Legal Analyses written by Mike Meier, Attorney at Law. Copyright 2017 Mike Meier. www.internationallawinfo.com.

Legal Analyses written by Mike Meier, Attorney at Law. Copyright 2017 Mike Meier. www.internationallawinfo.com.

2001 International Law Update, Volume 7, Number 12 (December)

ECONOMIC SANCTIONS

On appeal of conviction under sanctions regulations against Iran, Fourth Circuit holds that prior conviction for same offense was admissible to show scienter and that such sanctions also apply to Iranian goods imported to U.S. through third countries

In February of 2000, officials at Dulles International Airport in Virginia stopped a shipment consisting of eighty-three carpets en route to a carpet distribution company operated by Zia Hassanzadeh. After an appraisal of the seized carpets, officials determined that sixty-one of the carpets had been made in Iran. He was initially charged and sentenced with aiding, abetting and illegally importing Iranian carpets in violation of 18 U.S.C. Sections 542 and 545.

While Hassanzadeh was in custody, an employee of his reportedly went to the warehouse facility and marked the remaining carpets as having been manufactured in Russia and Turkey. At the same time, he removed a tag from one carpet which identified it as of Iranian origin. The investigation also revealed that the individual who had shipped the carpets to the U.S. was located in Germany and happened to be Hassanzadeh’s brother. At a nonjury trial, Hassanzadeh was convicted of one count of knowingly importing Iranian products and a Virginia federal court sentenced him to 18 months in prison.

On appeal, Hassanzadeh argued that the district court had abused its discretion in admitting evidence of his 1997 conviction for importing Iranian carpets on the theory that the prejudicial impact of the evidence outweighed its probative value. The U.S. Court of Appeals for the Fourth Circuit, however, affirms the conviction and sentence.

“Hassanzadeh initially argues that knowledge is not an element of Section 545, eliminating the probative value of the evidence of his prior conviction. He is wrong, Section 545 prohibits anyone from ‘knowingly and willfully, with intent to defraud the United States, smuggling¼any merchandise which should have been invoiced’ or ‘fraudulently or knowingly importing or bringing into the United States, any merchandise contrary to law’ or otherwise ‘facilitating’ smuggling ‘knowing’ that the smuggled goods were illegally imported.” Defendant also contended that the prejudicial impact of the 1997 conviction outweighed its probative value. According to Federal Rule of Evidence 404(b), “[e]vidence of a prior act is admissible if (1) relevant to an issue, such as an element of an offense, and not ... offered to establish the general character of the defendant, (2) necessary in the sense that it is probative of an essential claim or an element, (3) reliable, and (4) not so prejudicial that its prejudicial effect outweighs its probative value, in the sense that it tends to subordinate reason to emotion in the fact-finding process.” [Slip op. 6-7]

The Court writes that “Hassanzadeh’s prior conviction for importing carpets of Iranian origin is reliable and both relevant and necessary to establish knowledge, an element of the instant offense; indeed, evidence of the 1997 conviction is particularly salient because it involves a recent Section 545 offense identical to the one at issue here. Moreover, we have confidence that at the bench trial, the experienced district judge was able to separate the emotional impact from the probative value of this potentially prejudicial evidence.” [Slip op. 7]

Finally, the appellee argues three additional points with regard to the factors affecting his sentence. First, Hassanzadeh argues that the method of calculating the validity loss figure on which his offense level was based was erroneous. Second, the value assigned to the carpet was erroneous. Finally, the inclusion in the sentencing calculation of carpets made before the modern state of Iran came into existence in 1935 was erroneous.

On the first argument, the Court holds that Hassanzadeh was convicted of importing goods banned by Executive Order 12,613 and related federal regulations. The Order in question bans importation of goods from Iran so as to ensure that the United States does not contribute to the financial support of terrorism. Hassanzadeh argued, however, that the carpets were imported from a warehouse in Germany and not directly from Iran. The Court disagrees, noting that the Executive Order bars the importation of Iranian goods originating in countries other than Iran. The Court also finds that the district court did not err in fixing a value for the carpets.

Finally, Hassanzadeh argues that the lower court should not have included 42 carpets made before 1935 in the calculation of the loss amount for sentencing purposes. The Court rejects this notion. “The 1935 change of the country’s name from Persia to Iran does not¼bear the weight Hassanzadeh seeks to place on it¼[a] country study on Iran by the Federal Reserve Division of the Library of Congress, completed in 1987 – the same year in which the executive order was issued – refers to the country as ‘Iran,’ even when speaking of events long before 1935. Similarly, the State Department’s 1994 background note on the country calls the country Iran in describing its pre-1935 history.” [Slip op. 15].

Moreover, the regulatory definition of Iran defines the country as: “The territory of Iran, and any other territory or marine area, including the exclusive economic zone and continental shelf, over which the Government of Iran claims sovereignty, sovereign rights or jurisdiction, provided that the Government of Iran exercises partial or total de facto control over the area or derives a benefit from economic activity in the area pursuant to an international agreement.” [Slip op. 18]. See also 31 C.F.R. Section 560.303.

Citation: United States v. Hassanzadeh, No. 01-4155 (4th Cir. November 13, 2001).

