UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ------x EM LTD. and NML CAPITAL, LTD., : : Plaintiffs, : : No. 06 Civ. 7792 (TPG) v. : : BANCOCENTRALDELA : REPÚBLICA ARGENTINA and : THE REPUBLIC OF ARGENTINA, : : Defendants. : ------x
PLAINTIFFS’ MEMORANDUM OF LAW IN OPPOSITION TO DEFENDANTS’ MOTIONS TO DISMISS
DEBEVOISE & PLIMPTON LLP DECHERT LLP David W. Rivkin Robert A. Cohen John B. Missing Dennis H. Hranitzky Suzanne M. Grosso Eric C. Kirsch 919 Third Avenue 1095 Avenue of the Americas New York, New York 10022 New York, New York 10036 Tel. (212) 909-6000 Tel. (212) 698-3500 Attorneys for Plaintiff EM Ltd. Attorneys for Plaintiff NML Capital, Ltd.
GIBSON, DUNN & CRUTCHER LLP Theodore B. Olson Matthew D. McGill 1050 Connecticut Avenue, NW Washington, D.C. 20036 Tel. (202) 955-8500 Attorneys for Plaintiff NML Capital, Ltd.
January 30, 2013
14779729 TABLE OF CONTENTS
Page
PRELIMINARY STATEMEMT...... 1 BACKGROUND ...... 3 I. RELEVANT PROCEDURAL HISTORY OF OVER SIX YEARS OF LITIGATION...... 3 A. Commencement Of Alter-Ego Action...... 3 B. This Court’s April 7, 2010 Opinion...... 4 C. Second Circuit’s July 5, 2011 Decision...... 6 D. Proceedings On Remand...... 7 II. ACTIVITY OVER MORE THAN A DECADE PROVES THE REPUBLIC’S CONTROL OVER BCRA...... 7 A. The Argentine Executive Commandeers BCRA Assets For The Government’s Own Use, Including Selective Repayment Of The Republic’s Debt...... 9 1. Increase in lending limitations imposed by the BCRA Charter...... 10 2. Repayment of Argentine government’s indebtedness...... 11 B. The Argentine Executive Puppeteers BCRA’s Governor...... 15 C. The Argentine Executive Dictates Monetary Policy To Further Its Political Agenda And Punish Its Political Enemies...... 18 1. Formulation and manipulation of monetary policy...... 19 2. Concealment of inflation...... 21 3. Change in purpose of BCRA...... 22 ARGUMENT...... 23 I. THE COURT HAS JURISDICTION OVER BCRA...... 23 A. The Legal Standard...... 23 B. The Republic Has Waived Immunity From Jurisdiction, And That Waiver Must Be Imputed To BCRA...... 24 1. The Republic has waived immunity with respect to this action...... 24 2. The Republic’s waiver of immunity must be imputed to BCRA...... 26 C. Plaintiffs’ Causes Of Action Are Based Upon Defendants’Commercial Activities In The United States...... 30 II. THE COURT SHOULD AWARD DECLARATORY RELIEF...... 33 III. PLAINTIFFS ARE ENTITLED TO MONEY JUDGMENTS AGAINST BCRA. ... 37 IV. PLAINTIFFS HAVE STANDING...... 38 V. BCRA IS THE ALTER EGO OF THE REPUBLIC, AND IS LIABLE FOR THE REPUBLIC’S DEBTS...... 39 A. This Court Has Already Found That The Republic So Extensively Controls BCRA That The Two Share A Principal-Agent Relationship; Subsequent Evidence Confirms That Finding...... 40
-i- 1. The Republic uses BCRA’s assets at will...... 42 2. The Republic owns BCRA and, by law, can control nearly all of its activities...... 45 3. The Republic freely replaces any BCRA official who refuses to do its bidding...... 47 4. The Republic dictates the setting and implementation of BCRA’s monetary policy...... 49 B. Recognizing The Putative Legal Separateness Of BCRA And the Republic Would Result In Fraud Or Injustice...... 50 C. Plaintiffs Are Entitled To Expedited, Limited Jurisdictional Discovery About The Relationship Between The Republic And BCRA...... 54 CONCLUSION...... 55
-ii- TABLE OF AUTHORITIES
CASES
ACE Am. Ins. Co. v. Bank of the Ozarks, No. 11 Civ. 3146 (PGG), 2012 WL 3240239 (S.D.N.Y. Aug. 3, 2012)...... 34
Alejandr v. Telefonica Larga Distancia de PuertoRico, 183 F.3d 1277 (11th Cir. 1999) ...... 52
Amoco Corp. v. Comm’r of Internal Revenue, 138 F.3d 1139 (7th Cir. 1998) ...... 30
Amusement Indus., Inc. v. Midland Avenue Assocs., LLC, 820 F. Supp. 2d 510 (S.D.N.Y. 2011)...... 39
Baglab Ltd. v. Johnson Matthey Bankers Ltd., 665 F. Supp. 289 (S.D.N.Y. 1987)...... 30
Bayer & Willis Inc. v. Republic of Gambia, 283 F. Supp. 2d 1 (D.D.C. 2003)...... 53
Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) ...... 24, 39
BP Chems. Ltd. v. Jiangsu Sopo Corp., 285 F.3d 677 (8th Cir. 2002) ...... 31
Carl Marks & Co., Inc. v. Union of Soviet Socialist Republics, 665 F. Supp. 323 (S.D.N.Y. 1987)...... 39
Chambers v. Time Warner, Inc., 282 F.3d 147 (2d Cir. 2002) ...... 24
Cosa Instrument Corp. v. Hobre Instruments BV, 698 F. Supp. 2d 345, 350 (E.D.N.Y. 2010) ...... 24
