Estate of Jeremy I. Levin v. Wells Fargo Bank, N.A. ( 2022 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued April 12, 2022 Decided August 16, 2022
No. 21-7036
ESTATE OF JEREMY ISADORE LEVIN, ET AL.,
APPELLANTS
v.
WELLS FARGO BANK, N.A.,
APPELLEE
Consolidated with 21-7041, 21-7044, 21-7052, 21-7053
Appeals from the United States District Court
for the District of Columbia
(No. 1:21-cv-00420)
(No. 1:05-cv-02494)
(No. 1:21-cv-00126)
(No. 1:21-cv-00127)
(No. 1:21-cv-00128)
Suzelle M. Smith argued the cause and filed the briefs for
Levin appellants.
Matthew D. McGill argued the cause and filed the briefs for
appellants James Owens, et al.
Myanna Dellinger, James Dodge, David Horton, and
2
Jeffrey Stempel, pro se, were on the brief for amici curiae
Commercial Law Professors in support of Levin appellants.
Alex C. Lakatos argued the cause and filed the brief for
appellee Wells Fargo Bank, N.A.
Brian P. Hudak, Assistant U.S. Attorney, argued the cause
and filed the brief for appellee United States. Jane M. Lyons
and Peter C. Pfaffenroth, Assistant U.S. Attorneys, entered
appearances.
Christopher D. Man was on the brief for amicus curiae
Crystal Holdings Limited in support of neither party.
Before: PILLARD and WALKER, Circuit Judges, and
RANDOLPH, Senior Circuit Judge.
Opinion for the Court filed by Senior Circuit Judge
RANDOLPH.
Concurring opinion filed by Circuit Judge PILLARD.
RANDOLPH, Senior Circuit Judge: These consolidated cases,
on appeal from a judgment of the district court, present
competing claims to a blocked electronic funds transfer. The
parties are, on one side, the United States, which blocked the
transaction because terrorists initiated it. On the other side are
victims of Iran-sponsored terrorism who have obtained multi-
million dollar judgments against the Iranian government.
Taif Mining Services, LLC, an Omani company, initiated
the electronic transfer to consummate its purchase of the Nautic,
an oil tanker registered in Liberia. Crystal Holdings Limited, a
Liberian subsidiary of a Greek company, was the seller. A law
firm, Holman Fenwick Willan LLP, based in London, facilitated
3
the sale.
The U.S. Treasury Department’s Office of Foreign Assets
Control (“OFAC”) maintains a list of “Specially Designated
Nationals and Blocked Persons.” See Exec. Order No. 13,224
(2001), as amended by Exec. Order No. 13,886 (2019); 31
C.F.R. § 594.201. OFAC listed the Islamic Revolutionary
Guard Corps. Two members of the Iranian Revolutionary Guard
formed Taif Mining in an apparent attempt to hide its affiliation
with the Islamic Republic of Iran. Taif Mining itself is now on
OFAC’s list.
Taif Mining initiated its electronic funds transfers to Crystal
Holdings pursuant to a sales agreement for the Nautic. The
Holman Fenwick law firm served as the parties’ escrow agent.
Taif’s downpayment of $2.34 million moved through the
international financial system in September 2019 and reached
Crystal Holdings’ Swiss bank account without interruption.
In October 2019, Taif Mining wired Holman Fenwick $9.98
million, the balance of the Nautic’s purchase price. Holman
Fenwick deposited the funds in its escrow account at Lloyds
Bank PLC, in London. Taif directed the law firm to send, “[f]or
and on behalf of Taif,” the $9.98 million to the Credit Suisse
account of Crystal Holdings in Switzerland. Taif also instructed
Holman Fenwick to use Bank of New York Mellon as the
“intermediary bank” for the transfer. Whether Holman Fenwick
relayed this instruction to Lloyds Bank is not clear.