FORUM NON CONVENIENS

Ninth Circuit vacates dismissals in litigation over failed joint venture for automobile tires in China for lower court to reconsider whether RICO claims do state a claim under Chinese law and to decide whether it should dismiss case under forum non conveniens doctrine

Orion Tire Corp., a California corporation, and China Tire Holdings Ltd. (CTHL), a Bermuda corporation with headquarters in Hong Kong, sought to enter into a joint venture with the Chinese government to manufacture automobile tires in China. The Chinese government later awarded the contract to Goodyear Tire and Rubber. CTHL and Orion sued Goodyear Tire and Rubber Company in a California federal court, invoking RICO and claiming trade libel. The District Court determined that California law governed Orion’s claims and Chinese law governed the RICO claim. It dismissed the claim for failure to state a claim under that law and based on the doctrine of forum non conveniens.

On plaintiffs’ appeals, the U.S. Court of Appeals for the Ninth Circuit reverses with regard to the state law trade libel/defamation, the intentional interference with prospective economic advantage causes of action and the RICO claim. It also vacates and remands with regards to the forum non conveniens dismissal.

The Court agrees with CTHL’s contention that the district court erred with respect to the RICO claim. It therefore vacates the dismissal and remands with instructions (1) to allow CTHL to amend its RICO claim, and (2) to determine whether the claim, as amended, supports the application of RICO under the relevant case law.

The Court concedes that the District Court properly assessed whether California or Chinese law governed the dispute. With regard to a federal statute, however, the court holds that the threshold question is legislative jurisdiction, that is, whether “Congress intended the statute in question to apply to conduct occurring outside of the United States. This is a question of statutory interpretation, not a question of choice of law. The district court therefore erred in dismissing CTHL’s RICO claim with prejudice, without making the appropriate statutory inquiry.” [Slip op. 8]

Goodyear, however, argued that, even after proper statutory analysis, the Court should affirm the dismissal of the RICO claim because any amendment would be futile. The Court is not persuaded. “Where counsel is able to posit possible amendments that would be consistent with the operative complaint and could also possibly state a claim for relief, the complaint should not be dismissed on its face with prejudice ... We are therefore unwilling to affirm the dismissal on the ground of futility at this stage. We leave to the district court on remand, after further discovery if necessary, the task of determining whether CTHL’s allegations and evidence support extraterritorial application of RICO under the facts of this case.” [Slip op. 11]

As to the dismissal of CTHL’s state law claims, Goodyear had initially argued that the District Court lacked diversity jurisdiction over CTHL’s state law claims and that the forum non conveniens dismissal was proper. The Court of Appeals holds that it would be improper to review such issues at this point.

“If CTHL’s RICO action goes forward on remand, there may be supplemental jurisdiction to decide CTHL’s state law claims as well, under 28 U.S.C. Section 1367, making determination of the novel issue of diversity jurisdiction raised by this case unnecessary. (Cits.) And since CTHL’s RICO action may prove viable and Orion’s state law causes of action can now proceed, the district court may well take a different view in balancing the factors pertinent to the forum non conveniens determination ... [W]e mean to state no view as to whether the RICO claim will be adequately repleaded on remand or whether the forum non conveniens analysis will necessarily reach a different result because of today’s rulings. We leave those issues for the district court to address in the first instance.” [Slip op. 17-19]

Citation: Orion Tire Corp., v. Goodyear Tire & Rubber Co., Inc., No. 99-56639 (9th Cir. October 18, 2001).

FORUM NON CONVENIENS

British Columbia Court of Appeal affirms lower court’s ruling that, despite pendency of parallel proceedings in California and B.C., latter jurisdiction had closest connection to issues and parties

Re-Con Building Products Inc., is a British Columbia corporation, all of whose assets are located in that Province. It exported virtually all of its roofing products to the United States, most of them to California. It had no Certificate of Qualification, however, that would give it the right to conduct intra-state business as California law required and it lacked both office and employees in that state. A number of parties injured by one of its allegedly defective products filed a class action suit for damages against Re-Con in the California courts in September 1999.

Under various policies, Western Union Insurance Company and the Nordic Insurance Company of Canada, Re-Con’s insurers, had agreed, inter alia, to defend claims for property damage caused by products made and marketed by Re-Con. The insurers were aware of Re-Con's sales to the United States. All discussions, negotiations, correspondence and representations in the original and subsequent renewals of the insurance policies took place in Vancouver.

On the other hand, the insurers were Canadian corporations which did not carry on any business in California and had no employees, offices, or agents in that state. They were also unenthusiastic about defending the class action, and made known this view to Re-Con. Re-Con then brought a declaratory judgment action (the coverage action) in California in December 1999, asking the court to determine that the insurance contracts with Re-Con imposed a duty upon the companies to defend the California class action.

In January 2000, the insurers then brought the present suit against Re-Con in the British Columbia courts for a declaration that the insurance policies with Re-Con were void ab initio. Re-Con then sought a declaration that the British Columbia court lacked jurisdiction over it or, in the alternative, for an order stating that the court would refuse to exercise any jurisdiction it might have over Re-Con.

The motions judge dismissed the application. He pointed out that parallel actions were pending in California and British Columbia and that each jurisdiction could reasonably claim to be a proper forum. British Columbia, however, was the more suitable jurisdiction in which to litigate the insurance issues. He also held that the fact that California was the situs of the first lawsuit was one factor to take into account but not the controlling element.

