Velasco v. Government of Indonesia

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
GEORGE VELASCO, 
Plaintiff-Appellant,
v.
THE GOVERNMENT OF INDONESIA, a
foreign state; THE NATIONAL DEFENSE
SECURITY COUNCIL OF THE
REPUBLIC OF INDONESIA-JAKARTA, an
agency or instrumentality of a
foreign state; H.A. CHALID
MAWARDI, Ambassador Republic of
Indonesia, in his official capacity;
IBNU HARTOMO IN HIS OFFICIAL
CAPACITY FOR THE NATIONAL DEFENSE
SECURITY COUNCIL OF THE
REPUBLIC OF INDONESIA-JAKARTA,
Defendants-Appellees,  No. 02-1980
and
JOHN DOES, 1 through 5, in their
official capacities as Agents and
Agencies of the Government of
Indonesia; ABC CORPORATIONS, 1
through 5, in their official capacities
as Agents and Agencies of the
Government of Indonesia; DEF
PARTNERSHIPS, in their official
capacities as Agents and Agencies
of the Government of Indonesia;
LMN ASSOCIATIONS, in their official
capacities as Agents and Agencies
of the Government of Indonesia;

2 VELASCO v. THE GOVERNMENT OF INDONESIA
XYZ GOVERNMENTAL AGENCIES, in 
their official capacities as Agents
and Agencies of the Government of 
Indonesia,
Defendants.

Appeal from the United States District Court
for the Eastern District of North Carolina, at Raleigh.
W. Earl Britt, Senior District Judge.
(CA-00-378)
Argued: December 4, 2003
Decided: June 3, 2004
Before WILKINS, Chief Judge, TRAXLER, Circuit Judge,
and Richard D. BENNETT, United States District Judge
for the District of Maryland, sitting by designation.
Affirmed by published opinion. District Judge Bennett wrote the
opinion, in which Chief Judge Wilkins and Judge Traxler joined.
COUNSEL
ARGUED: Clinton Louis Rudisill, RUDISILL & ASSOCIATES,
P.A., Fayetteville, North Carolina, for Appellant. Francis Anthony
Vasquez, Jr., WHITE & CASE, L.L.P., Washington, D.C., for Appel-
lees. ON BRIEF: Carolyn B. Lamm, Frank Panopoulos, Nicole Erb,
WHITE & CASE, L.L.P., Washington, D.C., for Appellees.
VELASCO v. THE GOVERNMENT OF INDONESIA 3
OPINION
BENNETT, District Judge:
The Plaintiff, George Velasco, brought this action to compel the
payment of a promissory note (the "Promissory Note" or "Note"),
issued by former staff members of the National Defense Security
Council of the Republic of Indonesia ("NDSC") in the amount of
US$2.8 million, against the NDSC, the Government of Indonesia,
H.A. Chalid Mawardi, Indonesia’s former Ambassador to Syria, for-
mer NDSC official Ibnu Hartomo, and various other unnamed gov-
ernment officials and agencies, all in their official capacities
(collectively, the "Defendants"). The District Court entered an Order
granting the Defendants’ Motion to Dismiss for lack of subject matter
jurisdiction under the Foreign Sovereign Immunities Act ("FSIA"), 28
U.S.C. §§ 1330, 1332(a), 1391(f), 1441(d), and 1602-1611. The
Plaintiff appeals that Order. Finding no reversible error, we affirm the
decision of the District Court.
I. Facts
On October 27, 1985, former NDSC Deputies for Development
and Long-Term Planning, Ibnu Hartomo and Soebagyo Soedewo,
issued a series of 505 Indonesian promissory notes collectively valued
at US$3.2 billion. The notes bear the crest of the NDSC and are pay-
able in U.S. Dollars to the "Central Establishment for Trade and
Investment — Beirut and or their Bearer" in "New York." Hartomo
utilized the offices of the Syrian Government to validate and effect
the issuance of the notes.1 At a signing ceremony at a hotel in Damas-
cus, Syria, attended by the President of the Central Bank of Syria,
Hartomo signed the notes, and Mawardi certified that they were "Of-
ficial/Governmental." A representative of the Syrian Ministry of For-
eign Affairs notarized Mawardi’s signature on the notes. The Central
1
Two other actions brought by holders of promissory notes set forth
essentially the same factual background of this case. See Phaneuf v.