De Letelier v. Republic of Chile, 748 F.2d 790 (2d Cir. 1984) ...... 40, 51
EM Ltd. v. Republic of Argentina 473 F.3d 463 (2d Cir. 2007) ...... 4
EM Ltd. v. Republic of Argentina 720 F. Supp. 2d 273 (S.D.N.Y. 2010)...... passim
EM Ltd. v. Republic of Argentina, 695 F.3d 201 (2d Cir. 2012) ...... 24, 35
First City, Texas-Houston, N.A. v. Rafidain Bank, 150 F.3d 172 (2d Cir. 1998) ...... 26, 54
-iii- First National City Bank v. Banco Para El Comercio Exterior De Cuba 462 U.S. 611 (1983) ...... passim
Fred Ahlert Music Corp. v. Warner/Chappell Music, 155 F.3d 17 (2d Cir. 1998) ...... 38
Gabay v. Mostazafan Foundation of Iran, 151 F.R.D. 250 (S.D.N.Y. 1993) ...... 29
Gibbons v. Republic of Ireland, 532 F. Supp. 668 (1982)...... 29
Hercaire International v. Argentina, 821 F.2d 559 (11th Cir. 1987) ...... 53
In re 650 Fifth Ave. & Related Props., No. 08 Civ. 10934 (KBF), 2012 WL 3070028, at *10 (S.D.N.Y. July 27, 2012) ...... 40
Kensington Int’l Ltd. v. Itoua, 505 F.3d 147 (2d Cir. 2007) ...... 31
Kensington Int’l Ltd. v. Republic of Congo, No. 03 Civ. 4578 (LAP), 2007 WL 1032269 (S.D.N.Y. Mar. 30, 2007)...... 26, 28, 29, 34
LNC Investments, Inc. v. Republic of Nicaragua, 115 F. Supp. 2d 358 (S.D.N.Y. 2000)...... 28, 41
LNC Invs., Inc. v. Banco Cent. de Nicaragua, 228 F.3d 423 (2d Cir. 2000) ...... 41
London v. Polishook, 189 F.3d 196 (2d Cir. 1999) ...... 23
Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992) ...... 38
Mejia v. Barile, 485 F. Supp. 2d 364 (S.D.N.Y. 2007)...... 23
NLRB v. Deena Artware, Inc., 361 U.S. 398, 402-04 (1960) ...... 23
NML Capital, Ltd. v. Banco Central de la Republica Argentina 652 F.3d 172 (2d Cir. 2011) ...... passim
NML Capital, Ltd. v. Republic of Argentina, 699 F.3d 246 (2d Cir. 2012) ...... 54
NML Capital, Ltd. v. Republic of Argentina, No. 09 Civ. 7013 (TPG), 2011 WL 524433 (S.D.N.Y. Feb. 15, 2011) ...... 42
-iv- NML Capital, Ltd. v. Republic of Argentina, Nos. 08 Civ. 6978, 09 Civ. 1707, 09 Civ. 1708 (TPG)...... 51
Olympic Chartering S.A. v. Ministry of Indus. & Trade of Jordan, 134 F. Supp. 2d 528 (S.D.N.Y. 2001)...... 54
Powell v. McCormack, 395 U.S. 486 (1969) ...... 38
Pravin Banker Assocs., Ltd. v. Banco Popular del Peru, 9 F. Supp. 2d 300 (S.D.N.Y. 1998)...... 52
Saudi Arabia v. Nelson, 507 U.S. 349 (1993) ...... 31
Seijas v. Republic of Argentina, No. 04 Civ. 400 (TPG) (S.D.N.Y. Aug. 19, 2009) ...... 42
Seijas v. Republic of Argentina, No. 10 Civ. 4300 (TPG), 2011 WL 1137942 (S.D.N.Y. Mar. 28, 2011)...... 42
Sun v. Taiwan, 201 F.3d 1105 (9th Cir. 2000) ...... 31
TMR Energy Ltd. v. State Prop. Fund of Ukraine, 411 F.3d 296 (D.C. Cir. 2005)...... 40
U.S. Fid. & Guar. Co. v. Braspetro Oil Servs. Co., 199 F.3d 94 (2d Cir. 1999) ...... 26
U.S. Fid. & Guar. Co. v. Braspetro Oil Servs. Co., 369 F.3d 34 (2d Cir. 2004) ...... 30
Velvet Underground v. Andy Warhol Found. for the Visual Arts, Inc., No. 12 Civ. 201 (AJN), 2012 WL 3893518 (S.D.N.Y. Sept. 7, 2012) ...... 38
STATUTES AND RULES
28 U.S.C. § 1330...... 23
28 U.S.C. § 1605...... 25, 26
28 U.S.C. § 1610...... 27
28 U.S.C. § 1611...... 26, 27
28 U.S.C. § 2202...... 37
Fed. R. Civ. P. 12...... 22-23
OTHER AUTHORITIES
BLACK’S LAW DICTIONARY 549 (7th ed. 1999)...... 25
-v- Plaintiffs NML Capital, Ltd. (“NML”) and EM Ltd. (“EM,” and together with NML,
“Plaintiffs”), through their undersigned attorneys, respectfully submit this memorandum of law in opposition to the motions to dismiss Plaintiffs’ Third Amended Complaint filed by defendants Banco Central de la República Argentina (“BCRA”) and the Republic of
Argentina (the “Republic,” and together with BCRA, the “Defendants”).
PRELIMINARY STATEMENT
This Court has already found that BCRA is the alter ego of the Republic. Although the Second Circuit vacated the attachments and restraints in connection with which that ruling was made, the Court’s alter ego ruling itself was undisturbed by the Second Circuit’s decision and remains the law of the case. Based on that undisturbed ruling—augmented by a mass of compelling evidence that has come to light since it was issued—Plaintiffs now seek
(1) a declaratory judgment that BCRA is the alter ego of the Republic, and (2) entry of money judgments adjudging BCRA jointly and severally liable to satisfy Plaintiffs’ existing and anticipated judgments against the Republic.
