United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 11-1816

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Community Finance Group, Inc.; *

Andrew Vilenchik, *

*

Appellants, *

* Appeal from the United States

v. * District Court for the

* District of Minnesota.

Republic of Kenya; Kenya Revenue *

Authority; Kenya Department of *

Customs; Kenya Central Bank, *

*

Appellees. *

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Submitted: November 15, 2011

 Filed: December 15, 2011

___________

Before WOLLMAN, MURPHY, and BENTON, Circuit Judges.

___________

WOLLMAN, Circuit Judge.

Community Finance Group, Inc. and its general manager Andrew Vilenchik

(collectively referred to as “CFG” or “plaintiffs”), appeal the district court’s1

 dismissal

of their claims for lack of subject matter jurisdiction under Rule 12(b)(1) of the

Federal Rules of Civil Procedure. Because the Foreign Sovereign Immunities Act of

1

The Honorable David S. Doty, United States District Judge for the District of

Minnesota.
1976 (FSIA), 28 U.S.C. §§ 1330, 1602 et seq., applies to all defendants and no

exception to sovereign immunity exists in this case, we affirm.2

I.

According to CFG’s amended complaint, in October of 2008, Vilenchik

commenced discussions with John Saina, a United States citizen and former Kenyan

national who previously worked for the Kenyan police, concerning opportunities for

purchasing gold for CFG. Saina explored such opportunities in Kenya on CFG’s

behalf. CFG ultimately contracted with Zilicon Freighters, Ltd. to purchase 300

kilograms of gold for $6 million. CFG and Zilicon, through representative Illunga

Ngoei (Illunga), agreed that CFG would establish a $350,000 escrow account with

Miller & Company to cover Kenyan taxes, customs fees, and storage associated with

the transaction. Later, CFG instead wired the $350,000 to a bank account of Great

Lakes Auto Tech Int’l Ltd. (Great Lakes), a holding company of Zilicon, apparently

to expedite customs payments and export. CFG and Great Lakes facilitated the

transfer through Bay Forex Bureau, a Kenyan-licensed foreign exchange bureau.

The Kenya Central Bank verified the $350,000 transaction on June 16, 2009. 

The next day, Paul Kazungu, a Kenyan customs officer, informed CFG that a permit

from the United Nations was necessary before the gold could be released for export. 

On June 18, 2009, two individuals claiming to be officials with the Nairobi United

Nations office told CFG that the gold derived from a consignment confiscated by

Kenyan customs officials that also contained diamonds and that CFG would be

required to purchase the entire consignment. CFG became suspicious, retained a

Kenyan lawyer, and filed a complaint with the Kenya Central Bank Fraud

Investigations Department (BFID). Police then arrested Illunga.

2

Defendants argue that dismissal also is proper under the pleading standard set

forth in Ashcroft v. Iqbal, 556 U.S. 662 (2009). In light of the lack of subject matter

jurisdiction, we need not take a position on this contention.

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On June 26, 2009, Kenyan police brought CFG representatives to the customs

office at Kenyatta International Airport, where the representatives were informed that

the gold had been removed from the airport and was being stored at the Kenya Central

Bank. During the BFID investigation, various currency, check cards, and bank

statements of Illunga were seized, and ten of Illunga’s Kenyan bank accounts were

frozen. In February of 2010, the Kenyan police informed CFG that Illunga’s

prosecution had been put on hold. This was CFG’s last communication with the

Kenyan police. None of CFG’s $350,000 has been returned, and CFG never received

any gold. In addition, plaintiffs have discovered that the Kenyan attorney they

retained also represents the Kenya Central Bank.

CFG brought suit against the Republic of Kenya, Kenya Revenue Authority,

Kenya Department of Customs, and Kenya Central Bank for breach of duty, improper

taking in violation of international law, conversion, conspiracy to commit a tort,

aiding and abetting an improper taking and fraudulent scheme, and unjust enrichment. 

Following defendants’ motion to dismiss, the district court dismissed the action for

lack of subject matter jurisdiction.

II.

“We review de novo questions of subject matter jurisdiction.” Wells Fargo

Bank, N.A. v. WMR E-Pin LLC, 653 F.3d 702, 705 (8th Cir. 2011) (citing Sac & Fox

Tribe v. Bureau of Indian Affairs, 439 F.3d 832, 835 (8th Cir. 2006)). “We must

accept all factual allegations in the pleadings as true and view them in the light most

favorable to the nonmoving party.” Hastings v. Wilson, 516 F.3d 1055, 1058 (8th Cir.

2008) (citations omitted).

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III.

“[T]he FSIA provides the sole basis for obtaining jurisdiction over a foreign

state in the courts of this country.” Argentine Republic v. Amerada Hess Shipping

Corp., 488 U.S. 428, 443 (1989); see also 28 U.S.C. §§ 1330(a), 1604. Under the

FSIA, a foreign state is “presumptively immune” from the jurisdiction of American

courts and “unless a specified exception applies, a federal court lacks subject-matter

jurisdiction over a claim against a foreign state.” Saudi Arabia v. Nelson, 507 U.S.

349, 355 (1993) (citations omitted). The FSIA defines a foreign state as including “a

political subdivision of a foreign state or an agency or instrumentality of a foreign

state . . . .” 28 U.S.C. § 1603(a).

 “Once a foreign state makes a prima facie showing of immunity, the plaintiff

seeking to litigate in the United States then has the burden of showing that an

exception applies.” Gen. Elec. Capital Corp. v. Grossman, 991 F.2d 1376, 1382 (8th

Cir. 1993) (internal citation omitted). Here, defendants consist of the foreign state of

Kenya and agencies or instrumentalities of Kenya. Plaintiffs thus seek to establish

jurisdiction under three of the FSIA’s enumerated exceptions to sovereign immunity: 

(1) the commercial activity exception under § 1605(a)(2); (2) the expropriation

exception under § 1605(a)(3); and (3) the tort exception under § 1605(a)(5).

