Abgeschickt von rolf am 26 Januar, 2006 um 20:20:01
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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
EM LTD,,
Plaintiff,
v.
03 CV 2S07 (TPG)
THE REPUBLIC OF ARGENTINA,
Defendant. NML CAPITAL, LTD.,
Plaintiff, v. THE REPUBLIC OP ARGENTINA,
Defendant. NML CAPITAL, LTD.,
Plaintiff, v. THE REPUBLIC OF ARGENTINA,
Defendant.
03 CV 8845 (TPG)
05 CV 2434 (TPG)
Before:
New York, N.Y. January 6, 2006 4;30 p.m.
HON. THOMAS P. GRIESA,
District Judge
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APPEARANCES
DEBEVOISE & PLIMPTON
Attorneys for plaintiff EM Ltd. BY: DENNIS HRANITZKY (via speaker phone)
DECHERT
Attorneys for Plaintiff NML Capital, Ltd. BY: ROBERT A. COHEN (via speaker phone)
CLEARY GOTTLIEB STEEN & HAMILTON, LLP
Attorneys for Defendant BY: JONATHAN I. BLACKMAN
CARMINE D. BOCCUZZI, JR.
MICHAEL J. BYARS
SULLIVAN & CROMWELL, LLP
Attorneys for Banco Central de la Republica Argentina BY: JOSEPH E. NJEUHAUS
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{In chambers)
THE COURT: We have a reporter. Was it Mr. Cohen talking?
MR. COHEN: Yes, your Honor.
THE COURT: Can you just summarize? The record should show that Judge Jones signed an order of attachment, and I think a restraining notice. Was that it?
MR. COHEN: That's correct.
THE COURT: And on behalf of two of the bond creditors, one of whom has a judgment and the other is in litigation, and it would appear that a judgment is likely. And I'm sorry to keep everybody repeating, but I think this ought to go on the record.
Can you just briefly summarize, Mr. Cohen, what you just said to me off the record.
MR. COHEN: I will, your Honor. Thank you.
I said that on December 15, the president of
Argentina, by executive decree, deemed approximately $9 billion that had formerly been Central Bank assets available to pay off the debt that Argentina owes to the IMF, International Monetary Fund, thereby turning what had been Central Bank assets into assets of Argentina to be used for commercial purpose -- that is, to repay a debt -- and that some of those assets, we believed, were in New York at either the federal Reserve or at various correspondent banks of the Central Bank. We believed
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that because those assets were now property of Argentina/ in New York, and to be used for commercial activity, they were available for attachment or restraint and that was the basis upon which we moved before Judge Jones.
We needed to move before Judge Jones because it had been reported that the payment would be made on January 3, and your Honor had been away until then. And in fact, press reports have since indicated that payment was made on January 3. So if we were successful in attaching or restraining assets by the serving of the restraining orders and the attachments on December 30, we believe we may have successfully reached assets in New York that were available for attachment.
THE COURT: Now, how much has been attached?
MR. NEUHAUS: About 105 million in the Federal Reserve Bank and several more million, we don't know quite how much, in transit through those correspondent banks that were in the course of ordinary foreign exchange transactions that were being settled when they served their attachment orders, and the banks, whether they should or not, are withholding money.
THE COURT: Again, your name?
MR. NEUHAUS: Joseph Neuhaus of Sullivan & Cromwell.
THE COURT: Mr. Neuhaus, what is the problem about the attachment of these funds?
MR. NEUHAUS: The claimant's theory that the property, the reserves of the Central Bank have somehow Jbecome the
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state's money for use as they describe is completely wrong. The decree that they're talking about simply changed, did not change the property rights to the reserve, which have been and will always remain Central Bank property/ What the decree said was that to the extent the Central Bank no longer needed, to the extent the Central Bank has money reserved to back 100 percent of the currency in floatation, reserves above that can be used for one purpose, which is to pay multilateral institutions like the IMF. and which is something that has always been done with reserves.
The Central Bank, it's a historical Central Bank function to pay the IMF and to, with foreign currency reserves. The Central Bank is the intermediary between the IMF and the Central Bank. All this order did was to say contrary to what had been the case before under internal Argentine law, that these reserves could be used to pay the IMF without having the government deposit, take money out of circulation and deposit with the bank right away, Central Bank right away. Instead, the Central Bank took a note from the government for the amounts.
Nothing about this changed the property rights and the reserve which, remains Central Bank reserves.
In addition, as I said, this is a classic Central Bank function, to pay the IMF. And, moreover, these funds are being used for classic Central Bank functions. These funds in New
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York have not been used and were never intended to be used to pay off the IMF. They are used for foreign exchange transactions and as a reserve for Argentine banks. Under Argentine law, they have to maintain a certain reserve in foreign currencies when it relates to their foreign currency holdings. That's the function of this money.
We have a declaration that sets that out, and none of this money, the 105 million at the Central Bank, has been used to pay the IMF, and it was never intended to be. What's happened though, is by freezing these Central Bank reserves, the plaintiffs have done exactly what the Central Bank exemption and the FSIA was designed to prevent, which is they've totally brought to a halt and interfered with the classic traditional Central Bank functions of foreign exchange.