We have described before how funds are transferred
electronically through intermediary banks when the parties to
the financial transaction have accounts at different banks. See
Heiser v. Islamic Republic of Iran, 735 F.3d 934, 936 (D.C. Cir.
4
2013).1 Here, the bridge between the Lloyds Bank of London
and the Credit Suisse Bank in Switzerland was the Wells Fargo
bank in New York.
The $9.98 million electronic funds transfer was blocked in
the instant after Wells Fargo debited its Lloyds account but
before it credited its Credit Suisse account. The blocking was
done pursuant to 50 U.S.C. § 1702, and Executive Order No.
13,224 (2001), as amended by Executive Order No. 13,886
(2019).2 How federal authorities were able to anticipate the
transfer and act before its completion is not disclosed. After
blocking the transfer, Wells Fargo placed the funds in an
account in South Dakota, as the bank apparently does with all
1
Heiser described the role of intermediary banks with this
example:
Suppose O wants to transfer $100 to B. If O and B
have an account at Bank X, then the transaction is
simple. O can instruct Bank X, which will debit O’s
account and credit B’s account with $100. But
suppose O has an account at Bank X, and B has an
account at Bank Y. Unless Banks X and Y are
members of the same lending consortium, they must
involve a third “intermediary” bank with which
Banks X and Y both have accounts. The transaction
would proceed as follows: (1) O instructs Bank X to
pay B; (2) Bank X debits O’s account and forwards
instructions to the intermediary bank; (3) the
intermediary bank debits Bank X’s account, credits
Bank Y’s account, and forwards instructions to Bank
Y; and (4) Bank Y credits B’s account.
735 F.3d at 936.
2
The Treasury Secretary’s authority to block terrorist transactions
has been delegated to the Director of OFAC. 31 C.F.R. § 594.802.
5
blocked assets.
Months later, in May 2020, the United States filed a
forfeiture action for the blocked funds. United States v.
$2,340,000.00 Associated with Petroleum Tanker Nautic, No.
20-cv-1139 (D.D.C. filed May 1, 2020); see 18 U.S.C.
§ 981(a)(1)(A), (C), (G)(i).3 The Wall Street Journal reported
the government’s forfeiture action and its indictment of the two
Iranians who were behind Taif. Mengqi Sun & Dylan Tokar,
U.S. Charges Two Iranians over Oil Tanker Purchase, Seeking
$12 Million Forfeiture, WALL ST. J. (May 2, 2020),
https://perma.cc/B75B-KMVT. The article stated that the funds
were being held at Wells Fargo. Id.After learning of the government’s forfeiture action,
attorneys for two groups of victims of Iranian terrorism and their
relatives, holding judgments against Iran, filed separate writs of
attachment in the United States District Court for the District of
Columbia. The Owens plaintiffs are victims of al-Qaeda’s 1998
bombings of the U.S. embassies in Kenya and Tanzania. They
have nearly $1 billion in judgments against Iran. See Order,
Owens v. Republic of Sudan, No. 01-cv-2244 (D.D.C. Mar. 28,
2014), R. Doc. 301; Order, Mwila v. Islamic Republic of Iran,
No. 08-cv-1377 (D.D.C. Mar. 28, 2014), R. Doc. 88; Order,
Khaliq v. Republic of Sudan, No. 10-cv-356 (D.D.C. Mar. 28,
2014), R. Doc. 40. The Levin plaintiffs obtained nearly $30
million in judgments against Iran for the 1984 kidnapping and
torture of Jeremy Levin by Iran-backed Hezbollah. Levin v.
Islamic Republic of Iran, No. 05-cv-2494, 2008 WL 114934743
As is evident from the case title, the United States also sought
forfeiture of Taif’s downpayment, which is now in Crystal’s
possession.
