Assets of Foreign Central Banks

Assets of Foreign Central Banks in 2011

United States views on international law (based on the document “Digest of U.S. Practice in International Law”): On July 5, 2011, the U.S. Court of Appeals for the Second Circuit decided the case, NML Capital Ltd. v. Republic of Argentina, 652 F.3d 172 (2d Cir. 2011), discussed in World Encyclopedia of Law 2010 at 384-91 (presenting excerpts of the U.S. amicus brief). See also World Encyclopedia of Law 2007 at 494-504 for discussion of an earlier case involving prior efforts by the same plaintiffs to attach funds held by the same defendants. The court again held that the funds of Banco Central de la República (“BCRA”) at the Federal Reserve Bank of New York (“FRBNY”) were immune from attachment under the FSIA, this time interpreting Section 1611(b)(1) of the FSIA, which provides:

Notwithstanding the provisions of section 1610 of this chapter, the property of a foreign state shall be immune from attachment 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.

Plaintiffs' second attempt to attach the funds was premised on the theory, based on First Nat'l City Bank v. Banco Para el Comercio Exterior de Cuba (“Bancec”), 462 U.S. 611 (1983), that if a foreign central bank was acting as the “alter ego” of the foreign government, its assets could be attached as if they were assets of the government. After the initial determination that the more recent case brought by the plaintiffs was not barred by the doctrines of claim preclusion or issue preclusion because it presented different legal and factual issues, the court turned to an analysis of the claim under § 1611(b)(1). Most footnotes and citations have been omitted from the excerpts of the court's opinion that follow.

Developments

The District Court's holding was predicated on the conclusion that immunity under § 1611(b)(1) is dependent on a central bank's independence. That is, if a central bank lacks sufficient independence to preserve the presumption of juridical separateness under Bancec, the U.S. analysis under the FSIA must, according to plaintiffs, “stop at [§] 1610,” … because the property of the Republic in the present matter is not entitled to the immunity conferred in § 1611(b)(1). As a result, after “disregarding the formal separateness of the Republic and BCRA and treating the [FRBNY F]unds in the hands of BCRA . . . as the funds of the Republic,” EM Ltd., 720 F. Supp. 2d at 302, the District Court determined under § 1610 that (1) the Republic had “made the requisite waivers of immunity as to its property . . . [which] includ[es] the [FRBNY Funds],” id. at 302 (emphasis supplied); and (2) the FRBNY Funds should be considered “property [of the Republic] used for commercial activity in the United States,” id. at 303. The District Court declined to conduct an analysis of the FRBNY Funds' immunity under § 1611 because “the [FRBNY Funds were] in fact not the property of BCRA held for its own account, but [were] the property of the Republic.” Id. at 304.

We think that the District Court misread the FSIA when it concluded that a court facing the question of whether the assets of a central bank are attachable property under the FSIA must first decide whether the central bank is entitled to the presumption of independence from its parent state under Bancec. We hold that the plain language, history, and structure of § 1611(b)(1) immunizes property of a foreign central bank or monetary authority held for its own account without regard to whether the bank or authority is independent from its parent state pursuant to Bancec. If foreign central bank property is immune from attachment under § 1611(b)(1), the fact that “a relationship of principal and agent [has been] created” between the foreign state and its central bank under Bancec is irrelevant, see Bancec, 462 U.S. at 629. As discussed below, foreign central banks are not treated as generic “agencies and instrumentalities” of a foreign state under the FSIA; they are given “special protections” befitting the particular sovereign interest in preventing the attachment and execution of central bank property. EM I, 473 F.3d at 485. Plaintiffs cannot evade this statutory requirement by using Bancec to turn assets that would otherwise be considered property of a central bank held for its own account into property of the Republic that is not entitled to immunity.

Details

First, the text of the statute provides that the only qualification for immunity under § 1611(b)(1) is whether the property of the central bank is “held for its own account.” We are mindful that in interpreting the statute we must “give effect to Congress's choice of words, and understand that the text, as written,” does not create an independence requirement for the immunity of central bank assets under the FSIA. United States v. Wilson, 503 U.S. 329, 342, 112 S. Ct. 1351, 117 L. Ed. 2d 593 (1992).… Second, the plain language of the statute suggests that Congress recognized that the property of a central bank, immune under § 1611, might also be the property of that central bank's parent state. As the United States, appearing as amicus curiae, observes, “if Congress had intended to limit § 1611(b)(1) to independent central banks, one would have expected the introductory language of the subsection—'Notwithstanding the provisions of section 1610 of this chapter'—to refer only to § 1610(b), which provides for execution or attachment of the property of state agencies and instrumentalities, rather than to § 1610 as a whole.” United States Amicus Br. 6-7. But § 1611(b)(1) refers to § 1610 in its entirety—including those provisions of § 1610 applicable only to foreign states. Therefore, the statute seems to anticipate the possibility that property held by the central bank may also be property of the sovereign state.