The motions judge later dismissed Re-Con’s application for leave to bring forth new evidence and for reconsideration. Meanwhile, the insurers went before the California court and asked for an order quashing service of the summons and complaint on them and staying the class action. The California court dismissed that application. Re-Con appealed the motion judge’s ruling in the British Columbia action which had dismissed its application. The British Columbia Court of Appeal dismisses Re-Con’s appeal.

The test for ascertaining the forum non conveniens when there are parallel proceedings in two appropriate jurisdictions is this: the appellate court must ask itself which of the two jurisdictions has the more real and substantial connection to the litigation and to the parties. There was quite a bit of evidence to support the motion judge's finding that British Columbia was that jurisdiction in this case. Further, the judge below correctly took into account the fact that the plaintiffs had filed the California action first, but treated that element as not conclusive. Finally the motions judge did not err in declining to rethink Re-Con’s application in light of the California court's refusal to grant a stay.

Citation: Western Union Insurance Co. v. Re-Con Building Products Inc., 205 D.L.R. (4th) 184 (B. C. Ct. App._ Sept. 12, 2001).

INTERNET

German High Court issues significant decision regarding interest in domain names, finding that Shell oil company may require individual named Shell not to use domain name “www.shell.de”

On November 22, 2001, the German High Court (Bundesgerichtshof, BGH) decided that the right to an internet domain name may be determined by balancing the opposing parties’ interests, with public interest factors.

The dispute before the Court involved the internet domain name “www.shell.de.” The German subsidiary of Shell, Deutsche Shell GmbH (hereinafter Deutsche Shell), tried to register the domain name in May 1996 and found out that another company had already registered it. The company routinely registers proprietary company names and later offers to sell those names to the companies concerned. Shell refused to buy the domain name from that company. The original registrant then transferred title to the domain name to an individual name “Andreas Shell” who runs a part-time translation and information business.

Deutsche Shell brought an action before the District Court in Munich (Landgericht Munchen) for an order that Andreas Shell stop using the domain name and transfer its ownership to Deutsche Shell. The District Court, and on appeal the State Supreme Court (Oberlandesgericht Munchen) agreed with Shell, finding that the defendant’s use of “www.shell.de” violated the right to use one’s name under Section 12 of the Civil Code (BGB). Based on Shell’s importance in the business world, anybody accessing that domain name would expect to find the Shell oil company, not the homepage of an unknown person called “Shell.”

On further appeal, the Civil Chamber of the German High Court basically agrees with the lower courts, finding that Deutsche Shell may require someone using an internet domain name incorporating its name to cease such use. The use of “www.shell.de” violates the right to use one’s name, even if it is for personal use (as in this case). The Court explains that such a domain name can only be given out once. The defendant appropriated that domain name, however, and thus deprived Deutsche Shell of the opportunity to inform the public about its company in a direct and simple way. Many users search for companies in the internet by looking at the domain name, assuming that the domain name reflects the company name.

An individual such as Mr. Shell in this case, however, may use his own name for an internet domain name. If several parties claim a right to use a specific domain name, then their respective interests must be weighed. To determine priority in such a case, the normal rule of justice is “first come, first served.” This applies even if one party is much better known than the others. Nor is it relevant whether the intended use is business or personal.

In this case, however, the parties’ respective interests and their importance is so strikingly different that the Court does not apply the “first come, first served” rule. If two parties have the same name, they should use an additional term to avoid confusion among internet users. In this case, there is the very well known trade name “Shell” and many internet users would expect to find that company’s website at “www.shell.de.” Friends and family of Mr. Andreas Shell, on the other hand, would not expect to find his personal homepage at “www.shell.de.”

Thus, Deutsche Shell may require the defendant to stop using that domain name. The prevailing party in this type of case, however, cannot require the ownership of a disputed domain name to be transferred to it because there may be a third party out there who has an even stronger interest in owning that name.

Citation: Bundesgerichtshof (BGH), I. Zivilsenat, Urteil vom 22. November 2001 - I ZR 138/99; Press Release “Mitteilung der Pressestelle Nr. 87/2001" (November 23, 2001).

INTERNET

Council of Europe opens international cybercrime convention for signature, twenty-six member states and four non-member states sign it, including Canada and the U.S.

On November 23, 2001, the Council of Europe opened the international Convention on Cybercrime (ETS No. 185) for signature. Twenty-six member states of the Council, and four non-member states (Canada, Japan, South Africa and the U.S.), signed the Convention that day at the Hungarian Parliament in Budapest. The Convention will enter into force once it has been ratified by five states, three of which must be states belonging to the Council of Europe.

The Convention provides an international framework for combating computer crimes, especially terrorist acts. It defines crimes committed through new technologies such as spreading viruses, virtual fraud and forgery, distribution of child pornography, and infringing intellectual property rights. It also provides methods for criminal investigations and prosecutions, and lays out methods for international cooperation and communication.

For example, Article 2 on Illegal access provides: “[e]ach Party shall adopt such legislative and other measures as may be necessary to establish as criminal offences under its domestic law, when committed intentionally, the access to the whole or any part of a computer system without right. A Party may require that the offence be committed by infringing security measures, with the intent of obtaining computer data or other dishonest intent, or in relation to a computer system that is connected to another computer system.”

With respect to System Interference, Article 5 states: “Each Party shall adopt such legislative and other measures as may be necessary to establish as criminal offences under its domestic law, when committed intentionally, the serious hindering without right of the functioning of a computer system by inputting, transmitting, damaging, deleting, deteriorating, altering or suppressing computer data.”