6
(D.D.C. Jan. 14, 2008).4
Plaintiffs sought to attach the funds at Wells Fargo pursuant
to two federal statutes. The first, 28 U.S.C. § 1610(g) of the
Foreign Sovereign Immunities Act (“FSIA”), “subject[s] to
attachment” “the property of a foreign state . . . and the property
of an agency or instrumentality of such a state” against which a
plaintiff holds a judgment under 28 U.S.C. § 1605A. The
second, § 201(a) of the Terrorism Risk Insurance Act of 2002
(“TRIA”), Pub. L. No. 107–297, 116 Stat. 2322, 2337 (codified
at 28 U.S.C. § 1610 Note “Satisfaction of Judgments from
Blocked Assets of Terrorists, Terrorist Organizations, and State
Sponsors of Terrorism”), “subject[s] to execution or attachment”
“the blocked assets of [a] terrorist party (including the blocked
assets of any agency or instrumentality of that terrorist party)”
against which a plaintiff holds a judgment under 28 U.S.C. §§
1605(a)(7) or 1605A. Section 201(a) specifies that such assets
can be attached “[n]otwithstanding any other provision of law.”
The United States intervened in both cases and moved to
quash plaintiffs’ writs of attachment. The government also
asserted that plaintiffs were attempting to circumvent the
“orderly administration” of the United States Victims of State
Sponsored Terrorism Fund. See 34 U.S.C. § 20144.5After consolidating the cases, the district court ruled that
4
The Levin plaintiffs also filed writs of attachment in South
Dakota and in the Southern District of New York. Those proceedings
have been stayed pending the outcome of this case.
5
The Fund provides a means for victims of state-sponsored
terrorism to collect on their unpaid judgments through money the
federal government obtains from terrorist states and actors, including
through forfeiture proceedings. 34 U.S.C. § 20144.
7
Iran lacked any property interest in the blocked funds held by
Wells Fargo. The court therefore quashed plaintiffs’ writs of
attachment. See Levin v. Islamic Republic of Iran, 523 F. Supp.
3d 14 (D.D.C. 2021). The court based its ruling on the Uniform
Commercial Code Article 4A, and our opinion in Heiser, of
which more in a moment.
The district court treated each transaction in this electronic
funds transfer as “a stand-alone agreement between sender and
recipient.” Id. at 21. By this the court meant that when an
electronic funds transfer is unsuccessful and an intermediary
bank is involved, the intermediary bank “is obligated to refund
payment only to the immediately prior sender.” Id. at 22. Thus,
the intermediary bank “has no obligation to” the entity that
initiated the transfer (the “originator”). Id. The originator must
recover from its own bank, that is, the bank that sent payment to
the intermediary bank. Id.But for the blocking, the electronic funds transfer would
have moved this way:6
Taif
(ship buyer, Holman
Lloyds Bank
Iran originator Fenwick (originator’s bank,
& agent/ (Taif’s law firm/ UK)
instrumentality escrow agent, UK)
of Iran)
Crystal
Wells Fargo Credit Suisse Holdings
(intermediary bank, (beneficiary’s bank, (beneficiary/
US) Switzerland) ship seller,
Liberia)
6
This graphic is drawn from page 7 of the Commercial Law
Professors’ Amicus Brief.
8
Relying on Uniform Commercial Code Article 4A, and
especially § 4A-402, the district court “assume[d]” that Taif,
rather than the Holman Fenwick law firm, was the “originator”
of the funds transfer. Levin, 523 F. Supp. 3d at 21. The court
concluded that Iran (via Taif) had no claim to the funds at Wells
Fargo, and therefore had “no property interest” in them. Id. at
21–22. This was because Taif was not “the entity immediately
preceding the bank ‘holding’ the EFT in the transaction chain.”
Id. at 21 (quoting Calderon-Cardona v. Bank of N.Y. Mellon,
770 F.3d 993, 1002 (2d Cir. 2014)). That entity was Lloyds
Bank. Id. And so the district court held that in the absence of
any Iranian property interest (through Taif Mining) in the funds,
plaintiffs could not attach them under § 201 or § 1610(g) to
collect their judgments against Iran. Id. at 20.