Republic of Indonesia, 106 F.3d 302 (9th Cir. 1997); Storr v. Nat’l Def.
Sec. Council of the Republic of Indonesia, No. 95 CIV 9663, 1997 WL
633405, at *1 (S.D.N.Y. Oct. 14, 1997), aff’d, 164 F.3d 619 (2d Cir.
1998).
4 VELASCO v. THE GOVERNMENT OF INDONESIA
Establishment for Trade and Investment then indorsed the notes, ren-
dering them bearer in form. Thereafter, Hartomo exchanged the notes
for notes issued by Hassan Zubaidi, a Syrian-based "financier."
Zubaidi placed some of the notes in the international market.
Hartomo admitted that at the time he issued the notes, he knew he
was not authorized to do so. The former NDSC Secretary General,
Achmad Wiranatakusumah, declared that two "letters of authoriza-
tion" purportedly signed by him and empowering Hartomo and
Soedewo to issue the instruments on behalf of the NDSC were for-
geries. Similarly, Ambassador Mawardi had not received an express
delegation of authority from the Ministry of Finance or the Depart-
ment of Foreign Affairs and, therefore, lacked the authority to con-
firm or legalize the notes.2 The notes themselves contain numerous
facial irregularities and are distinguishable from notes issued by Bank
Indonesia or the Indonesian Ministry of Finance, the only agents
under Indonesian law with authority to issue promissory notes bind-
ing on the Government. Among other things, the notes lack a state-
ment that they were issued under the authority of those entities, fail
to designate a specific payment agent, place of payment, or exact
amount and method of repayment, and omit other key terms.
In late 1985, the NDSC became aware of reports that the notes
2
Under Indonesian law, an Ambassador does not have the inherent
power to execute a loan or other financial instrument to receive foreign
credit on behalf of the Republic of Indonesia. An ambassador must
request and receive clearance from an interdepartmental committee
established to review foreign financial credits. Upon receipt of such
clearance, the Minister of Foreign Affairs issues "Full Powers" to the
Ambassador. In cases where the Ambassador seeks authorization to exe-
cute a foreign credit under Presidential Decree No. 59/1972, the Minister
of Finance must transmit a specific written delegation of authority to the
Minister of Foreign Affairs. See Anwar Aff. at 2, JA 498.
Mawardi’s attempted confirmation of the notes as "offi-
cial/governmental" was meaningless and contrary to Indonesian law with
respect to the legalization of Government documents. A document is
legalized by the Department of Justice and the Department of Foreign
Affairs by punching a hole through it, attaching a ribbon, and placing a
hot wax seal on it to prevent alteration. Id. at 3, JA 499.
VELASCO v. THE GOVERNMENT OF INDONESIA 5
were in circulation. On December 20, 1985, the Ministry of Finance
issued a letter to certain Government ministerial departments alerting
them of the alleged NDSC promissory notes, advising them that only
the Ministry of Finance and Bank Indonesia are authorized to obtain
foreign loans on behalf of the Republic of Indonesia, and requesting
an investigation into the matter. The Ministry of Finance and Bank
Indonesia determined that the purported NDSC notes were not issued
in accordance with Indonesian law and, therefore, were not binding
on the Republic of Indonesia. On January 21, 1986, the NDSC Secre-
tary General sent a confidential memorandum to the Governor of
Bank Indonesia stating that the NDSC had no authority to issue prom-
issory notes and that it did not and could not authorize any NDSC
official, including Hartomo and Soedewo, to issue any promissory
notes.