In their motions to dismiss, BCRA and the Republic seek to evade the consequences of the Court’s alter ego ruling by mischaracterizing that ruling and the Second Circuit’s decision, and by rehashing arguments this Court has already rejected. First, BCRA argues that this Court lacks jurisdiction over it in this action because the Republic’s waiver of immunity cannot be imputed to BCRA. However, the Court rejected this argument when it imputed the Republic’s waiver of immunity to BCRA based on BCRA’s alter ego status.
And although the Second Circuit held that the Republic’s waiver did not cover the specific immunity extended to certain central bank property under § 1611(b) of the Foreign Sovereign
Immunities Act (“FSIA”), 28 U.S.C. §§ 1601 et seq., it left untouched this Court’s finding that the Republic’s waiver of immunity from jurisdiction—the enforceability of which nobody has ever questioned—applies to its alter egos like BCRA.
-1- BCRA also argues that this Court lacks jurisdiction because Plaintiffs failed to allege that this action is based “upon an act performed in the United States in connection with a commercial activity performed elsewhere,” as contemplated under § 1605(a)(2) of the FSIA.
However, as is crystal clear in the Third Amended Complaint, one of Plaintiffs’ core allegations is that BCRA acts as an instrument used by the Republic to shield assets—by engaging in banking activities in the United States that are indisputably commercial in nature, and by relying on its special immunity under § 1611(b) to shield the funds involved in those transactions from the Republic’s creditors—and all the while allowing the Republic to take those assets at will, without recourse. Both this Court and the Second Circuit have found that such actions involve commercial activity in the United States, thereby laying to rest any doubt as to this Court’s jurisdiction under § 1605(a)(2).
Third, completely ignoring the history of this case, the Republic makes the extraordinary contention that Plaintiffs have failed even to plead a claim of alter ego in the
Third Amended Complaint. To the extent that this absurd contention merits a response, it is easily refuted by this Court’s still undisturbed alter ego ruling. This Court already held that
Plaintiffs had established a sufficient alter ego case to permit the attachment and restraint of
BCRA’s assets, even without the new evidence that Plaintiffs have incorporated into their
Third Amended Complaint—necessarily meaning that Plaintiffs have pled a sufficient alter ego claim to survive a motion to dismiss.
The remaining arguments set forth in Defendants’ papers, while new, are also unavailing. Granting the declaratory relief sought through this action would be an entirely appropriate exercise of this Court’s discretion under the Declaratory Judgment Act for at least two reasons: because it will materially improve Plaintiffs’ prospects for enforcing their judgments against tens of billions of dollars of the Republic’s assets held outside the
Republic through BCRA, and because it will lay to rest any doubt that Plaintiffs’ requests for
-2- discovery from the Republic regarding BCRA’s assets are relevant and enforceable—a hotly contested issue in this Court. The Second Circuit did not hold that all of BCRA’s assets in the United States are immune from execution, but rather that the particular assets at issue were immune from execution based on the facts as they existed in 2005. Consequently, even if BCRA were right that Counts II through XIII of the Third Amended Complaint are merely a form of prayer for relief and do not state stand-alone causes of action for damages,
Plaintiffs’ claims for declaratory judgment and their requests for entry of money judgments against BCRA nonetheless would be proper. Finally, Plaintiffs have standing to bring this action because one of the core allegations on which it is based—the Republic’s use of BCRA as an instrument to shield assets from discovery and execution, and BCRA’s complicity in that scheme—will be redressed through the entry of declaratory and money judgments in this action.
In sum, on the basis of the Court’s prior rulings and the overwhelming evidence of
BCRA’s alter ego status set forth in the Third Amended Complaint, Defendants’ motions should be denied.
BACKGROUND
This Background Section is divided into two parts. Part I summarizes for the Court’s convenience the status of Plaintiffs’ pending litigation against BCRA. Part II discusses evidence demonstrating the Republic’s domination of BCRA through August 2012 when the
Third Amended Complaint was filed, as well as subsequent evidence of the existing alter ego relationship to this day between the Republic and BCRA.
I. RELEVANT PROCEDURAL HISTORYOF OVER SIX YEARS OF LITIGATION.
A. Commencement Of Alter-Ego Action.
On September 25, 2006, Plaintiffs commenced this action by filing a
Complaint seeking a declaratory judgment that BCRA is an alter ego of the Republic.
-3- [Docket No. 1.] Plaintiffs simultaneously moved for attachment and restraint of US$105 million nominally held by BCRA in an account at the Federal Reserve Bank of New York
(the “FRBNY Account”).1 On November 21, 2007, Plaintiffs filed a First Amended
Complaint. [Docket No. 34.] After the Court directed Plaintiffs during a May 6, 2008 telephonic conference to re-plead their First Amended Complaint in a format that did not require the simultaneous submission of voluminous referenced exhibits, Plaintiffs filed a
Second Amended Complaint on October 6, 2008. [Docket No. 43.2] Since the commencement of the alter ego action, the Court has conducted multiple conferences and hearings pursuant to which the parties submitted other briefing and declarations that included, among other things, additional evidence of the alter ego relationship between the Republic and BCRA.3
B. This Court’s April 7, 2010 Opinion.
On April 7, 2010, the Court issued an opinion confirming Plaintiffs’ attachment and restraining orders in this alter ego action. [Docket No. 96; App. A.4] The Court first rejected
Defendants’ contention that res judicata barred an attachment based on BCRA’s alter ego
1 When Plaintiffs commenced this alter ego action, the FRBNY Account was already frozen in connection with a separate motion that did not present any alter ego issues. Although this Court had previously denied the attachment and restraining orders requested in connection with that motion, a stay was issued pending appeal. In January 2007, the Second Circuit affirmed. See EM Ltd. v. Republic of Argentina (“BCRA I”), 473 F.3d 463, 486-87 (2d Cir. 2007), cert. denied, 552 U.S. 818 (2007). The FRBNY Account nevertheless remained frozen pending final resolution of the attachment and restraining orders at issue in this alter ego action.