Both sides in this appeal, relying on Heiser, have set forth
opposing views on whether, in light of U.C.C. Article 4A, Iran
has a “sufficient property interest” in the blocked funds.7 A
“sufficient property interest,” that is, to warrant plaintiffs’
attachments under § 201 and § 1610(g).
The focus on Heiser is understandable. That case is similar
to this one. In both, OFAC blocked an electronic funds transfer
7
The Owens plaintiffs argue in the alternative that the U.C.C.
does not apply:
The U.C.C. was not designed to address terrorist
behavior, and Article 4A was specifically drafted to
prevent the interruption of funds transfers. But
halting transfers is the entire point of sanctions
blocking, and that is precisely what OFAC did in this
case. As a result, Article 4A is ill-equipped to
address the issues of ownership here.
Owens Appellants’ Br. 20.
9
when it reached an intermediary U.S. bank. And in Heiser, as
here, the plaintiffs relied on § 201 and § 1610(g) to collect their
judgments. But there the material similarities end.
Unlike this case, the plaintiffs in Heiser were seeking to
attach funds at intermediary banks under § 201 and § 1610(g)
because the beneficiary’s bank was Iranian. OFAC’s blocking
had prevented the funds from reaching the Iranian bank. This is
why we described the Iranian banks as having only “a contingent
future possessory interest in the funds.” Heiser, 735 F.3d at
937.8
Pursuant to the U.C.C. Article 4A, the Iranian bank in
Heiser “was not the beneficiary or originator” and under “the
principles of Article 4A,” the blocking foreclosed any claim that
legal title had passed to the Iranian bank. Id. at 941. For this
reason and in view of settled common law principles,9 we ruled
8
The intermediary banks in Heiser never contested that funds
blocked at an intermediary bank, where the originator or the
originator’s bank was or may have been an agency or instrumentality
of Iran, could be attached using § 201 and § 1610(g). Heiser, 735
F.3d at 936 n.3. In fact, there were many “uncontested accounts” with
those characteristics that the banks requested the district court turn
over to terrorist victim plaintiffs. Id.; see Joint Appendix at 160–61,
257, 277–78, Heiser v. Islamic Republic of Iran, 735 F.3d 934 (D.C.
Cir. 2013) (No. 12-7101); Third Party Petition Alleging Claims in the
Nature of Interpleader at 3–4, Heiser v. Islamic Republic of Iran,
00-cv-2329 (D.D.C. Aug. 31, 2012), R. Doc. 235.
9
We described the common law thus:
If a debtor merely holds property as an intermediary
for a third party, but does not own the property, then
a creditor cannot attach it. See Carpenter v. Nat’l
City Bank of Chi., 48 App. D.C. 133, 134–35, 136
10
against the plaintiffs. In our view Congress, in § 201 of TRIA
and § 1610(g) of FSIA, could not possibly have “intended
judgment creditors of foreign states to be able to attach property
those states do not own.” Id. at 938.
These differences between Heiser and this case are
significant. As Professor Paul Mishkin, a “thoughtful legal
scholar[],”10 put it, when federal courts incorporate state law as
federal common law, such incorporation must be done “as to a
single issue at a time” and the court must consider whether the
“issue’s outcome” is consistent with the “federal program.” Paul
J. Mishkin, The Variousness of “Federal Law”: Competence and
Discretion in the Choice of National and State Rules for
Decision, 105 U. PA. L. REV. 797, 804–06 (1957); see Caleb
Nelson, The Persistence of General Law, 106 COLUM. L. REV.
503, 510–11 & n.33 (2006). It follows that we may use Article
4A if and only if, on the issue presented, doing so would be
consistent with TRIA § 201 and FSIA § 1610(g). Boyle v.
United Techs. Corp., 487 U.S. 500, 507–13 (1988); Burks v.
Lasker, 441 U.S. 471, 479–80 (1979). As we held in Heiser,
“Article 4A does not apply of its own force. . . . Federal law,
specifically § 201 and § 1610(g), is controlling.” 735 F.3d at
940.