The Secretary General requested Bank Indonesia to issue notices
announcing that the purported NDSC notes were void and invalid. On
January 21, 1986, February 4, 1986, and March 2, 1987, Bank Indo-
nesia issued circulars by telex alerting all foreign-exchange banks in
Jakarta, Bank Indonesia’s branch offices, and Bank Indonesia’s Rep-
resentative Offices worldwide of the unauthorized notes and advising
them the issuance of such notes was conducted at the risk and respon-
sibility of the individual issuers. On March 14, 1986, Hartomo was
discharged from his position at the NDSC. On April 30, 1987, the
NDSC issued a press release confirming that it was not authorized to
issue promissory notes and that the purported NDSC notes were unau-
thorized and illegal. Subsequently, the international press, including
the New York Times, the Asian Wall Street Journal, and Forbes Mag-
azine, reported widely on the fake notes and Bank Indonesia’s
repeated repudiation of them. It is undisputed that these events
occurred prior to the time Velasco purchased his Note.
Velasco purchased his Note in Panama on September 14, 1987
from Patrizion Bucciarelli, an Italian businessman, for US$1.8 million
and approximately $300,000 in antique gold coins. When he pre-
sented the Note for payment at Banaico Bank in Panama City on
November 16, 1987, one day after the Note’s maturity date, the bank
informed him that Indonesia refused payment. Velasco presented the
Note for payment on subsequent occasions at the Offices of the Indo-
6 VELASCO v. THE GOVERNMENT OF INDONESIA
nesian Consulate General, which informed him that the Note was
unauthorized and not payable.
Velasco subsequently sued to enforce payment on the Note. His
Amended Complaint states claims for fraud, negligent misrepresenta-
tion, unfair and deceptive trade practices, and breach of contract and
demands specific performance as well as monetary damages. The
Defendants moved to dismiss for lack of subject matter and personal
jurisdiction, improper venue, insufficient service of process, and fail-
ure to state a claim upon which relief could be granted. The District
Court held that the Plaintiff failed to prove that any former staff mem-
bers of the NDSC had either actual or apparent authority to issue the
Note. Accordingly, the Court held that the acts of the NDSC with
respect to the issuance of the Note were not the acts of a foreign state
and that the "commercial activity" exception to the FSIA did not
apply. The District Court determined the Defendants to be immune
from suit pursuant to the FSIA and granted the motion to dismiss for
lack of subject matter jurisdiction without reaching the Defendants’
alternate bases for dismissal. Velasco contends that the District Court
erred in ruling that the acts of the Defendants in conjunction with the
issuance of the Note did not constitute "commercial activity of a for-
eign state" which abrogates sovereign immunity under the FSIA.
II. Analysis
A.
The FSIA provides the sole source of subject matter jurisdiction in
suits against a foreign state. Argentine Republic v. Amerada Hess
Shipping Corp., 488 U.S. 428, 434-39 (1989). Section 1330(a) of
Title 28, United States Code provides that
[t]he district courts shall have original jurisdiction without
regard to amount in controversy of any nonjury civil action
against a foreign state . . . as to any claim for relief in perso-
nam with respect to which the foreign state is not entitled to
immunity under sections 1605-1607 of this title or under
any applicable international agreement.
VELASCO v. THE GOVERNMENT OF INDONESIA 7
Section 1604 of Title 28 provides that "[s]ubject to existing interna-
tional agreements to which the United States [was] a party at the time
of enactment of [the] Act[,] a foreign state shall be immune from the
jurisdiction of the courts of the United States and of the States except
as provided in sections 1605 to 1607 of this chapter." These provi-
sions condition the subject matter jurisdiction of the federal and state
courts upon the existence of one of the exceptions to immunity set
forth in the FSIA. Amerada Hess, 488 U.S. at 434; Schlumberger
Indus., Inc. v. Nat’l Sur. Corp., 36 F.3d 1274, 1279 n.10 (4th Cir.
1994); Security Pacific Nat’l Bank v. Derderian, 872 F.2d 281, 284
(9th Cir. 1989). Once a plaintiff offers evidence that an exception to
immunity applies, the defendant bears the burden of proving by a pre-
ponderance of the evidence that the exception does not apply. Gerd-
ing v. Republic of France, 943 F.2d 521, 524 (4th Cir. 1991); see also
Randolph v. Budget Rent-A-Car, 97 F.3d 319, 324 (9th Cir. 1996).