2 At the Court’s direction, Plaintiffs submitted a copy of each document cited in the Second Amended Complaint through the Declaration of Dennis H. Hranitzky dated December 7, 2009 (“12/07/09 Hranitzky Decl.”). [Docket No. 58.]
3 Plaintiffs expressly incorporate any and all evidentiary materials regarding the Republic’s relationship with BCRA that were previously submitted in this alter ego action.
4 Appendix A to this brief (“App. A”) is a copy of this Court’s opinion in EM Ltd. v. Republic of Argentina (the “Opinion”), 720 F. Supp.2d 273 (S.D.N.Y. 2010).
-4- status. App. A, Opinion at 292-96. The Court next applied the test for disregarding the juridical separateness of sovereign instrumentalities set out by the Supreme Court in First
National City Bank v. Banco Para El Comercio Exterior De Cuba (“Bancec”), 462 U.S. 611
(1983). That test asks whether a government and a separately incorporated entity have “a relationship of principal and agent,” or, if not, whether honoring the corporate form “would work fraud or injustice.” Id. at 629 (internal quotation marks omitted).
With respect to Bancec’s first independent basis for finding alter ego status, the Court held that a principal-agent relationship was firmly established through “large, non-regular monetary operations which BCRA carried out at the behest of the Republic in order to serve the Republic’s (not BCRA’s) political and economic purposes.” App. A, Opinion at 299.
For example, “BCRA, clearly upon orders from the Republic, added substantially to its U.S. dollar reserves in the year 2005” in order “to enable the Republic to make an early (and unnecessary) payment to the International Monetary Fund to clear the indebtedness to that entity.” Id. That episode “demonstrated that the Republic could draw on the resources of
BCRA at will” and was part of a “pattern” that continued through 2010. Id. at 300. And that pattern “shed considerable light on what occurred [with the IMF payments] in late 2005” and showed that those payments were “entirely inconsistent with any idea of central bank independence,” leaving no doubt “that BCRA was the servant or the agent of the Republic as to its funds, within the meaning of Bancec.” Id.
With respect to Bancec’s second independent basis for finding alter ego status, the
Court held that “the use by the Republic of the resources and funds of BCRA . . . has contributed to fraud and injustice perpetrated by the Republic on the bondholders” because the Republic has selectively chosen to use BCRA’s funds to pay off certain debtholders like the IMF ahead of schedule but not those who had obtained judgments against the Republic.
App. A, Opinion at 301.
-5- The Court then held that the immunity granted under § 1611(b)(1) of the FSIA if
“property is that of a foreign central bank or monetary authority held for its own account” did not apply because “it would be entirely anomalous to hold that the [attached] funds belonged to BCRA” if BCRA were the alter ego of the Republic. App. A, Opinion at 30-304. The
Court thus held that the attached funds should be considered funds of the Republic, rather than “central bank or monetary authority” funds subject to § 1611. Id. at 304.
Finally, the Court held that the FRBNY Account was used for a commercial activity in the United States, and therefore was subject to attachment and execution under the
Republic’s waiver of immunity and § 1610 of the FSIA. The Court ruled that the relevant activity was “maintain[ing] a bank account with deposits and withdrawals, with the ability to earn a certain amount of income on balances,” and held that because “the type of activity was of the commercial type, it does not matter what purpose BCRA was using the funds for.”
App. A, Opinion at 303.
C. Second Circuit’s July 5, 2011 Decision.
On July 5, 2011, the Second Circuit reversed.5 The Second Circuit affirmed this
Court’s findings on res judicata and did not call into question either this Court’s holding that
BCRA is the alter ego of the Republic or its holding that the attached funds were used for a commercial activity in the United States. App. B, BCRA II at 197. Instead, the Second
Circuit reversed based on its interpretation of § 1611(b)(1) and therefore vacated the attachments and restraints on the FRBNY Account.
The Second Circuit first held that § 1611 “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.” App. B, BCRA II at 187-
5 Appendix B to this brief (“App. B”) is a copy of the Second Circuit’s decision in NML Capital, Ltd. v. Banco Central de la Republica Argentina (“BCRA II”), 652 F.3d 172 (2d Cir. 2011), cert. denied, 133 S.Ct. 23 (2012).
-6- 88. Next, the panel held that property nominally held in a central bank or monetary authority’s name is presumptively held for “its own account,” but that plaintiffs “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.” Id. at 194. After concluding that the FRBNY Account had been used in 2005 for “central banking functions as such functions are normally understood,” and that the Republic had not specifically waived immunity with respect to assets used for central banking functions, the panel held that the FRBNY Account was immune under § 1611. Id. at
194-97. Notably, the Second Circuit did not hold that central bank assets enjoy absolute immunity from attachment and execution. Nor did the Second Circuit purport to modify the application of Bancec to BCRA, but rather held that satisfying the Bancec alter ego test alone is insufficient to avoid the immunity provided by § 1611, where such immunity applies.
D. Proceedings On Remand.
The attachments and restraints on the FRBNY Account were released on July 9, 2012.
