Argued March 28, 1983. Decided June 17, 1983.
Justice O'Connor delivered the opinion of the Court.
[1a] In 1960 the Government of the Republic of Cuba established respondent Banco Para el Comercio Exterior de Cuba (Bancec) to serve as "[a]n official autonomous credit institution for foreign trade . . . with full juridical capacity . . . of its own . . ." Law No. 793; Art 1 (1960), App to Pet for Cert 2d. In September 1960 Bancec sought to collect on a letter of credit issued by petitioner First National City Bank (now Citibank) in its favor in Support of a contract for delivery of Cuban sugar to a buyer in the United States. Within days after Citibank received the request for collection, all of its assets in Cuba were seized and nationalized by the Cuban Government. When Bancec brought suit on the letter of credit in United States District Court, Citibank counterclaimed, asserting a right to set off the value of its seized Cuban assets. The question before us is whether Citibank may obtain such a setoff, notwithstanding the fact that Bancec was established as a separate juridical entity. Applying principles of equity common to international law and federal common law, we conclude that Citibank may apply a setoff.
Resolution of the question presented by this case requires us to describe in some detail the events giving rise to the current controversy.
Bancec was established by Law No. 793, of April 25, 1960, as the legal successor to the Banco Cubano del Comercio Exterior (Cuban Foreign Trade Bank), a trading bank established by the Cuban Government in 1954 and jointly owned by the Government and private banks Law No. 793 contains detailed "Bylaws" specifying Bancec's purpose, structure, and administration. Bancec's stated purpose was "to contribute to, and collaborate with, the international trade policy of the Government and the application of the measures concerning foreign trade adopted by the 'Banco Nacional de Cuba,'" Cuba's central bank (Banco Nacional). Art 1, 614 No. VIII, App to Pet for Cert 4d. Bancec was empowered to act as the Cuban Government's exclusive agent in foreign trade. The Government supplied all of its capital and owned all of its stock. The General Treasury of the Republic received all of Bancec's profits, after deduction of amounts for capital reserves. A Governing Board consisting of delegates from Cuban governmental ministries governed and managed Bancec. Its president was Ernesto Che Guevara, who also was Minister of State and president of Banco Nacional. A General Manager appointed by the Governing Board was charged with directing Bancec's day-to-day operations in a manner consistent with its enabling statute.
In contracts signed on August 12, 1960, Bancec agreed to purchase a quantity of sugar from El Institutio Nacional de Reforma Agraria (INKA), an instrumentality of the Cuban Government which owned and operated Cuba's nationalized sugar industry, and to sell it the Cuban Canadian Sugar Company. The latter sale agreement was supported by an irrevocable letter of credit in favor of Bancec issued by Citibank an August 18, 1.960, which Bancec assigned to Banco Nacional for collection.
Meanwhile, in July 1960 the Cuban Government enacted Law No. 851, which provided for the nationalization of the Cuban properties of United States citizens. By Resolution No. 2 of September 17, 1960, the Government ordered that all of the Cuban property of three United States banks, including Citibank, be nationalized through forced expropriation. The "Bank Nationalization Law," Law No. 891, of October 13, 1960, declared that the banking function could be carried on only by instrumentalities created by the State, and ordered Banco Nacional to effect the nationalization.
On or about September 15, 1960, before the banks were nationalized, Bancec's draft was presented to Citibank for payment by Banco Nacional. The amount sought was $193,280.30 for sugar delivered at Pascagoula, Miss. On September 20, 1960, after its branches were nationalized, 615 Citibank credited the requested amount to Banco Nacional's account and applied the balance in Banco Nacional's account as a setoff against the value of its Cuban branches.
On February 1, 1961, Bancec brought this diversity action to recover on the letter of credit in the United States District Court for the Southern District of New York.
On February 23, 1961, by Law No. 930, Bancec was dissolved and its capital was split between Banco Nacional and "the foreign trade enterprises or houses of the Ministry of Foreign Trade," which was established by Law No. 934 the same day. App to Pet for Cert 16d. All of Bancec's rights, claims, and assets "peculiar to the banking business" were vested in Banco Nacional, which also succeeded to its banking obligations. Ibid. All of Bancec's "trading functions" were to be assumed by "the foreign trade enterprises or houses of the Ministry of Foreign Trade." .By Resolution No. 1, dated March 1, 1961, the Ministry of Foreign Trade created Empresa Cubana de Exportaciones (Cuban Enterprise for Exports) (Empresa), which was empowered to conduct all commercial export transactions formerly conducted by Bancec "remaining subrogated in the rights and obligations of said bank [Bancec] as regards the commercial export activities." App to Pet for Cert 26d. Three hundred thousand of the two million pesos distributed to the Ministry of Foreign Trade when Bancec was dissolved were assigned to Empresa. Id., at 27d. By Resolution No. 102, dated December 31, 1961, and Resolution No. 1, dated January 1, 1962, Empresa was dissolved and Bancec's rights relating to foreign commerce in sugar were assigned to Empresa Cubana 616 Exportadora de Azucar y sus Derivados (Cubazucar), a state trading company, which is apparently still in existence.