You can't, it's very hard to do foreign exchange without access to the Fed wire, and they've essentially blocked access by the Republic, the Central Bank of Argentina, the Fed wire, thereby crippling the foreign exchange function, as well as this reserving function that I described a moment ago. So you have a situation where because of fundamentally a misreading of this decree, they have manufactured this theory of appropriation, when nothing has happened to the reserves. They are still Central Bank reserves and classically subject to the exemption in the FSIA for those reserves.
MR. BIACKMAN: If I could just add, your Honor.
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THE COURT: This is Mr. BlacJcman.
MR. BLACKMAN: First, just to echo what Mr. Neuhaus said, the law here had one purpose and one purpose only, which was, in effect, to give the Central Bank more flexibility than it previously had to use its reserves to pay debts which actually are reflected on its books as its debts. And the government, instead of immediately reimbursing the Central Bank, in essence, promised to reimburse them and gave them an interest-bearing obligation. So the reserves remained and always were the property of the Central Bank.. And under Section 1611(b)(1), this is a classic example of property of a foreign Central Bank held for its own account, which is not subject at all to prejudgment attachment, in the case of NML, and would be subject to execution of EM if there were explicit waiver of immunity by the Central Bank, which there isn't.
If I could just add something that your Honor didn't address, which waa, you began before the reporter came in by saying that you would never have signed a blanket order of attachment. Apart from the attachment of Central Bank reserves, this order also, without any justification of urgency or anything «lse, purported in a totally blanket way to attach all property in New York of the Republic, not even limited to property in the generic category of property used for commercial activity in the United States, but also, quote, any other property that would be subject to attachment by virtue of
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the Republic's waiver of immunity and the loan agreement. And your Honor decided two years ago that that waiver did not somehow extend the scope of allowable attachment or execution ■under the FSIA beyond property used for commercial activity.
So that blanket order vis-a-vis the Republic is separately defective, and although they did have a little carve-out for military property or diplomatic property, it's both. A, overbroad and, B, totally nonspecific, in violation of the Olympic case, in violation of the Kazakhstan case and in violation of the other law under the FSIA and therefore should be vacated forthwith.
THE COURT: Is Mr. Cohen not on? Is anyone on?
MR. COHEN: I'm very sorry, your Honor. I just got disconnected. I don't know how that happened.
THE COURT: Who is this?
MR. COHEN: Thig is Robert Cohen.
THE COURT: When did you get disconnected?
MR. COHEN: I heard Mr. Neuhaus explaining why he felt these were purely Central Bank functions.
THE COURT: Then we better have Mr. Blackman repeat.
MR. BLACKMAN: what I said was speaking on behalf of the Republic, all Central Banks act as banker for the parent state. That is a banking function reflected in the case law, the Westin case, the literature on the subject. And the Central Bank has always used its reserves to make payments to
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the IMF. When Argentina borrows from the IMP, it does it through the Central Bank as financial agent. In fact, out of about 182 members of the IMF, all of which are states, I think approximately 140 have designated their Central Bank in accordance with the IMP charter as their financial agent for this purpose.
The Central Bank when it borrows in turn transfers borrowings to the Republic and. in return receives an obligation for repayment from the Republic. The only thing that happened on December 15 of 2005 was that Argentine law was changed in order to- permit a greater portion of reserves to be used for repayments. Prior to that time, every time reserves were used for repayment, there would be a corresponding peso payment from the government to the Central Bank, so that the effect on the monetary base, which the reserves support, would be unchanged. Every dollar out would be offset by an equivalent amount of pesos out.
This legislation, which was approved by the Congress in Argentina, simply allowed the Central Bank to use reserves that were not needed to back the monetary base 1O0 percent for purposes of repayment to the IMF, and, in order to keep the books balanced, the Republic gave an interest-bearing obligation to the Central Bank. And what I explained was that this is all classic use of Central Bank reserves protected as property of the Central Bank, held for its own account under
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Section 1611(b)(1) of the FSXA, which absolutely protects such , reserves from any prejudgment attachment, which is what WML is attempting to do, and protects them from postjudgment execution as well, absent an explicit waiver of immunity which the Central Bank has never given.
I also went on, Mr. Cohen, to point out that quite apart from the improper attachment of Central Bank reserves that Mr. Neuhaus discussed, the Court has made it clear and the case law, the Olympic case, the Kazakhstan case and other cases make it clear that you can't have blanket attachments of foreign state assets.
And the other thing this order did without any purported showing of agency was to have exactly such a blanket, nonspecific attachment of property of the Republic, which also went beyond even the generic universe of property used for commercial activity in the United States, to cover other property subject to attachment by virtue of the Republic's waiver of immunity. When the Court held two years ago, and other courts have indicated as well unanimously, that even with a waiver of immunity, as is true in the Republic's bond agreements, execution and attachment is limited to property used for commercial activity in the United States, and the Republic piece of this attachment, as opposed to the Central Bank piece, is absolutely improper under those rules.
THE COURT: Let me just see if I've got something