[Docket No. 121.] On August 31, 2012, Plaintiffs filed, on consent, their Third Amended
Complaint. [Docket No. 157; App. C.6] Defendants moved to dismiss on November 27,
2012.
II. ACTIVITY SPANNING MORE THAN A DECADE PROVES THE REPUBLIC’S CONTROL OVER BCRA.
The BCRA Charter, a document drafted by the Republic and subject to amendment or preemption by the Argentine Executive or Argentine Congress, has always limited the
BCRA’s independence as a separate legal entity. However, as this Court previously found,
6 Appendix C to this brief (“App. C”) is a copy of the Third Amended Complaint (“TAC”). For the Court’s convenience, Appendix D is a chart listing in chronological order each document referenced in the Third Amended Complaint and this brief, together with citation(s) to the corresponding exhibit(s). Appendix E is another version of that chart arranged by chronological order of exhibit numbers.
-7- “the Argentine government has enacted various laws that have either amended the BCRA charter to serve the Republic’s policies, or enabled the Republic to exert more control over
BCRA, or both.” App. A, Opinion at 284. Such laws have eroded BCRA’s putative separateness in at least the following three ways:
• The Argentine Executive has totally disregarded any semblance of central bank autonomy by exercising unfettered access to BCRA reserves. Former President Nestór Kirchner and current President Cristina Fernández de Kirchner repeatedly used those funds to finance their political patronage machine and selectively repay the Republic’s debts. By all accounts, President Fernández de Kirchner intends to continue this practice indefinitely and at record pace.
• A leading indicator of lack of separateness between central banks and parent governments is high turnover of central bank officials. The Argentine Executive more than frequently exercises its power to appoint and remove BCRA officials at will. From 2001, BCRA witnessed incredibly high turnover among its leadership, including having seven different Governors—each of whom was supposed to serve a six-year term, and the majority of whom were forced to resign following their disagreement about the unacceptably high level of control exercised by the Republic over BCRA.
• The Argentine Executive has controlled and dominated BCRA monetary policy to achieve its own political ends. At times, the Argentine Executive has forced BCRA to acquire foreign currency, either to aid exports in anticipation of elections or to increase the amount of reserves that the Argentine Executive can raid to pay its debts. At other times, the Argentine Executive has forced BCRA to sell foreign currency in order to strengthen the peso, and thereby punish its political enemies in export-driven industries. The Republic’s control of monetary policy has resulted in rampant inflation, and was in contravention of the BCRA Charter until March 2012, when the Republic passed a law authorizing it to control BCRA’s actions with respect to monetary (and other) policy.
Plaintiffs provide in summary format below examples of the alter ego evidence already in the record when the Court confirmed attachment and restraint of the FRBNY
Account in this alter ego action. In addition, Plaintiffs provide more detailed examples of
-8- subsequently introduced evidence demonstrating the alter ego relationship between the
Republic and BCRA.7
A. The Argentine Executive Commandeers BCRA Assets For The Government’s Own Use, Including Selective Repayment Of The Republic’s Debt.
As the Court previously explained, there are two important ways in which the
Argentine Executive commandeers BCRA assets: (1) through increases in the amount of funds that BCRA is permitted to “loan” to the government under the BCRA Charter; and
(2) through Executive Decrees that permit the government to utilize BCRA reserves for specified purposes irrespective of the Charter’s lending limitations. App. A, Opinion at 283-
287. From September 2011 to September 2012, the Argentine press reported a 95.6% increase in BCRA transfers to the Argentine Treasury, with significant additional transfers expected for the foreseeable future. Declaration of Suzanne M. Grosso dated January 30,
2013 (“Grosso Decl.”) Ex. 123, BCRA Steps Up Peso Issuance for Loans to Treasury,
ÁMBITO (Sept. 3, 2012); Grosso Decl. Ex. 120, Treasury Bills in Hands of Central Bank
Reach $40 billion,CRONISTA (Sept. 25, 2012); Grosso Decl. Ex. 115, Step Up in Treasury
Aid Anticipated,LA NACIÓN (Sept. 29, 2012); Grosso Decl. Ex. 116, Sharp Rise in Fiscal
7 Other abuses of BCRA’s corporate form and independence are described by Dr. Alex Cukierman, one of the world’s leading experts on the relationship between central banks and their sovereigns. Dr. Cukierman based his analysis on the most critical factors to which courts look in applying the Bancec alter ego test, in addition to application of a legal-independence index that he had developed using various data points ordinarily used by experts in the field to evaluate central-banks. This index was validated even by the Republic’s central banking expert, who wrote (before his retention for this case) that Dr. Cuikerman’s index is “most notable and comprehensive” and “endures as an indicator of the degree of statutory autonomy enjoyed by a wide variety of central banks around the world.” Grosso Decl. Ex. 112, Siklos, The Changing Face of Central Banking: Evolutionary Trends Since World War II, 65-66 (2002). Dr. Cukierman concluded that “BCRA is highly dependent on and controlled by the Argentine state—both in an absolute sense, and relative to most other central banks.” Grosso Decl. Ex. 113, Declaration of Dr. Alex Cukierman dated September 25, 2006; Grosso Decl. Ex. 114, Cukierman Rebuttal Report dated December 5, 2006.
-9- Deficient Forces Government to Curb Spending,CRONISTA (Nov. 9, 2012). Indeed, one day just last month, BCRA transferred to the Treasury nearly $9 billion pesos more, reaching a new record for a single day (Grosso Decl. Ex. 122, Record BCRA Transfer of Almost $9 billion in Single Day,CRONISTA (Dec. 3, 2012)), with the Treasury having accessed $26 billion pesos in BCRA reserves during the month of December 2012 alone (Grosso Decl. Ex.
117, BCRA Issued $26 Billion for Treasury in December Alone,ÁMBITO (Jan. 8, 2013)).