On March 8, 1961, after Bancec had been dissolved, Citibank filed its answer, which sought a setoff for the value of its seized branches, not an affirmative recovery of damages. On July 7, 1961, Bancec filed a stipulation signed by the parties stating that Bancec had been dissolved and that its claim had been transferred to the Ministry of Foreign Trade, and agreeing that the Republic of Cuba may be substituted as plaintiff. The District Court approved the Stipulation, but no amended complaint was filed.
Apparently the case lay dormant until May 1975, when respondent filed a motion seeking an order substituting Cubazucar as plaintiff. The motion was supported by an affidavit by counsel stating that Bancec's claim had passed through the Ministry of Foreign Trade and Empresa to Cubazucar, all by operation of the laws and resolutions cited above. Counsel for petitioner opposed the motion, and the District Court denied it in August 1975, stating that "to permit such a Substitution would only multiply complications in this already complicated litigation." App 160.
A bench trial was held in 1977 after which the District 617 Court granted judgment in favor of Citibank. 505 F Supp 412 (1980). The court rejected Bancec's contention that its separate juridical status shielded it from liability for the acts of the Cuban Government.
"Under all of the relevant circumstances shown in this record, . . . it is clear that Bancec lacked on independent existence, and was a mere arm of the Cuban Government, performing a purely governmental function. The control of Bancec was exclusively in the hands of the Government, and Bancec was established solely to further Governmental purposes. Moreover, Bancec was totally dependent an the Government for financing and required to remit all of its profits to the Government.
"Bancec is not a mere private Corporation, the stock of which is owned by the Cuban Government, but an agency of the Cuban Government in the conduct of the sort of matters which even in a country characterized by private capitalism, tend to be supervised and managed by Government. Where the equities are so strong in 618 favor of the Counter-claiming defendants, as they are in this case, the Court should recognize the practicalities of the transactions . . . . The Court concludes that Bancec is an alter ego of the Cuban Government." Id., at 427-428.
Without determining the exact value of Citibank's assets seized by Cuba, the court held that "the value of the confiscated branches . . . substantially exceeds the sums already recovered, and therefore the set-off pleaded here may be granted in full in favor of Citibank." Id., at 467. It therefore entered judgment dismissing the complaint.
The United States Court of Appeals for the Second Circuit reversed. 658 F2d 913 (1981). While expressing agreement with the District Courts. "descriptions of Bancec's functions and its status as a wholly-owned instrumentality of the Cuban government," the court concluded that "Bancec was 619 not an alter ego of the Cuban government for the purpose of [Citibank's] counterclaims." Id., at 917. It stated that, as a general matter, courts would respect the independent identity of a governmental instrumentality created as "a separate and distinct juridical entity under the laws of the state that owns it" - except "when the Subject matter of the counterclaim assertible against the state is state conduct in which the instrumentality had a key role." Id., at 918. As an example of such a Situation the Court of Appeals cited Banco National de Cuba v First National City Bank, 478 F2d 191 (CA2 1973), in which it had ruled that Banco National could be held liable by way of setoff for the value of Citibank's seized Cuban assets because of the role it played in the expropriations. But the court declined to hold that "a trading corporation wholly owned by a foreign government, but created and operating as a separate juridical entity, is an alter ego of that government for the purpose of recovery for wrongs of the government totally unrelated to the operations, conduct or authority of the instrumentality." 658 F2d; at 920.
Citibank moved for rehearing, arguing, inter alia, that the panel had ignored the fact that Bancec had been dissolved in February 1961. The motion, and a suggestion of rehearing en banc, were denied. This Court granted certiorari. 459 US, 942, 74 L Ed 2d 198, 103 S Ct 253 (1982). We reverse, and remand the case for further proceedings.
