit obligation owed by a foreign owned bank operating in the U.S. would likely be a point of serious contention in these circumstances. In fact, the U.S. foreign assets control regulations apply to transactions abroad by foreign entities controlled by U.S. persons (31 C.F.R. 500.201) (a) (1) and 500.329 (d)); so it is conceivable that a foreign government could likewise assert jurisdiction over transactions in the U.S. by U.S.-organized entities controlled by its nationals.

Suffice it to say that the legal questions involved in any freezing of accounts in the international context are exceedingly complex and have given rise to much litigation in the past. Simple answers to these questions cannot be given in the abstract. The only simple answer we can give is that FDIC has no clear and specific statutory mandate with which to address the freezing of accounts by a foreign government in an insured institution controlled by foreign interests. Depending on the particular circumstances, FDIC might or might not decide to take action in such a case under its general statutory enforcement authority.

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