1. Increase in lending limitations imposed by the BCRA Charter.
Article 19(a) of the BCRA Charter prohibits BCRA from lending funds to the
Argentine government except as otherwise provided under Article 20. App. C, TAC ¶ 44.
As originally drafted, Article 20 was very restrictive; in recent years, Article 20 has been amended by Executive Decree and legislation to make it significantly easier for BCRA to loan money to the Republic. App. C, TAC ¶ 33; see App. A, Opinion at 283-284. One example is a law that enables BCRA to make advances to the Republic of up to twelve 12% of the monetary base, so long as the Republic repays BCRA within 12 months. Another example is a law that excludes from the 12% calculation all advances used to pay the
Republic’s outstanding obligations to multilateral lending agencies and to the repayment of obligations in foreign currency. Id. ¶ 34. Most recently, in March 2012, Article 20 was again amended (by a law promulgated by Executive Decree) to authorize additional temporary transfers from BCRA to the Treasury in an amount equal to 10% of the cash resources that the Argentine government collects in revenue over the preceding 12 months. TAC ¶ 70.
Let there be no mistake: these transfers are not legitimate loans, because the notes issued to BCRA by the Republic in exchange are essentially worthless. As of October 2012,
BCRA held nearly US$40 billion in such notes that, according to former BCRA Governor
Martín Redrado, will “never be paid.” Grosso Decl. Ex. 119, Debt to the BCRA, an
Unpayable Bill,LA NACIÓN (Oct. 14, 2012); see Grosso Decl. Ex. 129, Redrado: “Central
-10- Bank Holds US$40 billion in Vouchers That Will Not Be Paid,” INFOBAE.COM (Sept. 26,
2012). See also App. A, Opinion at 285-286.
The Republic has thus turned BCRA into the Treasury’s “auxiliary cash fund” and
“main financier.” Grosso Decl. Ex. 119, Debt to the BCRA, an Unpayable Bill,LA NACIÓN
(Oct. 14, 2012); App. C, TAC ¶ 75. In fact, many currently speculate that President
Fernández de Kirchner will orchestrate an additional amendment to Article 20 to accommodate the Argentine government’s ever-increasing appetite for reserves. That is because the Treasury has nearly exceeded its allowable transfer limit in the 10 months that have passed since the most recent Executive-mandated increase—and it is, after all, an election year. Grosso Decl. Ex. 121, BCRA Charter May be Amended Due to Levels of Peso
Issuance,LA NACIÓN (Jan. 13, 2013).
2. Repayment of Argentine government’s indebtedness.
The Court is by now entirely familiar with the actions of former President Kirchner in
December 2005 when he—without the approval of BCRA—issued Executive Decrees earmarking over US$8 billion of BCRA reserves for an early repayment in full of the
Republic’s debt to the International Monetary Fund. App. C, TAC ¶¶ 37-45; App. A,
Opinion at 285-286.
In September 2008, current President Fernández de Kirchner issued Executive
Decrees authorizing the use of BCRA reserves to repay the Republic’s debt to the Paris
Club—as well as any other foreign-currency denominated Argentine debt—and exempting such transactions from the BCRA Charter lending limitations. Like her husband in 2005,
President Fernández de Kirchner did not bother to consult BCRA. App. C, TAC ¶¶ 46-51;
App. A, Opinion at 286. To this day, however, the Paris Club has fared no better than the
Republic’s judgment creditors, as the Executive has not deigned to repay any of the
Republic’s now overdue debt.
-11- On December 14, 2009, President Fernández de Kirchner authorized by Emergency
Decree the so-called Bicentennial Fund for Debt Reduction and Stability (“Bicentennial
Fund”) to be used for the repayment of certain debts due in 2010 that were owed by the
Argentine government to private-sector creditors. App. C, TAC ¶¶ 52-62; App. A, Opinion at 286-287. The fund was to be created by a transfer of nearly US$6.6 billion from BCRA reserves to the Argentine Treasury that effectively constituted a “loan” with zero interest. Id.
¶ 52. Implementation of the Bicentennial Fund was met with resistance in the Republic outside the Executive Branch. Id. ¶ 53. BCRA’s then-Governor, Martín Redrado, delayed implementation of Decree No. 2010/2009 before he was forced to resign by President
Fernández de Kirchner (see infra, p. 16). Id. Members of the Argentine Congress also questioned whether the Bicentennial Fund violated the BCRA Charter, and Alfonso Prat-Gay, who had served as BCRA Governor from 2002 to 2004 (see infra, p. 16) before becoming a member of the Argentine Congress, believed the Bicentennial Fund was illegal, because
BCRA should be an independent institution and not have its reserves appropriated at the
Executive’s will. Id. ¶ 54. Other observers and commentators harshly criticized the
Bicentennial Fund as violating the independence ostensibly required by the BCRA Charter.
Id. ¶ 55.
Several Argentine lawmakers filed a request to stay implementation of the
Bicentennial Fund pending a judicial action seeking a declaration of unconstitutionality.
App. C, TAC ¶ 56. The request was granted, the Executive appealed, and the appellate court upheld the stay pending approval of the Bicentennial Fund by the Argentine Congress. Id.
Following another appeal by the Executive, the appellate court once again upheld the stay on
February 24, 2010, but granted the Executive’s request to forward the case to the Argentine
Supreme Court for further review. Id. ¶ 57. Notably, the Supreme Court was not expected to
-12- issue a decision until after Congress had made its decision. Nor was the Supreme Court expected to contradict whatever Congress ultimately decided. Id.
President Fernández de Kirchner was unwilling to leave the Bicentennial Fund’s fate in the hands of what she expected to be an unsympathetic Congress following the elections.
