CRIMINAL LAW - FOREIGN SOVEREIGN IMMUNITIES ACT - NINTH CIRCUIT HOLDS THAT CERTAIN CHINESE STATE-OWNED COMPANIES ARE NOT FOREIGN "INSTRUMENTALITIES" AND THUS LACK IMMUNITY UNDER THE FSIA FROM CRIMINAL PROSECUTION - United States v. Pangang Group Co.

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Date: Apr. 2022
From: Harvard Law Review(Vol. 135, Issue 6)
Publisher: Harvard Law Review Association
Document Type: Case note
Length: 3,864 words
Lexile Measure: 2040L

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The United States increasingly advances important foreign policy goals by prosecuting legal entities controlled by foreign governments. (1) But these defendants have begun to delay proceedings for years by arguing that they are immune from criminal prosecution based on the Foreign Sovereign Immunities Act of 1976 (2) (FSIA). The FSIA primarily aims to shield the executive branch from unwanted foreign-state pressures by providing foreign states and their instrumentalities jurisdictional immunity from civil litigation in U.S. courts. (3) Since 2002, the circuits have split over whether the FSIA applies to criminal cases. (4) Most federal courts of appeals observe that the FSIA was likely not intended to apply but avoid reaching the question by holding that defendants' conduct would fall within the FSIA's exceptions regardless. (5) Recently, in United States v. Pangang Group Co., (6) the Ninth Circuit took a novel approach to this issue by denying immunity to corporate defendants charged with economic espionage on the grounds that they had failed to show direct majority ownership by the Chinese government so as to qualify as foreign instrumentalities under the FSIA. (7) Pangang exemplifies how courts' refusals to hold that the FSIA does not apply to criminal cases undermine the statute's core purpose by impeding convictions that support U.S. foreign policy. The courts or Congress should clarify that the FSIA does not apply. Until then, however, Pangang offers a second-best approach in economic espionage prosecutions by effectively requiring defendants to produce inculpatory evidence, thus disincentivizing claims of FSIA immunity.

According to the Pangang indictment, the Chinese government had for decades sought to learn a closely guarded manufacturing process for titanium dioxide, the source of the brilliant shade of white found in myriad items from Oreo cookies to smoke grenades. (8) DuPont, a U.S. company, had dominated the industry since the 1940s by developing a cheaper, more efficient manufacturing process. (9) In the early 1990s, the Chinese government directed an electrical engineer, Walter Liew, to obtain the superior technology. (10) Liew did so and sold the trade secrets to a leading manufacturer wholly owned by the Chinese government: Pangang Group Company. (11)

The Department of Justice (DOJ) obtained an indictment against Liew on eleven charges related to economic espionage and, in 2012, added Pangang Group Company and three of its wholly owned subsidiaries (collectively, the "Pangang Companies") as codefendants. (12) The Pangang Companies resisted service of summonses, while Liew was convicted at trial on all counts and sentenced to 144 months in prison. (13) In 2016, DOJ obtained a superseding indictment against the Pangang Companies, charging them with one count of conspiracy to violate and one count of attempted violation of the Economic Espionage Act of 1996 (14) (EEA). (15) After the companies were adequately served summonses,16 they moved to dismiss the indictment on the grounds that they were entitled to sovereign immunity under the FSIA. (17)

The district court denied the motion to dismiss. (18) The court reasoned that the indictment's allegations that the defendants were "foreign instrumentalities" under the EEA...

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Gale Document Number: GALE|A702381257