In Article 15, the Convention provides for Conditions and safeguards. Paragraph 1 of the Article, for instance, provides as follows: “Each Party shall ensure that the establishment, implementation and application of the powers and procedures provided for in this Section are subject to conditions and safeguards provided for under its domestic law, which shall provide for the adequate protection of human rights and liberties, including rights arising pursuant to obligations it has undertaken under the 1950 Council of Europe Convention for the Protection of Human Rights and Fundamental Freedoms, the 1966 United Nations International Covenant on Civil and Political Rights, and other applicable international human rights instruments, and which shall incorporate the principle of proportionality.”

Other general topics covered by the proposed Convention include: Title 2 - Computer-related offenses. Under this section, member states have to criminalize the intentional alteration or suppression of computer data for the purpose of procuring an undue economic benefit.

Title 3 - Offenses relating to child pornography. All Member States must make illegal the production and distribution of child pornography. The Convention defines “child pornography” as the depiction of minors (or persons appearing to be minors) taking part in sexually explicit conduct.

Title 4 - Offenses related to infringements of copyright and related rights. Title 4 requires the Member States to properly implement the 1971 Paris Act, the Bern Convention for the Protection of Literary and Artistic Works, the WTO agreement on the Trade-Related Aspects of Intellectual Property Rights (TRIPS), and the WIPO Copyright Treaty. There is a duty to criminalize any such willful copyright violations carried out on a commercial scale, and by means of a computer system.

Section 2, Title 4 - Search and seizure of stored computer data. Domestic law must authorize competent authorities in each Member State to search computer and data storage systems within its territory, and to “eavesdrop” on electronic data transfer (called “real-time collection of data”) (see Title 5, Articles 20 and 21).

Chapter III, Section 1, Title 1 - General principles relating to international co-operation. The Convention provides for mutual extradition of persons charged with computer-related offenses, as long as the charged crime is punishable in both countries with at least one year imprisonment. In general, the parties are to furnish mutual assistance to the widest extent possible, even in the absence of international assistance treaties.

In the future, the Council will add protocols to the Convention to adapt it to legal and technical developments. At this point, the Council has established a committee of experts to prepare a draft protocol that will criminalize racist and xenophobic propaganda sent out over computer networks.

Citation: Council of Europe Convention on Cybercrime, ETS No. 185; Council of Europe press release 893a(2001) (23 November 2001); text of Convention is available on website of Council of Europe at “www.coe.int.”

INTERNET

Citing First Amendment considerations, California federal court gives summary judgment to Yahoo! in dispute over French judicial restrictions on internet auction of Nazi materials

Yahoo! is a California based internet services provider with an international reach. Yahoo! web pages and services often include auctioneer services, and are available to anyone in a country that is able to access the Yahoo.com website. On April 5, 2000, La Ligue Contre Le Racisme et L'Antisemitisme of France (LICRA) sent a "cease and desist" letter to Yahoo!, alleging that the availability of Nazi and Third Reich-related memorabilia for sale on the Yahoo! website was offensive to French law. LICRA subsequently served Yahoo! with process in California and filed a civil suit against Yahoo! in French Court.

Agreeing with the argument advanced by LICRA, the French Court ordered Yahoo! to (1) eliminate access to any material on the Yahoo.com auction site which offered for sale any Nazi object; (2) eliminate the access of French citizens to web pages on Yahoo.com displaying text, extracts, or quotations from Hitler’s “Mein Kampf” and the so-called “Protocol of the Elders of Zion,” (3) post a warning to French citizens on Yahoo.fr (the Yahoo France link) that any search through Yahoo.com may lead to sites containing material prohibited by the pertinent section of the French Criminal Code, and that such viewing of the prohibited material may result in legal action against the French Internet user; and (4) remove from all browser directories accessible in the French Republic any index headings entitled "negationists" under the heading "Holocaust."

Additionally, the French Court held that it could retroactively apply damages of 100,000 Euros for each day that Yahoo! failed to comply with the order. In response, Yahoo! asked the French Court to reconsider the terms of the order, claiming that the posting of a warning on Yahoo.fr was the only method technologically possible for Yahoo! to comply with. The French Court reaffirmed its earlier decision upon hearing testimony from an expert witness.

Advancing the claim that the decision of the French Court impermissibly infringed upon its First Amendment rights under the U.S. Constitution, Yahoo! filed a complaint in a California federal court. It sought "...a declaratory judgment that the French Court's orders are neither cognizable nor enforceable under the laws of the United States." Defendant LICRA moved to dismiss on the grounds that the U.S. court lacked personal jurisdiction over them. The court denied the motion and Yahoo! now seeks summary judgment.

The court finds that although France reserves its right as a foreign sovereign to pass laws involving the permissibility of Nazi and Third Reich-related paraphernalia within its borders, the U.S. Court cannot force Yahoo! to comply with the judgment of the French Court without severely offending the First Amendment of the U.S. Constitution. The District Court found that it is inconsistent with the U.S. Constitution for another nation to regulate speech by a U.S. resident within the U.S. on the basis that such speech can be accessed by Internet users in the other nation. The court then gave summary judgment to the plaintiff.

Specifically, the District Court took issue with the broad and sweeping nature of phrases included in the French Court's decision. Particularly, the phrase: "...any other site or service that may be construed as an apology for Nazism or a contesting of Nazi crimes" does not provide Yahoo! with an appropriately definite warning as to what is proscribed. Moreover, wording such as "all necessary measures" creates an impermissible chilling effect for Yahoo!, as it asks the plaintiff to undertake efforts that may censor protected speech.