On March 1, 2010, at the opening of the new Congressional session, she announced (also by
Executive Decree) the revocation of the Bicentennial Fund due to “judicial overstepping” in a
“strictly political” issue. 12/07/09 Hranitzky Decl. Ex. 27, At Congress Opening Session, “I revoked the 2010 Bicentennial Fund decree,” CFK Announces,BUENOS AIRES HERALD
(Mar. 1, 2010); App. C, TAC ¶ 58. Simultaneously, she announced the issuance of a different set of Executive Decrees authorizing the use of BCRA reserves to repay creditors of the Argentine government—the same amount and use of BCRA reserves previously contemplated by the recently “revoked” Bicentennial Fund decree. App. C, TAC ¶ 59. The new decrees: (1) authorized use of approximately US$4.4 billion of BCRA reserves to repay debts coming due in 2010 to the Republic’s private creditors through a newly-created “Debt
Reduction Fund;” and (2) authorized use of approximately US$2.2 billion of BCRA reserves to repay the Republic’s multilateral lenders where such transfer of reserves would have a neutral monetary effect. Id. The Third Amended Complaint describes in detail how the
Argentine Executive micro-engineered the events of March 1, 2010, with the assistance of
BCRA’s Governor, to transfer US$6.6 billion in BCRA reserves to the Treasury in circumvention of both legislative and judicial review. Id. ¶ 61.
Following these duplicitous machinations, tens of billions of BCRA reserves have been and continue to be used to repay private debtholders—albeit no judgment creditors— from the Debt Reduction Fund. App. C, TAC ¶¶ 63-66. In March 2011, the Ministry of
Economy borrowed US$2.2 billion in BCRA reserves to pay the Argentine government’s debt pursuant to yet another Executive Decree creating yet another fund. App. C, TAC ¶ 65.
-13- The new fund authorizes use of BCRA reserves to repay debt arising from maturities from multilateral credit organizations such as the World Bank and IADB (as opposed to private debtholders). Id.
As of March 2012, BCRA had approximately US$47 billion in total reserves but had run out of so called “unrestricted” reserves. App. C, TAC ¶ 67. This was problematic for
President Fernández de Kirchner, because the Republic’s 2012 budget earmarked up to
US$5.7 billion in “unrestricted” reserves to repay private creditors. Id. To dodge the problem, she decided to eliminate all remaining nominal limits on BCRA’s ability to restrict the amount that constitutes “unrestricted” reserves—thereby freeing up still more money for the government’s use. Id. Law 26.739, which was promulgated in Executive Decree
462/2012, accomplished this by eliminating the Convertibility Law’s requirement that BCRA maintain reserves in an amount equal to the monetary base. Id. ¶ 68. This had the effect of further tightening the Argentine government’s control and allowing it to use whatever amount of BCRA reserves the Executive wishes to pay the Republic’s debts. Id.
This new legislation has been uniformly criticized as evidencing the Argentine government’s complete and utter domination of BCRA:
• In The Economist’s view: “[T]he [central] bank has lost the last shred of its legal independence and become the piggy bank of President Cristina Fernández’s government.” Grosso Decl. Ex. 63, Piggy Bank, Rootling around for Cash,THE ECONOMIST (Mar. 31, 2012); App. C, TAC ¶ 71.
• The Wall Street Journal reported: “Argentina’s Franken-state stormed the central bank last month, destroying the last vestiges of independence.” Grosso Decl. Ex. 64, Kirchner Grabs the Central Bank,WALL ST. J. (April 2, 2012); App. C, TAC ¶ 71.
• According to former BCRA Governor Martín Redrado: “With no definition of [“unrestricted”] reserves, it will be up to the [BCRA] board to decide the amount of reserves needed. The central bank will be at the end of the phone to do the Treasury’s bidding. They’ve opened a parallel treasury that is subject to no kind of control.” Grosso Decl. Ex. 60, Argentina Set to Free up Bank Reserves,REUTERS (Mar. 6, 2012); App. C, TAC ¶ 71.
-14- • Opposition lawmaker Federico Pinedo called the bill “one of democracy’s most sinister laws[; t]he Government is just looking for a blank check in order to finance itself with the Central Bank’s reserves.” Grosso Decl. Ex. 65, Pinedo calls bill to amend Central Bank Charter ‘sinister,’ BUENOS AIRES HERALD (Mar. 11, 2012); App. C, TAC ¶ 71.
• Abel Viglione, an economist at think-tank Fiel, opined that this is another thinly-disguised asset grab that “subordinates monetary policy to fiscal policy.” Grosso Decl. Ex. 60; Argentina set to free up bank reserves,FIN. TIMES (Mar. 6, 2012); App. C, TAC ¶ 71.
In August 2012, a federal prosecutor opened a criminal fraud investigation of President
Fernández de Kirchner and current BCRA Governor Marcó del Pont regarding their extensive use of BCRA reserves and restrictions on dollar sales. App. C, TAC ¶ 71.
B. The Argentine Executive Puppeteers BCRA’s Governor.
The Argentine Executive’s continued domination over BCRA depends on the ability to control BCRA’s leading official, its Governor. App. A, Opinion at 280-83. Despite the fact the BCRA Charter provides for each Governor to be appointed for a 6-year term with the possibility of re-appointment, the Republic has had a remarkable 7 BCRA Governors since
2001: Pedro Pou, Roque Maccarone, Mario Blejer, Aldo Pignanelli, Alfonso Prat-Gay,
Martín Redrado, and Mercedes Marcó del Pont. App. C, TAC ¶ 71. The departures of all but
Marcó del Pont (who remains the Governor) were preceded by disagreements with the
Argentine government. Id. ¶ 79.