More about the Issue

… In the House Report on the FSIA, upon which we relied in EM I, Congress explained that Section 1611(b)(1) provides for the immunity of central bank funds from attachment or execution. It applies to funds of a foreign central bank or monetary authority which are deposited in the United States and “held” for the bank's or authority's “own account”—i.e., funds used or held in connection with central banking activities, as distinguished from funds used solely to finance the commercial transactions of other entities or of foreign states. If execution could be levied on such funds without an explicit waiver, deposit of foreign funds in the United States might be discouraged. Moreover, execution against the reserves of foreign states could cause significant foreign relations problems.

FSIA House Report 31, reprinted in 1976 U.S.C.C.A.N. 6604 at 6630. … The FSIA House Report reflects Congress's understanding that while the “funds of [ ] foreign central banks” are managed through those banks' accounts in the United States, those funds are, in fact, “the reserves of [the] foreign state[s]” themselves. FSIA House Report 31, as reprinted in 1976 U.S.C.C.A.N. 6604 at 6630. In other words, the property of central banks deserves protection notwithstanding the fact that central banks may not have separate legal personhood. “By referring to the property of a foreign state and the property of a central bank interchangeably, Congress indicated its understanding that central bank property could be viewed as the property of a foreign state, and nonetheless be immune from attachment.” See United States Amicus Br. 8.

Assets of Foreign Central Banks in 2011

United States views on international law (based on the document “Digest of U.S. Practice in International Law”): (b) Historical Context Perhaps most convincingly, the historical backdrop against which the FSIA was passed forecloses the argument that a determination of agency liability under Bancec can render property attachable that is otherwise immune under § 1611(b)(1). As plaintiffs' expert observes, “[t]wenty years ago . . . most central banks in the world functioned as departments of ministries of finance[,]” in which “the level of actual independence . . . was usually lower than indicated in the law.” …

Accordingly, when Congress passed the FSIA, it had no reason to believe that foreign central banks and monetary authorities would be independent of their parent states because, at that time, most were not. Moreover, Congress had reason to suspect that, as appears to be the case with Argentina, a central bank's actual degree of autonomy may not be entirely predictable based on its degree of juridical independence. In an environment in which Congress was worried that execution against foreign central bank deposits might “discourage[]” foreign states from depositing their reserves in the United States, see FSIA House Report 31, reprinted in 1976 U.S.C.C.A.N. 6604 at 6630; see also EM I, 473 F.3d at 473, it makes no sense to assume that Congress would enact a statute designed to prevent “significant foreign relations problems” which failed to immunize a significant portion of the central bank reserves in the United States at that time. Id.

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We therefore conclude that § 1611(b)(1) immunizes foreign central bank property “held for its own account” without regard to the central bank's independence from its parent state; that is, we hold that the analysis of the immunity of a foreign central bank's property begins with §1611(b)(1). There is no indication in the text, history, or structure of the FSIA that Congress intended to make the immunity of a central bank's property contingent on the independence of the central bank. The statute makes no reference to the independence or autonomy of a central bank or monetary authority. Moreover, the history of the FSIA and of the independence of central banks suggests that Congress understood the property of a foreign central bank to be deserving of immunity regardless of that bank's independence. Plaintiffs fail to convince us that an independence requirement can be fairly read into the statute.

(iv) Having concluded that the immunity of the FRBNY Funds under the FSIA turns not on whether the BCRA is entitled to a presumption of independence from the Republic under Bancec, but on whether the funds are property of the BCRA “held for its own account” under § 1611(b)(1), we must now decide whether the FRBNY Funds meet that test.

The definition of the phrase “held for its own account” in § 1611(b)(1) is a matter of first impression in this Circuit. See EM I, 473 F.3d at 485 (declining to “decide which interpretation of § 1611(b)(1)'s 'held for its own account' language is correct”). The parties and amici propose three competing definitions.