Defendants also argued that the Court should abstain, on the grounds that the issues raised are substantially the same as those the French court has actually decided. The U.S. court disagrees, however, finding that the plaintiff is not trying to relitigate the French court's application of French law or its orders concerning Yahoo!'s conduct within the borders of France. On the contrary, the purpose of the proceeding is to determine whether a U.S. court may enforce the French order without betraying the First Amendment.

Furthermore, the content of the French order is viewpoint-based and regulatory, aimed at the plaintiff’s web pages and auction site. Although the order is entitled to deference as an articulation of French law, its content would clearly clash with the First Amendment if mandated or ordered by a U.S. court. Therefore, when asked to enforce a foreign order that effectively chills protected speech that occurs simultaneously within American borders, the Court's obligation to uphold the First Amendment outweighs the interests of comity.

Finally, Yahoo! demonstrated the existence of (1) an actual controversy and (2) a real and immediate threat to its constitutional rights. In concentrating on the plaintiff's technological ability to implement the changes, the defendants have failed to show a genuine issue of material fact. The question of whether or not Yahoo! is technologically able to implement the changes set forth by the French Order is irrelevant, and the American court does not reach it.

Citation: Yahoo!, Inc. v. La Ligue Contre le Racisme et L’Antisemitisme, No. C-00-21275 JF (N.D. Ca., November 7, 2001).

SOVEREIGN IMMUNITY

D.C. Circuit affirms that federal courts have subject-matter jurisdiction over Iran under FSIA commercial activity exception, and that, based on Treaty of Amity, persons whose property was expropriated in Iran may seek damages

The following case involves McKesson HBOC, Inc. (hereinafter McKesson), a company that for many years contributed capital to an Iranian dairy by the name of Sherkat Sahami Labaniat Pasteurize Pak (hereinafter Pak Dairy). After the 1979 Islamic Revolution, McKesson gradually lost control of the company. Since pulling out the last two directors in October 1981, McKesson had no communication or compensation from Pak Dairy even though McKesson still owned a 31% interest in the company.

In 1982, McKesson along with its insurer, Overseas Private Investment Company, filed a suit in the U.S. District Court for the District of Columbia, alleging that the Republic of Iran had illegally expropriated McKesson’s interests in Pak Dairy. The case was transferred to the Iran-United States Claims Tribunal, which awarded McKesson $1,400,000. The company renewed the suit in federal court, however, arguing that Iran had expropriated the dividends after the Tribunal’s jurisdictional cut-off date. Iran argued that the case should be dismissed pursuant to the Foreign Sovereign Immunities Act (FSIA) [28 U.S.C. Sections 1602-1611]. The FSIA retains the immunity of foreign sovereigns, as well as their agents and instrumentalities, from federal court jurisdiction unless the case falls within one of several specified exceptions. McKesson argued, and the district court held, that jurisdiction over Iran exists pursuant to the FSIA’s exception for “any case ... in which the action is based upon a commercial activity ... of the foreign state ... that ... causes a direct effect in the United States.” See 28 U.S.C. Section 1605(a)(1) (commercial activity exception).

The district court awarded McKesson more than $20 million in compensation. Iran appealed, challenging the court’s jurisdiction, its liability for expropriation, and the valuation of McKesson’s assets. The U.S. Court of Appeals for the District of Columbia Circuit vacates and remands. The Court, however, does affirm important international aspects of the district court decision.

The Court finds that jurisdiction exists based on the FSIA’s “commercial activity” exception. Iran argues that even if the effects of the expropriation had a direct effect in the United States, the federal court still does not have jurisdiction over the disputed Pak Diary dividends that were payable in the U.S. In particular, Iran argues that in Kingdom of Saudi Arabia v. Nelson, 507 U.S. 349 (1993), the Supreme Court established an exclusionary principle under which no fact that could not have independently served as grounds for jurisdiction may serve as a basis for a foreign state’s liability, and second, that the “direct effects” exception to claims based on commercial transaction does not apply where, as here, the place of payment lies outside the United States. The Court agrees with the district court in this instance. The effect of Pak Diary’s cut-off of commercial ties included “the flow of capital, management personnel, engineering data, machinery, equipment, materials and packaging,” and the district court therefore appropriately considered the issue of the unpaid dividends in considering whether Iran had expropriated McKesson’s equity interest.

Iran further argued that Overseas Private Investment Company (OPIC) insured McKesson’s investment, a government instrumentality. Such a government entity is subject to the International Guaranty Agreement (IGA), which governs the resolution of claims against Iran to which it subrogated the U.S. and its instrumentalities. The IGA’s arbitration clause requires arbitration rather than litigation in such a dispute. According to McKesson, Iran had argued the case for nine years and never raised the arbitration clause, thus waiving the subject matter jurisdiction defense.

The Court holds that while the IGA may have an effect on the case maintained by OPIC’s case, it has no effect on the district court’s jurisdiction over McKesson’s case. Even though OPIC compensated McKesson for part of its loss, it still holds title to its equity in Pak Diary and the unpaid dividends. The general rule is that where an insured party holds title to confiscated property, the title holder is the appropriate party to bring a claim for compensation. McKesson’s recovery of a portion of its loss does not affect its claim for damages against Iran.