(D.C. Cir. 1918). These principles carry significant
weight because “statutes should be interpreted
consistently with the common law.” Manoharan v.
Rajapaksa, 711 F.3d 178, 179 (D.C. Cir. 2013) (per
curiam) (quoting Samantar v. Yousuf, 560 U.S. 305,
320 (2010)).
Heiser, 735 F.3d at 938.
10
Danforth v. Minnesota, 552 U.S. 264, 275 n.12 (2008); id. at
294–95 (Roberts, C.J., dissenting).
11
To sum up thus far, Heiser did not settle whether U.C.C.
Article 4A, or any provisions of it, would apply in a case such as
this as matter of “federal common law.”11 Henry J. Friendly, In
Praise of Erie—and of the New Federal Common Law, 39
N.Y.U. L. REV. 383, 410 (1964)); see Clearfield Tr. Co. v.
United States, 318 U.S. 363, 366–68 (1943); Caleb Nelson, The
Legitimacy of (Some) Federal Common Law, 101 VA. L. REV. 1,
35–36, 63 & n.220 (2015).
Most of what is set forth in the lengthy U.C.C. Article 4A
and its Commentaries, entitled “Funds Transfers,” deals with
technical banking subjects, of no concern here. The parties in
this case naturally focus on § 4A-402, the section dealing with
electronic funds transfers that have miscarried. This section, like
other Article 4A sections, seeks to avoid disruptions to funds
transfers. Its function is to allocate risks and to facilitate the
unwinding of uncompleted funds transfers in a fair and orderly
manner. Grain Traders, Inc. v. Citibank, N.A., 160 F.3d 97, 101
(2d Cir. 1998).12
As applied in this case, the objectives of U.C.C. § 4A-402
and OFAC’s blocking are incompatible. While § 4A-402 seeks
to minimize disruptions in electronic funds transfers, OFAC’s
blocking does the opposite – its purpose is to disrupt terrorist
11
We acknowledge that the Second Circuit appears to have
adopted U.C.C. Article 4A, or at least New York’s version of it, as
federal common law for all electronic funds transfers in cases such as
this one within its non-diversity jurisdiction. See, e.g., Doe v.
JPMorgan Chase Bank, N.A., 899 F.3d 152, 156–57 (2d Cir. 2018).
We also acknowledge that our opinion aligns with the dissenting
opinion in that case. Id. at 158–62 (Chin, J., dissenting).
12
Grain Traders is not a federal common law case; it is a
diversity case that applies New York law, specifically New York’s
version of Article 4A. 160 F.3d at 98.
12
electronic fund transactions. While § 4A-402 is designed to
govern the unraveling of uncompleted electronic transfers,13
when OFAC blocks electronic funds transfers there will be no
unraveling.14 That is the point of blocking. Thus, the Permanent
Editorial Board for the Uniform Commercial Code,15 in its
Commentary No. 16, concluded that Article 4A should not be
“honored” when “a regulation of the Treasury Department’s
Office of Foreign Assets Control (‘OFAC’)” disrupts an
13
A funds transfer may not be completed because the
intermediary bank becomes insolvent after the originator’s bank
credits the intermediary’s account, there is a mistake in the payment
order, or a bank accidentally sends a duplicate payment order. 3
JAMES J. WHITE ET AL., UNIFORM COMMERCIAL CODE § 23:15, 21 (6th
ed. 2014).
14
At least not in the United States. We have no information on
potential causes of action in foreign jurisdictions.
15
The Permanent Editorial Board
is a joint committee of the American Law Institute
and the Uniform Law Commission (also known as
the National Conference of Commissioners on
Uniform State Laws) that assists in attaining and
maintaining uniformity in state statutes governing
commercial transactions by discouraging
non-uniform amendments to the Uniform
Commercial Code by the states, and by approving
and promulgating amendments to the UCC when
necessary.