Before examining the controlling principles, a preliminary observation is appropriate. The parties and amici have repeatedly referred to the phrases that have tended to dominate discussion about the independent status of separately constituted juridical entities, debating whether "to pierce the corporate veil," and whether Bancec is an "alter ego" or a "mere instrumentality" of the Cuban Government. In Berkey v Third Avenue. R. Co. 244 NY 84, 155 NE 58, (1926), Justice (then Judge) Cardozo warned in circumstances similar to those presented here against permitting worn epithets to substitute for rigorous analysis.
"The whole problem of the relation between parent and subsidiary corporations is one that is still enveloped in the mists of metaphor. Metaphors in law are to be narrowly watched, for starting as devices to liberate thought, they end often by enslaving it." Id., at 94, 155 NE, at 61.
With this in mind, we examine briefly the nature of government instrumentalities.624
Increasingly during this century, governments throughout the world have established separately constituted legal entities to perform a variety of tasks. The organization and control of these entities vary considerably, but many possess a number of common features. A typical government instrumentality, if one can be said to exist, is created by an enabling statute that prescribes the powers and duties of the instrumentality, and specifies that it is to be managed by a board selected by the government in a manner consistent with the enabling law. The instrumentality is typically established as a separate juridical entity, with the powers to hold and sell property and to sue and be sued. Except for appropriations to provide capital or to cover losses, the instrumentality is primarily responsible for its own finances. The instrumentality is run as a distinct economic enterprise; often it is not subject to the same budgetary and personnel requirements with which government agencies must comply."
These distinctive features permit government instrumentalities to manage their operations on an enterprise basis while granting them a greater degree of flexibility and independence from close political control than is generally 625 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.
"[P]ublic enterprise, largely in the form of development corporations, has become an essential Instrument of economic development in the economically backward countries which have insufficient private venture capital to develop the utilities and industries which are given priority in the national development plan. Not infrequently, these public development corporations . . . directly or through subsidiaries, enter into partnerships with national or foreign private enterprises, or they offer shares to the public." Friedmann, Government Enterprise: A Comparative Analysis, in Government Enterprise: A Comparative Study 303, 333-334 (W. Friedmann & J. Garner eds 1970).
 Separate legal personality has been described as "an almost indispensable aspect of the public corporation," Id., at 314. Provisions in the corporate charter stating that the instrumentality may sue and be sued have been construed to waive the sovereign immunity accorded to many governmental activities, thereby enabling third parties to deal with the instrumentality knowing that they may seek relief in the courts. Similarly, the instrumentality's assets and liabilities must be treated as distinct from those of its sovereign in 626 order to facilitate credit transactions with third parties. Id., at 315. Thus what the Court stated with respect to private corporations in Anderson v Abbott, 321 US 349, 88 L Ed 793, 64 S Ct 531,151 ALR 1146 (1944), is true also for governmental corporations:
"Limited liability is the rule, not the exception; and on that assumption large undertakings are rested, vast enterprises are launched, and huge sums of capital attracted." Id., at 362, 88 L Ed 793, 64 S Ct 531, 151 ALR 1146.
 Freely ignoring the separate status of government instrumentalities would result in substantial uncertainty over whether an instrumentality's assets would be diverted to satisfy a claim against the sovereign, and might thereby cause third parties to hesitate before extending credit to a government instrumentality without the government's guarantee. As a result, the efforts of sovereign nations to structure their governmental activities in a manner deemed necessary to promote economic development and efficient administration would surely be frustrated. Due respect for the actions taken by foreign sovereigns and for principles of comity between nations, see Hilton v Guyot, 159 US 113, 163-164, 40 L Ed 95, 16 S Ct 139 (1895), leads us to conclude - as the courts of Great Britain have concluded in other circumstances that government 627 instrumentalities established as juridical entities distinct and independent from their sovereign should normally be treated as such.
 We find support for this conclusion in the legislative history of the FSIA. During its deliberations, Congress clearly expressed its Intention that duly created instrumentalities of a foreign state are to be accorded a presumption of independent status. In its discussion of FSIA § 1610(b), the provision dealing with the circumstances under which a judgment creditor may execute upon the assets of an instrumentality of a foreign government; the House Report states:
"Section 1610(b) will not permit execution against the property of one agency or instrumentality to satisfy a628
judgment against another, unrelated agency or instrumentality. There are compelling reasons for this. If US law did not respect the separate juridical identities of different agencies or instrumentalities, it might encourage foreign jurisdictions to disregard the juridical divisions between different US corporations or between a US corporation and its independent subsidiary. However, a court might find that property held by one agency is really. the property of another." HR Rep No. 94-1487, pp 29-30 (1976) (citation omitted).
Thus, the presumption that a foreign government's determination that its instrumentality is to be accorded separate legal status is buttressed by this congressional determination.