Finally, Iran argued that the district court had prematurely granted summary judgment on liability in McKesson’s favor. Disagreeing, the court writes that: “Iran first challenges the district court’s conclusion that an agreement between Iran and the United States, the 1955 Treaty of Amity, gave McKesson a right to recover its expropriated property. Although treaties are the ‘supreme law of the land,’ ... they provide no basis for private lawsuits unless implemented by appropriate legislation or intended to be self-executing. ... Iran does not dispute that the Treaty of Amity creates enforceable rights, but instead contends that its clause stating that ‘property of nationals and companies of either High Contracting Party, including interests in property, shall receive the most constant protection and security within the territories of the other High Contracting Parties’... only ... confers a right of action on an Iranian citizen in U.S. Court.” [Slip op. 14-16] The Court finds that such a limited interpretation conflicts with the Treaty’s ultimate purpose of protecting U.S. citizens.

The Court affirms the district court’s holding that federal courts have subject matter jurisdiction over Iran under the FSIA’s commercial activity exception, that the IGA does not preclude federal jurisdiction over McKesson’s claims, and that the Treaty of Amity gives McKesson a right to recover its expropriated property. The Court, however, reverses the grant of summary judgment on the issue of Iran’s liability for expropriating McKesson’s equity and remands for the district court to determine whether Iranian corporate law excused Pak Dairy’s withholding of dividends.

Citation: McKesson HBOC, Inc. v. Islamic Republic of Iran, No. 00-7157 (D.C. Cir. November 16, 2001).

TAXATION

In appeal by taxpayer who was being investigated by French tax authority, Fifth Circuit finds that IRS acted in good faith by providing assistance under U.S.-French double taxation treaty

Appellant Mazurek was the focus of an investigation by the French Tax Authority (FTA) concerning his civil liability for French taxes. As part of its investigation, the FTA requested that the IRS hand over Mazurek’s pertinent financial information, pursuant to the Convention Between the Government of the United States and the Government of the French Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Tax on Income (hereinafter “Treaty”). Mazurek challenged the FTA’s determination that he was a French resident, and alleged that the FTA could not request his financial information from the IRS until a final determination was reached regarding his residency status. He therefore filed a motion to quash the summons pursuant to I.R.C. Section 7609.

The district court found that an affidavit submitted by the Assistant IRS Commissioner, designated under the Treaty as the Competent Authority for the U.S., properly reviewed the FTA’s request and found it to be supported in the context of the Treaty. Furthermore, the district court held that Mazurek’s arguments were directed at matters of French law most fit to be resolved by French authorities. The district court entered judgment in favor of the IRS. Mazurek appealed.

The U.S. Court of Appeals for the Fifth Circuit affirms, ruling that the United States Internal Revenue Service (“IRS”) did not act in bad faith in turning over the financial records of a private citizen to the French Tax Authority (“FTA”). The Court found that the actions of the IRS squared with precedent and were authorized by the Treaty.

The Court finds that Mazurek failed to properly and accurately identify the controlling issue. It is not whether or not Mazurek was properly identified as a French resident, but rather whether or not the IRS acted in bad faith. The affidavit submitted by the Competent Authority for the U.S. properly established a prima facie case for the actions of the IRS. By failing to advance a claim that the IRS had abused judicial process by using the summons to harass, leverage, or pretextually develop a criminal case, Mazurek failed to address the issue and thus did not succeed in showing that the IRS had acted in bad faith.

United States v. Powell, 379 U.S. 48 (1964), set forth a four-pronged test to determine whether or not the government made out a prima facie case. The burden on the government to produce such a case is minimal. If the court finds that the government has met its slight burden, the analysis shifts to whether or not Mazurek has fulfilled his “heavy” burden of rebuttal, Thus the taxpayer must either (1) rebut the government’s contentions regarding any of the four prongs of Powell, or (2) show that enforcement of the summons at issue would result in abuse of the court’s process.

To qualify as a prima facie case under Powell, the government must show the following four factors: (1) that the investigation was conducted pursuant to a legitimate purpose; (2) that the inquiry is relevant to that purpose; (3) that the information sought is not already within the possession of the IRS; and (4) that the IRS has followed the administrative steps required by the Internal Revenue Code.

The affidavit submitted by the Assistant IRS Commissioner as a Competent Authority for the U.S. satisfied the last three Powell requirements. The IRS’s attempt to fulfill the obligations of the U.S. under the Treaty clearly satisfied the legitimate purpose requirement under the first Powell factor.

After the government established a prima facie case under Powell, the burden shifted to Mazurek. Mazurek, however, did not try to show that enforcement of the summons in the district court would create an abuse of the judicial process. Instead, Mazurek claimed that, since he was not a resident of France for the period of time involved in the FTA investigation and since there has been no final determination on this matter, any request for information covered by the investigation has no legitimate purpose.

The Court finds that Mazurek had misdirected his arguments. He mistakenly focused on the legitimacy of the FTA’s investigation, rather than on the legitimacy of the IRS’s compliance with the FTA’s request. Therefore, Mazurek failed to meet his burden of showing that the IRS had acted improperly.

Mazurek also advances a claim that permitting the FTA to obtain his financial records from the IRS while there had been no final determination on his residency status would allow the FTA to use the IRS in order to grant itself a broader authority than would otherwise be available. The Court relies upon a Supreme Court ruling in United States v. Stuart, 489 U.S. 353 (1989), to buttress its decision to end the inquiry at the determination of good faith.