Export–Import Bank of the U.S. v. Asia Pulp & Paper Co., 609 F.3d
111, 119 n.8 (2d Cir. 2010) (internal quotation marks omitted).
13
electronic transfer.16 That of course describes this case.
When one steps back from § 4A-402’s elaborate – but
inapplicable – methods for unwinding misfired electronic
transfers, the path to our judgment seems clear. OFAC’s
blocking is aimed at terrorists and their financial transactions.
The TRIA “subject[s] to execution or attachment” “the blocked
assets of [a] terrorist party,” such as a State Sponsor of Terrorism
like Iran, “including the blocked assets of any agency or
instrumentality of that terrorist party” against which plaintiffs
hold a judgment under 28 U.S.C. §§ 1605(a)(7) or 1605A.
§ 201(a), 116 Stat. 2337. Again, section 201(a) specifies that
such assets can be attached “[n]otwithstanding any other
provision of law.”
Wells Fargo Bank is merely a stakeholder. It risks no
financial loss. Lloyds Bank is not on the hook – it received
$9.98 million from the Holman law firm and it transmitted $9.98
million to Wells Fargo. The Holman law firm held the $9.98
million as an escrow agent; it never owned the money.17 The
only entity that is out of pocket as a result of OFAC’s blocking
is the Iranian front Taif,18 and that is because it is subject to U.S.
sanctions. In terms of the TRIA, just quoted, the $9.98 million
16
The district court relied on Commentary No. 16 in concluding
that Iran (through Taif) had no property interest in the $9.98 million
held at Wells Fargo. Levin, 523 F. Supp. 3d at 21. The court may not
have been aware of the Permanent Editorial Board’s caveat regarding
OFAC, quoted in the text above.
17
Since these are for the most part instant transactions we
disregard the effect of interest on the funds.
18
At least according to U.S. law, which to our analysis is all that
matters.
14
therefore represents “blocked assets of [a] terrorist party.”19
The opposition of the United States rests on U.C.C. Article
4A, which we find inapplicable. The government agrees with the
district court’s decision to apply Article 4A and the conclusion
reached. There is another problem with the position of the
United States. The government’s argument here and the district
court’s holding20 that Iran (Taif) has no property interest in the
blocked funds “is inherently at odds with OFAC regulations that
require the ‘property and interests in property’ of [Specially
Designated Global Terrorists] to be blocked in the first place.
See 31 C.F.R. § 594.201(a). If [a terrorist’s] interest in funds is,
in effect, entirely extinguished while temporarily midstream,
there would be no authorization to block those midstream funds
as ‘property [or] interests in property’ of a designated terrorist
party because that property would belong solely to the
intermediary bank, not a designated terrorist party.” Doe, 899
F.3d at 161 (Chin, J., dissenting) (third and fourth alterations in
original).
Since U.C.C. Article 4A does not apply, the next question is
what does. Our answer is that under § 201, which deals only
with assets that have already been blocked by the United States,
terrorist victims may attach OFAC blocked electronic funds
transfers if those funds can be traced to a terrorist owner.
Tracing is used throughout federal law to attach
consequences to those having or having had interests in property.
The Supreme Court has commented: “Courts use tracing rules in
cases involving fraud, pension rights, bankruptcy, trusts, etc.”
19
Because the funds can be attached using the TRIA, we need not
decide whether attachment is permissible under § 1610(g) of the FSIA.
20
Levin, 523 F. Supp. 3d at 21.
15
Luis v. United States, 578 U.S. 5, 22 (2016) (plurality opinion)
(per curiam). The federal forfeiture statutes expressly
incorporate tracing. See, e.g., 18 U.S.C. §§ 981, 982; 21 U.S.C.
§ 881(a)(6); United States v. Daccarett, 6 F.3d 37, 55 (2d Cir.