Velasco and the Defendants agree that the sole exception pertinent
to this case is the "commercial activity" exception set forth at 28
U.S.C. § 1605(a)(2), which provides that a foreign state shall not be
immune in any action
based upon a commercial activity carried on in the United
States by the foreign state; or upon an act performed in the
United States in connection with a commercial activity of
the foreign state elsewhere; or upon an act outside the terri-
tory of the United States in connection with a commercial
activity of the foreign state elsewhere and that act causes a
direct effect in the United States.
28 U.S.C. § 1605(a)(2). The Defendants apparently do not contest that
the issuance of the Note was a commercial activity that caused a
direct effect in the United States. Rather, they argue that the issuance
of the Note was not a commercial activity of a foreign state. We must
determine, therefore, whether the unauthorized acts of Hartomo and
Mawardi in issuing the notes under color of authority from the NDSC
are sufficient to deprive the Government of Indonesia or the NDSC
of their sovereign immunity.
B.
Generally, when a defendant challenges subject matter jurisdiction
via a Rule 12(b)(1) motion to dismiss, the district court may regard
8 VELASCO v. THE GOVERNMENT OF INDONESIA
the pleadings as mere evidence on the issue and may consider evi-
dence outside the pleadings without converting the proceeding to one
for summary judgment. Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir.
1982); Evans v. B.F. Perkins Co., 166 F.3d 142, 147 (4th Cir. 1999).
"Where the motion to dismiss is based on a claim of foreign sovereign
immunity, which provides protection from suit and not merely a
defense to liability, . . . the court must engage in sufficient pretrial
factual and legal determinations to ‘satisfy itself of its authority to
hear the case before trial.’" Jungquist v. Sheikh Sultan Bin Khalifa Al
Nahyan, 115 F.3d 1020, 1027-28 (D.C. Cir. 1997) (quoting Foremost-
McKesson v. Islamic Republic of Iran, 905 F.2d 438, 449 (D.C. Cir.
1990)(internal quotation omitted)). We review the district court’s fac-
tual findings with respect to jurisdiction for clear error and the legal
conclusion that flows therefrom de novo. Id. at 1028; Filetech S.A. v.
France Telecom S.A., 157 F.3d 922, 930 (2d Cir. 1998).
C.
Under the FSIA, the term "foreign state" is defined to include "a
political subdivision of a foreign state or an agency of instrumentality
of a foreign state." 28 U.S.C. § 1603(a). An "agency or instrumental-
ity of a foreign state" is in turn defined as
any entity (1) which is a separate legal person, corporate or
otherwise, and (2) which is an organ of a foreign state or
political subdivision thereof, and (3) which is neither a citi-
zen of a State of the United States . . . nor created under the
laws of any third country.
28 U.S.C. § 1603(b). The Government of Indonesia and the NDSC
are "foreign states" within the meaning of the FSIA. Phaneuf, 106
F.3d at 306 n.1; Storr, 1997 WL 633405, at *2 n.2.
Although the statute is silent on the subject, courts have construed
foreign sovereign immunity to extend to an individual acting in his
official capacity on behalf of a foreign state. See, e.g., Chuidian v.
Philippine Nat’l Bank, 912 F.2d 1095, 1101-03 (9th Cir. 1990) (inter-
preting section 1603(b) to include individuals sued in their official
capacity); In re Estate of Ferdinand E. Marcos Human Rights Litiga-
tion, 978 F.2d 493, 496 (9th Cir. 1992), cert. denied, Marcos-
VELASCO v. THE GOVERNMENT OF INDONESIA 9
Manotoc v. Trajano, 508 U.S. 972 (1993) (same); El-Fadl v. Central
Bank of Jordan, 75 F.3d 668, 671 (D.C. Cir. 1996) (individual sued
for actions on behalf of government bank was immune from suit
under FSIA); Byrd v. Corporacion Forestal y Industrial de Olancho
S.A., 182 F.3d 380, 388 (5th Cir. 1999) (FSIA protects individuals
acting within their official capacity as officers of corporations consid-
ered foreign sovereigns); Bryks v. Canadian Broadcasting Corp., 906
F. Supp. 204, 210 (S.D.N.Y. 1995) (immunity extends to agents of a
foreign state acting in their official capacities). Claims against the
individual in his official capacity are the practical equivalent of
claims against the foreign state. Chuidian, 912 F.2d at 1101. The
FSIA, however, does not immunize an official who acts beyond the
scope of his authority. Id. at 1106.