First, BCRA argues that central bank property is “held for its own account” if that property is used for “traditional central banking activities.” … This appears to be the test adopted by Congress in the FSIA, see FSIA House Report 31, reprinted in 1976 U.S.C.C.A.N. at 6630 … and apparently is the only test ever to be applied by a federal court in this country. See, e.g., Ministry of Def. & Support for Armed Forces of Islamic Repub. of Iran v. Cubic Def. Sys., 385 F.3d 1206, 1223-24 (9th Cir. 2004)… vacated on other grounds sub nom., Ministry of Def. & Support for Armed Forces of Islamic Repub. of Iran v. Elahi, 546 U.S. 450, 126 S. Ct. 1193, 163 L. Ed. 2d 1047 (2006); Bank of Credit and Commerce Int'l (Overseas) Ltd. v. State Bank of Pak., 46 F. Supp. 2d 231, 239 (S.D.N.Y. 1999)… vacated on other grounds, 273 F.3d 241 (2d Cir. 2001); Banco Central de Reserva del Peru v. Riggs Nat'l Bank of Washington, D.C., 919 F. Supp. 13, 17 (D.D.C. 1994) (citing FSIA House Report); Banque Compafina v. Banco de Guatemala, 583 F. Supp. 320, 322 (S.D.N.Y. 1984) (same).

Developments

A second proposed definition of central bank property “held for its own account” is offered by the FRBNY, appearing as amicus curiae. FRBNY suggests an alternative definition drawn from the common law of bank deposits. … Under the so-called “plain language test,” property of a central bank is “held for its own account” if it is in an account in the central bank's name because “[u]nder fundamental banking law principles, a positive balance in a bank account reflects a debt from the bank to the depositor” and no one else. …

Finally, relying on a “grammatical and syntactical construction of Section 1611(b),” plaintiffs suggest a third definition of property of a central bank “held for its account”: “[p]roperty of a central bank is 'held for its own account' when it is held for [the central bank's] own profit or advantage.” … Drawing on this definition, plaintiffs argue that if, pursuant to Bancec, a court were to disregard the juridical separateness of BCRA, the FRBNY Funds “cannot be held for the central bank's own profit or advantage” because the central bank “is the sovereign.” …

Plaintiffs' definition is novel but cannot be correct. BCRA is charged by statute with power and responsibility over, among other things, issuing and monitoring the stability of the Argentine peso, establishing and implementing monetary policy, investing reserves, acting as the Republic's financial agent and as depository and agent for the Republic before “international monetary, banking and financial entities,” and regulating the Argentine banking system and financial sector. … These are all traditional activities of central banks. … They are also, to a one, functions which defy any attempt to divide the interest of the central bank from that of the state it serves.

Details

On the other hand, the “central banking activities” test is not without difficulty, either. On its face, the House Report “distinguishe[s]” between property “used or held in connection with central banking activities,” which is immune from attachment under § 1611(b)(1), and that used “solely to finance the commercial transactions . . . of foreign states,” which is not. FSIA House Report 31, reprinted in 1976 U.S.C.C.A.N. at 6630. However, the structure of the FSIA suggests that property used for commercial activity and property of a central bank held for its own account are not mutually exclusive categories, because some property of a central bank held for its own account is a category of property used for commercial activity.…

In order to resolve this tension, one practitioner of central banking law has proposed a modified central bank functions test, pursuant to which “property of a central bank is immune from attachment if the central bank uses such property for central banking functions as such functions are normally understood, irrespective of their commercial nature.” Patrikis, Foreign Central Bank Property, 1982 U. Ill. L. Rev. at 277. Conversely, “if an activity is to be regarded as commercial, as distinguished from a central bank activity, it should be an activity of the foreign central bank not generally regarded as a central banking activity.” Id. at 277-78. This test was adopted by the district court in Weston, see 823 F. Supp. at 1113, and, more recently, by another district court in Olympic Chartering, S.A. v. Ministry of Indus. & Trade of Jordan, 134 F. Supp. 2d 528, 534 (S.D.N.Y. 2001) (“If the funds at issue are used for central bank functions as these are normally understood, then they are immune from attachment, even if used for commercial purposes.”).

We think that this modified test—which combines the “plain language” of the statute and “central bank activities” tests as conjunctive requirements—accords with the text and purpose of §1611(b)(1), and we therefore adopt this test for purposes of determining whether central bank property is “held for its own account.” Where funds are held in an account in the name of a central bank or monetary authority, the funds are presumed to be immune from attachment under § 1611(b)(1). This presumption is consistent with the recognition that “FSIA immunity is immunity not only from liability, but also from the costs, in time and expense, and other disruptions attendant to litigation.” Kelly v. Syria Shell Petroleum Dev. B.V., 213 F.3d 841, 849 (5th Cir. 2000); see also EM I, 473 F.3d at 486 (district courts must calibrate the ” 'delicate balancing between permitting discovery to substantiate exceptions to statutory foreign sovereign immunity and protecting a sovereign's or sovereign agency's legitimate claim to immunity from discovery' “) (quoting First City, Texas-Houston, N.A. v. Rafidain Bank, 150 F.3d 172, 176 (2d Cir. 1998) (quotation marks omitted))). A plaintiff, however, can rebut that presumption by demonstrating with specificity that the funds are not being used for central banking functions as such functions are normally understood, irrespective of their “commercial” nature.