1993).21 Consistent with other situations when tracing is used,
innocent third parties must be protected. Therefore, blocked
funds can be attached only if no intermediary or upstream bank
asserts an interest as an innocent third party. See Heiser, 735
F.3d at 938–39; Doe, 899 F.3d at 160–61 (Chin, J., dissenting).
Tracing resolves this case in plaintiffs’ favor. The
government admits that the $9.98 million blocked funds at Wells
Fargo “are traceable to Taif” and thus to Iran. United States Br.
47. The premise of the government’s forfeiture action is that the
funds are traceable to Iran. See J.A. 51 ¶¶ 1–2; id. at 58–60
¶¶ 47–59. Neither Wells Fargo nor Lloyds has asserted a claim
to the blocked funds. The district court therefore erred in
concluding that the plaintiffs had failed to show that the blocked
funds were, under § 201(a) of the TRIA, “the blocked assets of
[a] terrorist party (including the blocked assets of any agency or
instrumentality of that terrorist party).” 116 Stat. 2337. The
district court’s judgment rested entirely on this holding and its
decision is all that we have addressed.
Reversed and remanded.
21
The U.C.C.’s Permanent Editorial Board, in its Commentary
No. 16, indicated that Article 4A does not apply in drug forfeiture
cases, and that with respect to blocked electronic funds, the
“Daccarett court, as appropriate in a forfeiture case, identified the
amount of the funds as ‘traceable’ to an illicit activity and therefore
subject to attachment under 21 U.S.C. § 881(a).”
16
EPILOGUE
In January 2020 the United Arab Emirates seized the Nautic
pursuant to a civil court order. Crystal initiated an arbitration
against Taif Mining to collect the $9.98 million balance. While
the arbitration was pending, and while the Nautic was moored
off the UAE coast, Iranians hijacked the ship.
PILLARD, Circuit Judge, concurring: I agree with the
majority that the Uniform Commercial Code’s Article 4A is an
inappropriate rule of decision for determining whether funds
owned by a terrorist party that initiates an EFT, during which
the government blocks the funds based on 31 C.F.R. § 594.201,
are property “of” a terrorist party for purposes of TRIA § 201.
But in the place of Article 4A, I would make explicit that
common-law ownership and agency principles apply instead of
or in addition to tracing. Because the majority’s rule
apparently produces the same result in this case, I concur.
No party proposed we adopt tracing alone as our rule of
decision in this context, and for good reason. That approach
does not fulfill a key requirement of TRIA that we highlighted
in Heiser v. Islamic Republic of Iran: that the terrorist party be
shown to have “an ownership interest” in the funds sought. 735
F.3d 934, 941 (D.C. Cir. 2013); see id. at 938-40. Tracing
typically involves a sort of forensic accounting—a process of
identifying how an asset has been transformed, transferred, or
substituted such that a claim against the asset can instead be
made against the new one. “With the help of [tracing] rules,
the victim of a robbery, for example, will likely obtain the car
that the robber used stolen money to buy.” Luis v. United
States, 578 U.S. 5, 22 (2016). But tracing presupposes
ownership; it does not identify any legal rule for establishing
ownership, or even require that ownership be shown. The
majority’s holding that the relevant funds may be attached so
long as they are “traceable to Taif,” supra at 15, stops short of
specifying any rule of decision to substitute for U.C.C. Article
4A in providing the statutorily required showing of ownership
under Heiser.
Specifying only the tracing approach creates needless
uncertainty. As we observed in Heiser, “[t]he blocking
regulations cast a wide net,” and are “not based on legal
ownership.” 735 F.3d at 936. The fact that the government has
blocked funds is not itself assurance that the funds are or were
2
owned by terrorists. Victims of terrorism seeking to attach
OFAC blocked electronic funds must also show the funds can
be traced to a terrorist owner, id. at 941, a showing the
government itself need not make prior to the blocking.