This narrow, judicially-created expansion of foreign sovereign
immunity models federal common law relating to derivative U.S. sov-
ereign immunity. See Butters v. Vance Int’l, Inc., 225 F.3d 462, 466
(4th Cir. 2000) (acknowledging Fifth Circuit’s analogy of derivative
foreign sovereign immunity to "well-settled law that contractors and
common law agents acting within the scope of their employment for
the United States have derivative sovereign immunity"); Chuidian,
912 F.2d at 1106 (comparing foreign sovereign immunity to U.S. sov-
ereign immunity). Because the power of governmental officials is
both prescribed and limited by constitutional or statutory law, courts
analyzing the sovereign immunity of the United States have held con-
sistently that the act of an agent beyond what he is legally empowered
to do is not binding upon the government. See, e.g., The Floyd Accep-
tances, 7 U.S. 666, 681 (1869) (Government could not be compelled
to accept bills of exchange issued by Secretary of War where there
was no statutory authority for their issuance); Larson v. Domestic &
Foreign Commerce Corp., 337 U.S. 682, 689 (1949)("[W]here the
officer’s powers are limited by statute, his actions beyond those limi-
tations are considered individual and not sovereign actions. The offi-
cer is not doing the business which the sovereign has empowered him
to do or he is doing it in a way which the sovereign has forbidden.").
Moreover, courts have imposed an affirmative obligation upon a
person transacting business with an agent of the United States to
determine whether the agent is vested with authority to bind the Gov-
ernment. See, e.g., The Floyd Acceptances, 74 U.S. at 676 (purchaser
10 VELASCO v. THE GOVERNMENT OF INDONESIA
of commercial paper issued by a government official which purports
to bind the government has an affirmative obligation to determine
whether the agent has express authority to bind the government); Fed.
Crop Ins. Corp. v. Merrill, 332 U.S. 380, 383-84 (1947) ("[A]nyone
entering into an arrangement with the Government takes the risk of
having accurately ascertained that he who purports to act for the Gov-
ernment stays within the bounds of his authority."); Atlantic Tobacco
Co. v. United States, 249 F. Supp. 661, 663 (D.S.C. 1966) ("In deal-
ings with the government, unlike those with private parties, one is
charged with knowledge of the extent of the actual authority of the
government’s contracting agent since no agent . . . can hold out to
have any authority not sanctioned by law . . . ."). It is insufficient that
the person dealing with the agent believes the agent has authority.
United States v. Vanhorn, 20 F.3d 104, 112 n.19 (4th Cir. 1994) (oral
representations by government officer cannot modify statutory con-
tract); Doe v. Civiletti, 635 F.2d 88,96 (2d Cir. 1980) ("In spite of its
rigor, the actual authority doctrine has been scrupulously followed.").
The Ninth Circuit, in Phaneuf, specifically held that "an agent must
have acted with actual authority in order to invoke the commercial
activity exception against a foreign state." 106 F.3d at 308. We
acknowledge that the Second Circuit has taken a different view. It has
held, without substantial explanation, that jurisdiction exists over a
foreign state if its agents act with either actual or apparent authority.
See First Fidelity Bank, N.A. v. Government of Antigua & Barbuda
— Permanent Mission, 877 F.2d 189, 194-96 (2d Cir. 1989); Storr,
1997 WL 633405, at *2-3. Whether a third party reasonably perceives
that the sovereign has empowered its agent to engage in a transaction,
however, is irrelevant if the sovereign’s constitution or laws proscribe
or do not authorize the agent’s conduct and the third party fails to
make a proper inquiry. We conclude that a foreign official’s manifes-
tation of authority to bind the sovereign is insufficient to bind the sover-
eign.3
3
Even if the apparent authority doctrine were to apply in this case,
Velasco would not be entitled to relief. Apparent authority depends upon
some conduct by the principal, communicated to a third party, that rea-
sonably causes the third party to believe that the agent has authority to
conduct a particular transaction. See Reiss v. Societe Centrale du Groupe
des Assurances Nationales, 235 F.3d 738, 748 (2d Cir. 2000); Restate-
VELASCO v. THE GOVERNMENT OF INDONESIA 11
In light of the above authority, we concur with the position of the
Ninth Circuit and hold that the commercial activity exception may be
invoked against a foreign state only when its officials have actual
authority. See In re Estate of Ferdinand E. Marcos Human Rights Lit-
igation, 978 F.2d at 497; Phaneuf, 106 F.3d at 308. We turn, then, to
the question of whether Hartomo and Mawardi possessed actual
authority to issue Velasco’s Note to determine whether they acted in
their official, as opposed to their individual, capacities.4
D.
