## Facts

- A U.S. seller contracted with an Iraqi government trading entity to supply industrial equipment for about $27.39 million.
- Payment was arranged through an irrevocable letter of credit issued by the Central Bank of Iraq and confirmed by an Italian bank, allowing the seller to draw a 10% down payment.
- The contract required the seller to furnish a standby letter of credit, in the same 10% amount (about $2.7 million), to protect the Iraqi buyer if the seller failed to perform.
- The standby letter of credit was issued with the seller’s U.S. bank as account party, payable to an Iraqi bank, which provided a guarantee to the Iraqi trading entity.
- The seller drew the down payment under the primary letter of credit and deposited the proceeds at its U.S. bank as security against any obligation the bank might incur if the standby credit were properly drawn.
- An attempted draw on the standby letter of credit was not accompanied by required proof of the seller’s nonperformance, and the standby letter expired without any compliant draw or payout.
- The United States intervened, asserting that Iraq had a property interest in the deposited down-payment proceeds and that the funds should be blocked under an executive order freezing Iraqi government property and interests in property.

## Issues

1. Whether Iraq had a legally cognizable “property” or “interest in property” in the $2.7 million deposit sufficient to permit blocking under U.S. sanctions, based on asserted contract rights, breach-of-contract claims, or rescission/restitution theories.

## Decision

- The Tenth Circuit affirmed the district court’s judgment against the United States.
- The court held Iraq had no legally cognizable property interest—legal or equitable—in the down-payment funds held in the seller’s bank account.
- Because Iraq lacked a qualifying interest in the specific funds, the account was not subject to blocking under the executive order and implementing regulations.

## Legal Principles

- Letter-of-credit obligations are independent of the underlying sales contract; payment under a conforming draw does not, without more, give the applicant/buyer a proprietary interest in the beneficiary’s proceeds.
- A standby letter of credit creates rights only upon strict compliance with its documentary conditions; where no compliant draw occurs before expiration, no payment obligation arises under the standby instrument.
- A potential breach-of-contract claim (a chose in action) does not, by itself, constitute a present property interest in a particular, identifiable fund held by the counterparty.
- Unadjudicated rescission or restitution theories do not create a presently vested equitable ownership interest in specific funds; they amount, at most, to contingent claims requiring separate establishment and enforcement.
- For sanctions blocking, “property” and “interests in property” require a present, legally recognized entitlement to or control over the asset; mere expectancy or prospective claims are insufficient.

## Conclusion

The court concluded that the down-payment proceeds belonged to the seller (subject to its bank’s security arrangement) and that Iraq’s asserted contract and restitution theories did not create a present, enforceable interest in the specific deposit; therefore, the funds were not blockable as Iraqi property under U.S. sanctions authority.


Centrifugal Casting Mach. Co. v. Am. Bank & Tr. Co., 966 F.2d 1348 (10th Cir. 1992)