Furthermore, the Court finds that the district court did not err in denying Mazurek an opportunity for discovery and a full evidentiary hearing. Thus “district courts are afforded wide leeway in fashioning the scope of discovery in summons enforcement proceedings because ultimate issues of responsibility are not decided in these proceedings ... allowing full opportunities for discovery would contravene the purpose of a summons enforcement proceeding, which is summary in nature.” [Slip op. 21]

Citation: Mazurek v. United States, No. 00-31430 (5th Cir. November 7, 2001).

Historic U.N. global fisheries convention has entered into force. A treaty to deal with overfishing on the high seas entered into force on December 12, 2001, marking a new era in international fishery management. Originally put out for adoption in New York in August 1995, the treaty is officially known as the Agreement for the Implementation of the Provisions of the United Nations Convention on the Law of the Sea of December 10, 1982, Relating to the Conservation and Management of Straddling Fish Stocks and Highly Migratory Fish Stocks. The U.S. is among thirty nations that have ratified this United Nations agreement, that sets new, compulsory standards for overseeing highly migratory and shared fishery resources. One month ago, Malta was the thirtieth nation to deposit its instrument of ratification thus bringing the treaty into force. Various provisions of the treaty will greatly improve conservation and supervisory efforts by strengthening the standards for determining when such measures are necessary to achieve effective resource conservation. Parties have undertaken also to work together in the gathering and exchange of fishery data and in giving enforcement agents greater powers to board and inspect their fishing vessels on the high seas to check on their conformity with conservation measures. To head off possible shooting disputes at fishing sites as in the past, the treaty also obligates member nations to settle any disputes peaceably. Parties have given affirmative commitments to work together in regional fisheries management organizations. The United States has proactively implemented this aspect of the agreement since its ratification in 1996. For example, the U.S. played a leadership role in negotiations to set up management organizations in several previously un-managed fisheries, such as the notable conclusion of agreements to manage fisheries in the central and Western Pacific and Southeast Atlantic Oceans. The U.S. Department of State and the National Marine Fisheries Service of the U.S. Department of Commerce cooperated to provide leadership in the international community both during the negotiations and throughout the past six years. Citation: U. S. Department of State, Office of the Spokesman press release of December 11, 2001. To access a copy of full agreement, visit United Nations Web site at: http://www.un.org/Depts/los/conventionagreements/conventionoverviewfishstocks.htm.

EU publishes list of authorized testing institutions for U.S.-EU technical conformity for telecommunications and electromagnetic equipment, pursuant to Mutual Recognition Agreement. The European Union has issued five decisions (Decisions Nos. 3/2001 - 7/2001) regarding the EU-U.S. compatibility of telecommunications and electromagnetic equipment, thereby amending the Sectoral Annexes Telecommunications Equipment and the Electromagnetic Compatibility of the Agreement on Mutual Recognition between the European Community and the United States of America. The Decisions add EU and U.S. Conformity Assessment Bodies for technical conformity examinations for telecommunications and electromagnetic equipment. For the EU, for example, they include “Cambridge Test and Measurement Services,” and for the U.S., Underwriters Laboratories, Inc. Citation: 2001 O.J. of European Communities (L 306) 34, 42, 45, 47, 49, 23 November 2001.

Arbitrators issue award in WTO dispute over U.S. Copyright Act. The EU had challenged Section 110(5) of the U.S. Copyright Act based on the TRIPS Agreement. See 2001 International Law Update 143. The Panel found Subparagraph (A) of Section 110(5) the U.S. Copyright Act consistent with the Berne Convention as incorporated into the TRIPS agreement, but considered Subparagraph (B) inconsistent. The Arbitrators concluded that what is nullified or impaired as a result of the operation of Section 110(5)(B) amounts to EURO 1,219,900 per year. The Annex of the Award contains the text of letters sent to ASCAP and BMI, requesting information that could be used for calculating the damages, including the total domestic licensing revenues, the total distribution to rights holders, and a breakdown of information for eating and drinking establishments. Citation: United States - Section 110(5) of US Copyright Act, Recourse to Arbitration under Article 25 of DSU (WT/DS160/ARB25/1) (9 November 2001). The Report is available on the WTO website “www.wto.org.”

Federal grand jury indicts alleged Al Qaeda co-conspirator. On December 11, 2001, a federal grand jury in Virginia indicted Zacarias Moussaoui, a French citizen of Moroccan descent on six conspiracy charges linked to the September 11 terrorist attacks. The grand jury charged that Moussaoui had conspired with Osama bin Laden, the nineteen dead hijackers and others from the al Qaeda network. Four of the charges carry the death penalty. The accused had been in custody in Minnesota on immigration charges at the time of the attacks. He had come to the attention of the authorities after he tried to get pilot training at a private flight school in August, but officials at the school became suspicious of his motives. A search of Moussaoui's computer after Sept. 11 found information on jetliners and crop-dusting planes, as well as on wind patterns and the way one can disperse chemicals from airplanes. That discovery led to a temporary grounding of crop-dusters. According to Justice Department officials, Moussaoui's arraignment will take place on January 2, 2002. Citation: Washington Post (online), byline of Dan Eggen, Washington Post Staff Writer, December 11, 2001; The New York Times, Section B, page 5 (December 20, 2001); The Washington Post, page A32 (December 20, 2001).