The District Court found that Velasco failed to produce "evidence
that the individual defendants or some other governmental agent had
the authority of the Government to issue the Note." JA 508-509. That
finding was not clearly erroneous. The Defendants have offered
extensive affidavits and supporting documentation that the individual
Defendants had no authority to issue the Note. The Defendants having
established a prima facie case of immunity, "the burden of production
ment (Second) of Agency § 27. The Government of Indonesia never rep-
resented to third parties that Hartomo and Mawardi were authorized to
issue the promissory notes and publicly and repeatedly repudiated the
notes after it discovered that they had been issued. See Storr, 1997 WL
633405, at *3 (finding that the transaction involving the issuance of the
promissory notes satisfied none of the requirements of a finding of
apparent authority). Rather, the indicia of authority, such as the signing
ceremony in Damascus and the papers purporting to document the trans-
action, were created by the makers of the notes. It is well-established that
an agent may not create his own apparent authority. Auvil v. Grafton
Homes, Inc., 92 F.3d 226, 230 (4th Cir. 1996).
4
As the Ninth Circuit did in Phaneuf, we distinguish the issue here
from Velasco’s argument pursuant to First Nat’l City Bank v. Banco
Para el Comercio Exterior de Cuba (Bancec), 462 U.S. 611 (1983), that
the NDSC is the alter-ego of the Government of Indonesia. "Our concern
. . . is not the level of control a foreign state must exercise over an
agency before we will attribute the misdeeds of the agency to the foreign
state. Rather, we focus on whether the action of an agent that exceeds the
scope of his authority should be attributable to the foreign state."
Phaneuf, 106 F.3d at 307 n.3.
12 VELASCO v. THE GOVERNMENT OF INDONESIA
shifts to the plaintiff to offer evidence that an exception applies."
Phaneuf, 106 F.3d at 307. Velasco failed to meet this burden.
Velasco’s reliance on two "letters of authorization" purportedly
executed by the NDSC Secretary General, Achmad Wiranatakusu-
mah, empowering Hartomo and Soedewo to issue and sign promis-
sory notes for loans in United States currency and to handle business
transactions on behalf of the NDSC is undermined by Wiranatakusu-
mah’s Declarations of May 6, 1995 and December 19, 1997 that he
never signed those documents. Had Hartomo actually received the
purported authorization, it would have been meaningless, because the
NDSC and the Secretary General have no authority to seek or obtain
funding from foreign sources. See Storr, 1997 WL 633405, at *2
("Plaintiff’s unsupported argument that the signers of the notes had
been authorized to do so by the Secretary General of the NDSC, even
if true, is unavailing, as the Secretary General himself lacked any
legal authority to approve such an issuance.").
The NDSC was established by Presidential Decree as an advisory
board to assist the President in determining national security and
defense policy. Law on Defense No. 20/1982; Pres. Decree No.
51/1970. One of the functions of the NDSC is to "conduct studies on
national resilience from the aspect of national security." The operat-
ing expenses of the NDSC are funded entirely from the State budget,
and the NDSC, as a "non-departmental government institution," is
prohibited from seeking or accepting offers of foreign credit.5 Pres.
Decree Nos. 51/1970, 59/1972. Pursuant to Indonesian law, only the
Ministry of Finance and Indonesia’s central bank, Bank Indonesia, are
authorized to incur debt from a foreign source on behalf of the Repub-
lic of Indonesia. See Pres. Decree No. 59/1972; Min. of Fin. Decree
No. KEP-261/M/IV/1973; Pres. Letter dated June 4, 1975.
