Schansman v. Sberbank of Russia PJSC

Background

The plaintiffs’ Second Amended Complaint alleges that Sberbank and VTB Bank provided material support and financing to the Donetsk People’s Republic, described in the opinion as a terrorist group accused of downing Malaysia Airlines flight MH17 over eastern Ukraine in 2014. The alleged support included operating correspondent accounts in New York and allowing transfers to a Sberbank bank card. The complaint alleges that money raised through those transfers helped the Donetsk People’s Republic obtain weapons.

Sberbank moved to dismiss under Federal Rule of Civil Procedure 12(b)(1), which allows dismissal for lack of subject-matter jurisdiction. Sberbank relied on immunity under the Foreign Sovereign Immunities Act, or FSIA, and on the Anti-Terrorism Act’s sovereign-immunity provision.

Foreign Sovereign Immunities Act

The FSIA generally protects foreign states and qualifying agencies or instrumentalities from jurisdiction in United States courts, unless an exception applies. Sberbank argued that it qualified as an agency or instrumentality of Russia because it was majority-owned by the Bank of Russia when the original complaint was filed on April 4, 2019. Sberbank also argued that the Ministry of Finance of Russia’s later acquisition of majority ownership in April 2020 established that status, but the court did not consider the later acquisition because FSIA status is determined when the lawsuit begins.

The plaintiffs argued that Sberbank was owned by an agency or instrumentality rather than directly by Russia and therefore should not receive the FSIA’s presumption of immunity. The court explained that the result depended in part on whether the Bank of Russia was a political subdivision or an agency or instrumentality of Russia.

The Bank of Russia and Sberbank’s status

Applying the Second Circuit’s “core functions” test, the court held that the Bank of Russia is a political subdivision of Russia because its principal functions are predominantly governmental. The court cited responsibilities including issuing rubles, protecting the ruble’s stability, regulating banking and financial sectors, acting as a lender of last resort, managing Russia’s gold and currency reserves, setting foreign-exchange rates, and compiling official economic statistics.

Because the Bank of Russia was a political subdivision and directly owned 50 percent plus one share of Sberbank’s authorized capital when the suit was filed, the court held that Sberbank was an agency or instrumentality of Russia under the FSIA. That status gave Sberbank presumptive sovereign immunity, subject to statutory exceptions.

Commercial-activity exception

The court held that the FSIA’s commercial-activity exception applied. That exception removes immunity when the lawsuit is based on certain commercial activity, including commercial activity carried on in the United States.

The court identified the alleged provision of material support and financing as the central conduct underlying the claims. It concluded that the alleged use of correspondent accounts in New York and authorization of money transfers were classic commercial conduct for an international bank. Because the allegations involved commercial activity in the United States, the court held that Sberbank was subject to suit and denied its sovereign-immunity defense under the FSIA.

Anti-Terrorism Act argument

The court also denied Sberbank’s motion to dismiss under the Anti-Terrorism Act’s sovereign-immunity provision. It reasoned that courts generally apply the FSIA’s sovereign-immunity principles when evaluating such an argument, and Sberbank’s proposed broader reading of the Anti-Terrorism Act was inconsistent with federal-court practice.

Disposition

Judge Andrew L. Carter, Jr. denied Sberbank’s second motion to dismiss. The court ordered the parties to continue discovery and proceedings before Judge Gorenstein’s Chambers. The opinion does not state a separate ruling on the ultimate liability of Sberbank or the other defendants.