EU issues manual for service of judicial and extrajudicial documents in civil or commercial matters. In the year 2000, the EU issued Regulation 1348/2000 on the service in the Member States of judicial and extrajudicial documents in civil or commercial matters. The EU has now issued a manual of receiving agencies and a glossary of documents. It contains, for example, the names and addresses of all receiving agencies in the EU, the respective jurisdictions, manner of transmission of documents, and what languages may be used to complete the standard forms. Citation: Commission Decision 2001/781/EC, 2001 O.J. of European Communities (L 298) 1, 15 November 2001.

U.S. Treasury names additional persons as terrorist, narcotics traffickers. The U.S. Department of the Treasury, Foreign Assets Control Office, has amended the list of controlled persons under the Weapons of Mass Destruction Trade Control Regulations [31 C.F.R. Chapter V, Appendix A; 31 C.F.R. Part 539, Appendix I]. These persons are considered narcotics traffickers, foreign terrorist organizations, or specially designated nationals according to Executive Orders. The individuals are listed with the various aliases, and include ICTY indictee, Radovan Karadzic, as well as IRA members. Citation: 66 Federal Register 57371 (November 15, 2001).

President Bush signs relief act for Afghan women and children. At a ceremony on December 12 last at the National Women’s Museum in the Arts, in Washington, President Bush signed into law the Afghan Women and Children Relief Act Of 2001. The purpose is to provide educational and health care assistance for women and children living in Afghanistan and as refugees in neighboring countries. The following are selected excerpts from the President’s remarks on this occasion. “Before the Taliban came, [Afghan] women played an incredibly important part of that society. Seventy percent of the nation's teachers were women. Half of the government workers in Afghanistan were women, and 40 percent of the doctors in the capital of Kabul were women. ... America is beginning to realize that the dreams of the terrorists and the Taliban were a waking nightmare for Afghan women and their children. The Taliban murdered teenagers for laughing in the presence of soldiers. They jailed children as young as 10 years old, and tortured them for supposed crimes of their parents.... Afghan women were banned from speaking, or laughing loudly. They were banned from riding bicycles, or attending school. They were denied basic health care, and were killed on suspicion of adultery. One news magazine reports, ‘It's hard to find a woman in Kabul who does not remember a beating at the hands of the Taliban.’ ... In the month of November [2001], the United Nations World Food Program, with our strong support, provided enough supplies to feed 4.3 million Afghans. And the Defense Department will continue to make sure that food is delivered in remote regions of that impoverished, poor, starving country. ... The bill I sign today extends and strengthens our efforts. The Afghan Women and Children Relief Act commits the United States to providing education and medical assistance to Afghan women and children, and to Afghan refugees in surrounding countries.” Citation: An Act to authorize the provision of educational and health care assistance to the women and children of Afghanistan, 107 Pub. Law 81, 115 Stat. 811 [S. 1573]; Information distributed by U.S. Department of State through PA List Manager <statelists@STATE.GOV>, December 12, 2001.

U.S. continues emergency measures against Iran and Sudan. The U.S. President, George W. Bush, has declared the continuation of the emergency regarding Iran and Sudan pursuant to the International Emergency Economic Powers Act (50 U.S.C. Section 1701-1706). Because of the threat to U.S. national security posed by these countries, the President is continuing the national emergency with respect to these countries for another year. Citation: 66 Federal Register 56966 (November 13, 2001) & 55869 (November 2, 2001).

WIPO and Russian Rospatent to cooperate in training matters. The World Intellectual Property Organization (WIPO) and the Russian intellectual property agency, Rospatent, entered into an agreement on October 12, 2001, to engage in cooperative efforts to organize the distance learning classes of the WIPO Worldwide Academy in the Russian Federation. The Academy will join the Russian Federation to develop training materials and organize regular seminars. WIPO Worldwide Academy was created in 1998 to coordinate human resource development efforts in intellectual property. Citation: Press Release PR/2001/296, Geneva October 12, 2001, “WIPO and Rospatent Sign Cooperation Agreement.”

Assets of individuals and groups with terrorist affiliations are blocked by U.S. Treasury. The U.S. Department of the Treasury, Foreign Assets Control Office, has amended appendix A to 31 C.F.R. Chapter V by adding 45 individuals and 21 entities whose assets should be blocked because of their terrorist affiliations, pursuant to Executive Order 13224 of September 23, 2001 (Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism). Citation: 66 Federal Register 54404 (October 26, 2001); U.S. Department of State press statement November 2, 2001.

U.S. Federal Reserve amends international banking rules. The U.S. Federal Reserve System, Board of Governors, has amended Regulation K which governs international banking operations (see 12 C.F.R. Parts 211 and 265). Among other things, the changes streamline foreign banking procedures for U.S. banks, authorize expanded activities in foreign branches of U.S. banks, and authorize a bank to invest up to 20 percent of its capital and surplus in “Edge” corporations (Edge corporations are international financial vehicles that allow U.S. banking institutions to offer international services) (see Subpart A of Regulation K). The changes also affect the U.S. activities of foreign banking organizations with respect to qualifications for doing business in the U.S. and exemptions from the non-banking prohibitions of Section 4 of the Bank Holding Company Act. Citation: 66 Federal Register 54346 (October 26, 2001); correcting amendments were published in 66 Federal Register 58655 (November 23, 2001).