## Facts

- Cuba created Banco Para el Comercio Exterior de Cuba (Bancec) in 1960 as a state-owned foreign-trade credit institution with separate juridical capacity.
- The Cuban government supplied Bancec’s capital, owned all stock, and received its profits; Bancec’s leadership and governance were tied to Cuban ministries and national trade policy.
- In September 1960, Bancec demanded payment from First National City Bank (Citibank) on a letter of credit supporting a sugar shipment to a U.S. buyer.
- Shortly after Bancec’s demand, Cuba seized and nationalized Citibank’s assets in Cuba.
- Bancec sued Citibank in federal court to recover on the letter of credit; Citibank counterclaimed to set off the value of its expropriated Cuban assets.
- After Bancec filed suit, Bancec was dissolved and its capital was distributed to Cuba’s central bank and other state foreign-trade entities.

## Issues

1. Whether the Foreign Sovereign Immunities Act of 1976 controls the substantive determination of attribution of liability and availability of setoff between a foreign instrumentality and a private party.
2. Whether a duly created, state-owned instrumentality may rely on separate juridical status to pursue recovery in U.S. courts while avoiding consequences tied to the sovereign’s expropriation of the defendant’s property.
3. Whether principles of equity under international law and federal common law permit Citibank to set off losses from Cuba’s expropriation against Bancec’s letter-of-credit claim.

## Decision

- The Supreme Court reversed the court of appeals and permitted Citibank’s setoff.
- The Court held that FSIA does not determine the substantive rules of liability or attribution among a foreign state and its instrumentalities.
- The Court recognized a presumption that foreign-state instrumentalities have independent juridical status.
- The Court concluded the presumption could be overcome where honoring separateness would allow the foreign state to benefit from litigation in U.S. courts while avoiding liabilities imposed by international law.
- Because Cuba was the real beneficiary of Bancec’s claim and had seized Citibank’s assets, equity allowed Citibank to offset its expropriation claim against Bancec’s demand.

## Legal Principles

- FSIA primarily addresses jurisdiction and immunity; it does not supply substantive rules governing liability or attribution among a foreign state and its instrumentalities.
- A duly created instrumentality of a foreign state is presumptively treated as a separate juridical person in U.S. courts.
- The presumption of separateness may be disregarded when applying the corporate form would work an injustice, including when it would permit the foreign state to be the sole beneficiary of a claim in U.S. courts while avoiding opposing-party liabilities recognized under international law.
- Courts may apply equitable principles drawn from international law and federal common law to allow setoff against a foreign instrumentality when the facts show the sovereign is the real party in interest.

## Conclusion

The Court held that, although foreign-state instrumentalities are generally treated as legally separate, U.S. courts may disregard that separateness to prevent inequity; FSIA does not control substantive attribution, and Citibank could set off the value of its expropriated Cuban assets against Bancec’s letter-of-credit claim.


First Nat'l City Bank v. Banco Para el Comercio Exterior de Cuba, 462 U.S. 611 (1983)