5
Non-departmental governmental institutions are prohibited from seek-
ing or accepting foreign credits from sources other than international
agencies or the Intergovernmental Group on Indonesia. See Pres. Decree
No. 59/1972. A "foreign credit" is defined in part as "all loans which
give rise to an obligation to repay [funds] abroad in foreign currency . . .
based on the issuance of bonds [or] promissory notes." Min. of Fin.
Decree No. 261/1973. Velasco’s Note is clearly a foreign credit within
the meaning of Decree Nos. 261/1973 and 59/1972, because it is payable
in "New York" in U.S. Dollars.
VELASCO v. THE GOVERNMENT OF INDONESIA 13
In addition, pursuant to Presidential Decree No. 17/1978, the Min-
istry of Finance is the only agency authorized to issue promissory
notes on behalf of the Republic of Indonesia in connection with bor-
rowing from foreign sources. However, the Minister of Finance may
delegate authority to execute such loan transactions. "Where a trans-
action may involve both a commercial loan and the issuance of notes,
in practice, the Minister of Finance grants a power of attorney to
Bank Indonesia to execute the document." Gautama Op. at 9, JA 95.
The approval of the Minister of Finance is a condition to the validity
and enforceability of the foreign credit. Id. at 9-10, JA 95-96. Because
the NDSC is prohibited as a matter of Indonesian law from obtaining
foreign credits by issuing promissory notes, the Minister of Finance
cannot delegate his authority to the NDSC. Similarly, because the
NDSC did not have the authority to issue Velasco’s Note, it could not
delegate any authority to Hartomo.
Unlike employees of the NDSC, Ambassadors may in certain cir-
cumstances engage in foreign loan or commercial transactions on
behalf of the Government of Indonesia. Haryono Decl. at 1-2, JA 225-
26. However, Ambassador Mawardi, who never obtained a power of
attorney from the Ministry of Finance or "Full Powers" from the
Department of Foreign Affairs, lacked the authority to confirm or
legalize the notes. His actions at the signing ceremony in Damascus
were ultra vires and not binding on the Government of Indonesia. See
id. at 2, JA 226 ("If an ambassador signs a loan document without
obtaining "Full Powers," he signs on behalf of himself. He could not
bind the Republic of Indonesia.").
By issuing the notes, the individual Defendants acted ultra vires
and in violation of Indonesian law. As a consequence, the issuance of
the notes cannot be characterized as the commercial activity of a for-
eign state which divests the NDSC or the Government of Indonesia
of their sovereign immunity. Because Velasco did not sue the individ-
ual Defendants in their individual capacities, but rather sued Hartomo
and Mawardi in their official capacities, the District Court properly
dismissed the claims.
E.
Velasco’s remaining arguments that the Government of Indonesia
either ratified the transaction involving the promissory notes after
14 VELASCO v. THE GOVERNMENT OF INDONESIA
their issuance or is estopped from denying agency by its failure to
take reasonable steps to notify others or to cancel the notes, if not
waived by his failure to raise them below, are unsupported by the
record. The evidence establishes that the Government of Indonesia
publicly and repeatedly declared the notes invalid through Bank Indo-
nesia’s issuance of circulars, which conformed with the bank’s cus-
tomary practice, and the NDSC’s own April 30, 1987 press release.
A proper inquiry by Velasco prior to his purchase of the Note on Sep-
tember 14, 1987 would have revealed that the Note was invalid, par-
ticularly in light of the press reports disclosing the prosecutions of
persons involved in schemes to sell the fraudulent notes and Bank
Indonesia’s repeated rejection of the notes. Ratification under Indone-
sian law requires a written act by a person with authority in the first
instance to perform the act. See Supp. Gautama Decl. ¶¶ 29-31, JA
407-09. Velasco has failed to offer any evidence that any Indonesian
official with actual authority to issue the notes, such as the President
or the Minister of Finance, manifested an intention to ratify the notes.
III. Conclusion
Because the Defendants are immune from suit under the FSIA and
the commercial activity exception does not apply, the District Court
properly dismissed the claims against the Defendants for lack of sub-
ject matter jurisdiction. Accordingly, the judgment is
AFFIRMED.