United States v. First National City Bank

Background

The United States sought to collect about $19,300,000 in tax assessments against Omar, S.A., a Uruguayan corporation that had traded through New York. The IRS sued in a New York federal court and asked the court to freeze funds that Omar had in accounts at an American bank, including money held at the bank’s Montevideo branch. The District Court issued a temporary injunction preventing the bank from transferring those funds; the Court of Appeals reversed, and the United States appealed.

Reasoning

The Supreme Court held that the District Court, under the federal tax-enforcement statute, could issue an interim court order to freeze assets the bank controlled to preserve the government's ability to collect if it later obtains personal jurisdiction over Omar. The Court relied on the bank’s practical control of its branches, federal authority to grant injunctions for tax enforcement, and state rules that could allow service on the foreign taxpayer, and observed no showing that freezing the accounts would violate foreign law.

Real world impact

The ruling lets the government use temporary freezes to stop dissipation of assets held at U.S. banks’ foreign branches while it tries to bring a foreign taxpayer into court. It affects banks that must hold funds for foreign customers and may concern foreign depositors and international relations. The decision is interlocutory: it preserves assets pending further proceedings and is not a final judgment on Omar’s tax liability.

Dissents or concurrances

Justice Harlan dissented, warning that the order extended federal jurisdiction too far, tied up property of a foreign corporation without jurisdiction for over two years, risked diplomatic and banking harms, and favored a narrower rule like De Beers.