The court’s opinion helpfully limits its tracing-based
TRIA rule to circumstances in which “no intermediary or
upstream bank asserts an interest as an innocent third party,”
supra at 15. But it does not explain the legal basis of that
limitation. And it leaves unclear, for example, whether a bank
could make such an assertion after the TRIA plaintiffs had
recovered against the property. We must avoid a rule that
“risks punishing innocent third parties”—the result Heiser read
TRIA to prevent. 735 F.3d at 939 (citing cases establishing
that we strictly construe attachment statutes to protect innocent
parties).
In a case in which the tracing rule alone does not eliminate
such risk, an apt federal rule of decision was presented to us:
the application of common-law ownership and agency
principles in lieu of the U.C.C. Article 4A-based rule applied
in Heiser. See Owens Appellants’ Br. 36-40. The relevant
TRIA provision seeks to hold terrorist parties accountable by
subjecting their assets to attachment. Treating banks
effectuating EFTs as agents rather than owners in this context
would ensure that even in financial transactions like EFTs that
are designed to be quick and difficult to interrupt, that design
does not defeat the ability of TRIA claimants to reach funds
during terrorist-initiated EFTs that the blocking regime
succeeds in interrupting. This rule would allow the law to keep
its eye on the ball as Congress plainly intended: The banks are
just the tools for carrying out the transaction. Whether it is
transferred by EFT or some more traditional means like a
check, property in a transaction that a terrorist party funds,
3
initiates, and primarily benefits from is appropriately subject to
claims under TRIA.
The logic of this approach echoes the common law’s
treatment of certain banking relationships in the decades before
the U.C.C. added specialized treatment of electronic fund
transfers. In Commercial National Bank v. Armstrong, for
example, the Supreme Court recognized that “the relation
created between the banks as to [a check to be cashed] was that
of principal and agent,” which created a “trust obligation” over
the funds to be transferred and permitted those funds to be
“specifically trac[ed]” back to the principal’s rightful
ownership. 148 U.S. 50, 56 (1893). Because of that agency
relationship,
[w]hether it be said that such funds are
specifically traceable in the possession of the
subagent, or that the agent has never reduced
those funds to possession, or put itself in a
position where it could rightfully claim that it
has changed the relation of agent to that of
debtor, the result [was] the same.
Id. at 57. The result was that traceable funds intended as cash
payment on that check belonged to the principal, rather than the
agent bank, even if those funds were stopped mid-transfer. Id.
at 57-58; see also, e.g., City of Miami v. First Nat. Bank, 58
F.2d 561 (5th Cir. 1932).
Under that approach, for purposes of TRIA § 201,
plaintiffs must establish not only that funds have been blocked
based on “any interest” that a terrorist party may have in them,
50 U.S.C. § 1702(a)(1)(B), but also that the funds are owned
by the terrorist—not by an innocent EFT initiator, see Heiser,
735 F.3d at 936, or other innocent party. Any bank
4
downstream from a terrorist party originator of an EFT, for
example, is not treated as owner of the funds, as it would be
under U.C.C. Article 4A. Rather, under general common law
rules applicable to non-EFT money transfers, it would be
treated as an agent or subagent of the originator-owner. Here,
Taif was the owner of the funds it asked Holman Fenwick to
electronically transfer, and for current purposes it thus retained
ownership of the contested funds, even as the funds passed
through the hands of its agents and subagents until they were
frozen in Wells Fargo’s possession. Thus, applying common
law ownership and agency principles would treat Taif—and
only Taif—as holding an ownership interest in the blocked
funds.
I therefore concur in reversing the district court’s
determination that the blocked funds were not “of” a terrorist
party. Supra at 15. I write separately to emphasize that, in my
view, tracing alone is a conceptually incomplete rule of
decision. But I do not take the court’s tracing approach to be
inconsistent with additional reliance on a federal rule based on
common-law ownership and agency principles—to the extent
it might be needed in future litigation—to harmonize today’s
decision with Heiser and reduce legal uncertainty for innocent
owners and third parties like Wells Fargo.