More about the Issue

Had the District Court applied this test, it would have concluded that the FRBNY Funds were property of the BCRA held for the central bank's own account at FRBNY. We have already established that the FRBNY Funds are held in BCRA's name at FRBNY. See EM I, 473 F.3d at 473 (“[T]he FRBNY Funds that plaintiffs seek to attach are held in BCRA's name.”). Pursuant to the parties' March 2009 Stipulation, the FRBNY Funds of December 30, 2005 are said to have been derived from four types of transactions conducted by BCRA: (1) $31 million was transferred into the FRBNY account in order to pay Argentine banks that sought to reduce the amount of their U.S. dollar reserves; (2) $32.2 million was transferred into the account because certain Argentine banks were increasing their U.S. dollar reserves; (3) BCRA had purchased approximately $35 million in U.S. dollars throughout the day in order to control its currency; and (4) $1.2 million was deposited pursuant to a regulatory exchange rule that BCRA imposed on Argentine exporters. See EM Ltd., 720 F. Supp. 2d at 303. The record clearly establishes that the accumulation of foreign exchange reserves to facilitate the regulation of the peso and the custody of cash reserves of commercial banks pursuant to central bank regulations are paradigmatic central banking functions.…

(v) Having concluded that the FRBNY Funds a re property of the BCRA “held for its own account,” the final question under § 1611(b)(1) is whether there has been an effective waiver of immunity with respect to that property.

Section 1611(b)(1) provides that the only exception to the immunity for property of a central bank or monetary authority held for its own account is where “such bank or authority, or its parent foreign government, has explicitly waived its immunity from attachment in aid of execution, or from execution.” 28 U.S.C. § 1611(b)(1).

The District Court concluded that the Republic had explicitly waived its immunity. See EM Ltd., 720 F. Supp. 2d at 301. The terms and conditions governing the bonds provide that—with regard to any potential immunity from attachment and execution of the Republic's property—”the Republic has irrevocably agreed not to claim and has irrevocably waived such immunity to the fullest extent permitted by the laws of such jurisdiction and consents generally for the purposes of the Foreign Sovereign Immunities Act to the giving of any relief or the issue of any process in connection with any Related Proceeding or Related Judgment.”…

Assets of Foreign Central Banks in 2011

United States views on international law (based on the document “Digest of U.S. Practice in International Law”): However, the District Court also concluded that “there has been no waiver of immunity with respect to BCRA.” EM Ltd., 720 F. Supp. 2d at 297 (emphasis supplied). We agree. Waiver under the FSIA must be “clear and unambiguous.” Carpenter v. Republic of Chile, 610 F.3d 776, 779 (2d Cir. 2010). In circumstances in which we have recognized the waiver of immunity with respect to an agency or instrumentality of a foreign state, that waiver has specifically embraced the foreign state and the relevant agency or instrumentality. See, e.g., LNC Invs., Inc. v. Republic of Nicaragua, 115 F. Supp. 2d 358, 361 (S.D.N.Y. 2000), aff'd sub nom., LNC Invs., Inc. v. Banco Central de Nicaragua, 228 F.3d 423 (2d Cir. 2000) (waving immunity “[t]o the extent that the Republic or any Governmental Agency has or hereafter may acquire any immunity from jurisdiction of any court”).

Here, while the Republic waived immunity under the FSIA for “the Republic or any of its revenues, assets or property,” the Republic's waiver did not mention the “instrumentalities” of the Republic or BCRA in particular, much less BCRA's reserves at FRBNY. As we previously observed, “although the Republic's waiver of immunity from attachment is worded broadly, it does not appear to clearly and unambiguously waive BCRA's immunity from attachment, as it must do in order to be effective.” EM I, 473 F.3d at 485 n.22.

More about Assets of Foreign Central Banks

Because BCRA's sovereign immunity over the FRBNY Funds has not been waived and the FRBNY Funds are property of BCRA held for its own account under 28 U.S.C. § 1611(b)(1), we hold that the FRBNY Funds are immune from attachment and restraint. The District Court therefore erred in concluding that it had subject-matter jurisdiction to adjudicate a suit for attachment and restraint of the FRBNY Funds. The April 7, 2010 opinion and all associated orders of the District Court are vacated and the cause is remanded to the District Court for further proceedings consistent with this opinion.

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See Also

• Privileges
• Immunities
• Foreign Sovereign Immunities
• Execution Of Judgments
• Post-Judgment Actions
• Attachments