A.

The FSIA provides an exception to sovereign immunity in cases “in which the

action is based upon . . . an act outside the territory of the United States in connection

with a commercial activity of the foreign state elsewhere and that act causes a direct

effect in the United States.” 28 U.S.C. § 1605(a)(2). When a foreign state acts “not

as regulator of a market, but in the manner of a private player within it, the foreign

sovereign’s actions are ‘commercial’ within the meaning of [the FSIA].” Gen. Elec.

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Capital Corp., 991 F.2d at 1382 (quoting Republic of Argentina v. Weltover, Inc., 504

U.S. 607, 614 (1992)).

The district court correctly concluded that none of the acts or alleged breaches

of duty attributed to defendants were commercial in nature. CFG alleged that the

defendants: (1) failed to investigate the underlying commercial transaction between

CFG and Zilicon to ensure that it was legitimate; (2) failed to secure the gold stored

by customs and place a hold on the funds transferred by CFG until the transaction

could be verified; (3) failed to investigate the criminal activities of alleged

wrongdoers; and (4) failed to return as restitution funds seized from alleged

wrongdoers. Am. Compl. ¶¶ 54-57. The decisions regarding whether or how to

investigate an allegedly fraudulent commercial transaction between private parties,

regulate exports, enforce criminal laws, and seize property during criminal

investigations are governmental rather than commercial activities. See Tucker v.

Whitaker Travel, Ltd., 620 F. Supp. 578, 584 (E.D. Pa. 1985) (granting motion to

dismiss challenge to Bahamian government’s decisions how to regulate tourism

industry, police its citizens, and investigate accidents within its borders, because such

decisions “are peculiarly governmental and may not be subjected to scrutiny in the

United States courts”), aff’d, 800 F.2d 1140 (3d Cir. 1986); World Wide Minerals,

Ltd. v. Republic of Kazakhstan, 296 F.3d 1154, 1165 (D.C. Cir. 2002) (“right to

regulate imports and exports is a sovereign prerogative”) (citations omitted); Nelson,

507 U.S. at 361 (“a foreign state’s exercise of the power of its police has long been

understood . . . as peculiarly sovereign in nature”) (citations omitted); First Merchs.

Collection Corp. v. Republic of Argentina, 190 F. Supp. 2d 1336, 1338-39 (S.D. Fla.

2002) (“The seizure of goods by a nation’s police force is not the type of action by

which a private party engages in trade, traffic or commerce,” but rather is

“quintessentially sovereign in nature”). As a result, the alleged acts fall outside the

scope of the commercial activity exception to sovereign immunity.

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B.

Under the FSIA, a foreign state is not immune from jurisdiction in any case:

[I]n which rights in property taken in violation of international law are

in issue and that property or any property exchanged for such property

is present in the United States in connection with a commercial activity

carried on in the United States by the foreign state; or that property or

any property exchanged for such property is owned or operated by an

agency or instrumentality of the foreign state and that agency or

instrumentality is engaged in a commercial activity in the United States.

28 U.S.C. § 1605(a)(3). 

The expropriation exception does not apply in this case. Count II of the

amended complaint, which asserts a claim for “Improper Taking in Violation of

International Law,” alleges that defendants “improperly retained monetary funds

owned by Plaintiffs” and “improperly retained gold purchased by Plaintiffs.” Am.

Compl. ¶¶ 61-62. Neither could constitute a taking under the factual allegations in the

amended complaint, however, because plaintiffs never paid for or acquired the gold

that they allege was taken from them and they do not allege that the $350,000 paid to

Great Lakes was ever transferred to defendants. Even if such property had been taken

by defendants, CFG still failed to establish that the property is present in the United

States or that the expropriating defendants engage in commercial activity in the United

States. 

C.

The FSIA provides an exception to sovereign immunity in a case in which a

plaintiff seeks money damages: 

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[F]or personal injury or death, or damage to or loss of property,

occurring in the United States and caused by the tortious act or omission

of that foreign state or of any official or employee of that foreign state

while acting within the scope of his office or employment.

28 U.S.C. § 1605(a)(5) (emphasis added). This exception does not apply to “any

claim based upon the exercise or performance or the failure to exercise or perform a

discretionary function . . . .” § 1605(a)(5)(A). The tort exception covers “only torts

occurring within the territorial jurisdiction of the United States,” regardless of whether

the alleged tort “may have had effects in the United States.” Amerada Hess Shipping

Corp., 488 U.S. at 441.

Because all the alleged torts would have occurred in Kenya rather than the

United States, the tort exception does not apply. The alleged taking or conversion of

CFG’s funds or gold could have occurred only in Kenya, and CFG’s conspiracy

allegations expressly state that the conspiracy occurred “within Kenya.” Am. Compl.

¶ 70. Although plaintiffs argue that their $350,000 wire transfer constituted an act in

the United States, that act was performed by plaintiffs themselves. Plaintiffs also

argue that the conspiracy originated in the United States with Saina’s acts, but the

amended complaint does not allege that Saina was an agent of any defendant.3

IV.

The order of dismissal is affirmed.

______________________________

3

Furthermore, CFG represented to the district court that “we did not allege --

we have not alleged, nor do we have direct evidence that [Saina] was a -- specific

agent of the Kenyan government for purposes of this transaction . . . .” Mot. Hr’g Tr.

15.

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