The Cases of the Day, NML Capital, Ltd. v. Banco Central de la República Argentina (2d Cir. 2011), and NML Capital, Ltd. v. Republic of Argentina (UKSC 2011), are the latest in a series of cases brought against Argentina by investors in Argentine sovereign debt after the country’s financial crisis. We have previously reported on Argentina v. BG Group, confirming an award against Argentina under the Argentina/UK BIT; Argentine Republic v. National Grid plc, denying Argentina’s motion to vacate another award on procedural grounds and confirming the award; and Scheck v. Republic of Argentina, rejecting Argentina’s defense of insufficient service of process in an action for recognition and enforcement of a German judgment against Argentina in favor of investors.
The Second Circuit case dealt with investors’ attempts to attach funds the Argentine Central Bank had on deposit with the Federal Reserve Bank of New York after obtaining a judgment against Argentina. Beginning in the fall of 2005, the Central Bank transferred more than $2 billion from the FRBNY to the Bank for International Settlements. This was part of a strategy to prop up the value of the peso and to move Argentina’s currency reserves to “more protective jurisdictions … as a preventive measure against possible wrongful attachment efforts by creditors of the Republic.” The BIS was a safe haven because under various international agreements its deposits were protected from attachment. In light of these transfers, the investors sought and obtained an ex parte attachment of the Central Bank’s funds at the FRBNY, which then totaled only $105 million. Their theory was that two emergency decrees of President Kirchner, which were designed to “facilitate the repayment of the Republic’s debt to the International Monetary Fund,” effectively transferred ownership of the Central Bank’s deposits with the FRBNY to the Republic of Argentina itself, because the decrees made the funds available to repay the Republic’s debt to the IMF. But the court later concluded that the emergency decrees had not affected the ownership of the funds, and that under 28 U.S.C. § 1611(b), the funds were immune from attachment and execution. The statute provides:
Notwithstanding the provisions of section 1610 of this chapter, the property of a foreign state shall be immune from attachment and from execution, if—
(1) the property is that of a foreign central bank or monetary authority held for its own account, unless such bank or authority, or its parent foreign government, has explicitly waived its immunity from attachment in aid of execution, or from execution, notwithstanding any withdrawal of the waiver which the bank, authority or government may purport to effect except in accordance with the terms of the waiver …
On an interlocutory appeal, the Second Circuit affirmed the order vacating the attachment. But, the Second Circuit said, the investors might be able to prevail if they could show that the Bank was the Republic’s agent, or that recognizing the Bank’s separate juridical status would “work fraud or injustice”.
The investors then brought a new action, seeking a declaration that the Bank was liable for the Republic’s debts, on the theories that the Second Circuit had suggested. The district court granted a motion for attachment of the funds on the new theories, in essence, piercing the corporate veil. But this time, the Second Circuit reversed. It held that under §1611(b), if the property to be attached is central bank property held for the central bank’s account, then the property is immune from attachment regardless whether the central bank is the state’s alter ego. In other words, the Second Circuit rejected the suggestion it had made in the earlier case, which is, I suppose, the appellate court’s prerogative, particularly where the suggestion in the first case was a mere dictum. As the court found Argentina had not waived its immunity, it ruled against the investors.
The court reviewed the history and structure of the statute, and I don’t recap that discussion here. I would, though, like to quote from the end of the decision, as the court uses language that could serve as a warning to our own legislators, who are treating the full faith and credit of the United States as a bargaining chip:
One need not have what Argentina’s great gift to literature termed a “case of prodigious memory” to recall the Republic’s appalling record of keeping its promises to its creditors. Argentina’s record in global bond markets has given new meaning to the concept of caveat emptor. Even when the Argentine people offer a substantial premium to those adventurous souls who risk a loan to the country, for many investors, the experience of being a creditor to the Republic has been a profile in disappointment.