State-Owned Entity Transparency and Accountability Reform Act of 2016

Summary: State-Owned Entity Transparency and Accountability Reform Act of 2016 This bill amends the federal judicial code to allow U.S. courts to hear cases against a foreign state's corporate affiliates under the exception to foreign sovereign immunity that subjects a foreign state's commercial activities to the jurisdiction of U.S. courts. In determining whether a U.S. court has jurisdiction to hear a case based on the commercial activity of a foreign state, a commercial activity of an agency or instrumentality of a foreign state is attributable to any corporate affiliate of the agency or instrumentality that: (1) directly or indirectly owns a majority of shares of the agency or instrumentality, and (2) is also an agency or instrumentality of a foreign state.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``State-Owned Entity Transparency and 
Accountability Reform Act of 2016''.

SEC. 2. FINDINGS.

    Congress finds the following:
            (1) As Congress expressed when it enacted the Foreign 
        Sovereign Immunities Act of 1976 (Public Law 94-583; 90 Stat. 
        2891), under international law, foreign states are immune from 
        the jurisdiction of the courts of the United States and of the 
        States, subject to certain exceptions. One of these exceptions, 
        the ``commercial activity'' exception, generally subjects 
        foreign states to the jurisdiction of courts of the United 
        States in actions relating to a foreign state's commercial 
        activities.
            (2) As the Supreme Court observed 7 years after Congress 
        enacted the Foreign Sovereign Immunities Act of 1976, 
        ``increasingly . . . governments throughout the world have 
        established separately constituted legal entities to perform a 
        variety of tasks''. First National City Bank v. Banco Para El 
        Comercio Exterior de Cuba, 462 U.S. 611 (1983) (referred to in 
        this section as ``Bancec''). These state instrumentalities are 
        ``typically established as . . . separate juridical entit[ies], 
        with powers to hold and sell property and to sue and be sued''. 
        Run by states as ``distinct economic enterpris[es]'', they 
        operate ``on an enterprise basis'' while enjoying ``a greater 
        degree of flexibility and independence from close political 
        control than is generally enjoyed by government agencies. These 
        same features frequently prompt governments in developing 
        countries to establish separate juridical entities as the 
        vehicles through which to obtain the financial resources needed 
        to make large-scale national investments''.
            (3) Because government instrumentalities ``established as 
        juridical entities distinct and independent from their 
        sovereign should normally be treated as such'', courts have 
        accorded them ``a presumption of independent status'' for 
        purposes of assessing jurisdiction under the Foreign Sovereign 
        Immunities Act of 1976.
            (4) However, the Supreme Court explained in Bancec that 
        courts have ``consistently refused to give effect to the 
        corporate form where it is interposed to defeat legislative 
        policies''. As a result, courts will refuse to presume an 
        instrumentality's independence from a foreign state if ``a 
        corporate entity is so extensively controlled by its owner that 
        a relationship of principal and agent is created'' or 
        respecting the corporate form ``would work fraud or 
        injustice''. Transamerica Leasing, Inc. v. La Republica de 
        Venezuela, 200 F.3d 843, 848-49 (D.C. Cir. 2000).
            (5) As state instrumentalities have developed over time, 
        their corporate structure has commonly become more complex. In 
        many cases, the structure of state instrumentalities has also 
        become more opaque. At the same time, as a result of 
        globalization, such entities are increasingly involved in 
        commerce and trade involving companies and consumers of the 
        United States. The result is that companies and consumers of 
        the United States seeking to sue a foreign state-owned entity 
        under the ``commercial activity'' exception of the Foreign 
        Sovereign Immunities Act of 1976 may struggle to determine 
        which juridical entity--for example, which member or affiliate 
        of an instrumentality--to sue.
            (6) As they have grown larger, more opaque, and more 
        involved in commercial activity with companies and consumers of 
        the United States, state instrumentalities have continued 
        aggressively to assert that they are immune to suit in courts 
        of the United States.
            (7) In some cases, courts also have struggled to determine 
        the correct juridical entity subject to their jurisdiction 
        based on the ``commercial activity'' exception. In others, 
        courts have rejected claims against instrumentalities for 
        failure to show an intra-instrumentality alter ego 
        relationship.
            (8) In light of the sometimes opaque structure of state 
        instrumentalities and their increasing interactions with 
        companies and consumers of the United States, it is necessary 
        to preserve potential claims of people of the United States 
        against such entities based on their commercial activities. 
        Therefore, for purposes of determining jurisdiction under the 
        ``commercial activity'' exception to the Foreign Sovereign 
        Immunities Act of 1976 only, companies and consumers of the 
        United States should not be required to prove an alter ego 
        relationship between members of an instrumentality to establish 
        subject-matter jurisdiction, as follows.

SEC. 3. AMENDMENT.

    Section 1603(d) of title 28, United States Code, is amended--
            (1) by inserting ``(1)'' before ``A''; and
            (2) by adding at the end the following:
    ``(2) For purposes of section 1605(a)(2), a commercial activity of 
an agency or instrumentality of a foreign state shall be attributable 
to any corporate affiliate of the agency or instrumentality that--
            ``(A) directly or indirectly owns a majority of shares of 
        the agency or instrumentality; and
            ``(B) is also an agency or instrumentality of a foreign 
        state.''.