For example, former Governor Mario Blejer identified the Argentine government’s increasing encroachment on BCRA’s independence as the reason for his departure from the position in 2002 after only 4 months (following the departure of his predecessor, Roque
Maccarone, after 9 months). App. C, TAC ¶¶ 80-81. Blejer’s successor, Aldo Piganelli, resigned a mere 5 months later following differences with the Argentine Economy Ministry that were reportedly “the result of a culture based on the mistaken belief that the Central
Bank can be constantly subjected to political winds of fortune and even at the Treasury’s
-15- service.” 12/7/09 Hranitzky Decl. Ex. 17, The New President of the BCRA, LA NACIÓN (Dec.
12, 2002); App. C, TAC ¶ 82.
Pignanelli was replaced by Alfonso Prat-Gay, who served the final twenty months of the 6-year term collectively held by the 4 former BCRA Governors who preceded him. App.
C, TAC ¶ 83. Former President Kirchner stunned the international financial community when he refused to reappoint Prat-Gay in September 2004. Id. As Prat-Gay explained when he resigned, “basically the president and I have different views of what the role of the central bank should be.” 12/7/09 Hranitzky Decl. Ex. 19, Argentina ditches its respected central bank governor on eve of crucial bond exchange; Alfonso Prat-Gay is central bank governor of the year,EUROMONEY INSTITUTIONAL INVESTOR (September 1, 2004) (explaining that difference of opinion related to “degree of independence that a central bank should have”);
App. C, TAC ¶ 84.
Prat-Gay was replaced by Martín Redrado, who was initially described as “a man most analysts consider unlikely to assert much in the way of independence;” as one government official opined, “Redrado is Kirchner.” 12/7/09 Hranitzky Decl. Ex. 19,
Argentina ditches its respected central bank governor on eve of crucial bond exchange;
Alfonso Prat-Gay is central bank governor of the year,EUROMONEY INSTITUTIONAL
INVESTOR (September 1, 2004); App. C, TAC ¶ 86. For over 5 years, neither Kirchner administration found it necessary to fire Redrado, because he implemented their wishes dutifully. App. C, TAC ¶ 87. However, Redrado’s relationship with President Fernández de
Kirchner dramatically changed in December 2010 when, pending advice from BCRA’s legal counsel, he resisted the immediate transfer of nearly US$6.6 billion in BCRA reserves to the
Bicentennial Fund as directed by Emergency Decree 2010/2009. Id. ¶ 88; see supra, p.12.
She publicly demanded Redrado’s resignation on January 6, 2010, a move that industry analysts believe “underscores the lack of importance the government attributes to the central
-16- bank’s independence.” Grosso Decl. Ex. 79, Argentina ‘Kills’ Bank Independence, Moody’s
Economy.com Says,BLOOMBERG (Jan. 6, 2010); App. C, TAC ¶ 88.
When Redrado did not submit his immediate resignation and maintained that he could not be fired without the participation of the Argentine Congress, President Fernández de
Kirchner fired him by Emergency Decree on January 7, 2010. App. C, TAC ¶ 89. The
Executive immediately appealed after an Argentine federal judge ordered Redrado’s reinstatement on January 8, 2010, and the BCRA Board simultaneously stripped him of his authority. Id. On January 29, 2010, Redrado finally capitulated and tendered his resignation.
Id. ¶ 90. Redrado accused President Fernández de Kirchner in a press conference that day of
“tr[ying] to destroy the [C]entral [B]ank.” Grosso Decl. Ex. 88, Argentine Central Bank
President Quits Over Reserves,BLOOMBERG (Jan. 30, 2010); App. C, TAC ¶ 90. Redrado subsequently explained that “‘[he] had to leave the bank because [he] wasn’t very obedient.’”
Grosso Decl. Ex. 89, Fernandez Says Investors to Do Well in Argentine Swap,BLOOMBERG
(Apr. 16, 2010); App. C, TAC ¶ 90.
On February 3, 2010, President Fernández de Kirchner appointed Mercedes Marcó del Pont as BCRA Governor. App. C, TAC ¶ 92. Marcó del Pont succeeded Miguel Angel
Pesce, a senior BCRA official who supported the Bicentennial Fund and had been appointed by President Fernández de Kirchner to act as interim BCRA Governor after she fired
Redrado. Id. ¶ 91. Marcó del Pont was then President of state-owned Banco de la Nación
Argentina and described as a “[Kirchner] administration loyalist” (Grosso Decl. Ex. 94,
Kirchner Directs Foreign Reserves Into Debt Payments,WALL ST. J. (Mar. 2, 2010)) who
“won’t have an independent voice’” at BCRA (Grosso Decl. Ex. 95, Argentina Bank Won’t
Be Independent, Goldman Says,BLOOMBERG (Feb. 4, 2010)). App. C, TAC ¶ 91.
Marcó del Pont’s record at the time of her appointment reflected that she did not support BCRA independence. App. C, TAC ¶ 93. True to her history, she quickly
-17- collaborated with the Republic’s Minister of Economy, Amado Boudou, officially to shift even more authority for monetary policy away from BCRA and to the Economy Ministry. Id.
¶ 94; see supra, p. 14-15. She enthusiastically supported last year President Fernández de
Kirchner’s proposed and subsequently enacted legislation to amend both the BCRA Charter and the Republic’s Convertibility Law—thereby ensuring the Argentine government unfettered access to BCRA reserves. Id. ¶ 95; see supra, p. 14-15. Marcó del Pont’s allegiance has not gone unnoticed. She recently placed dead last in a ranking of central bank presidents by Global Finance that considered, among other factors, the degree of independence between each central bank and its parent government. Grosso Decl. Ex. 118,
Response to Neoliberal Doctrine,PÁGINA 12 (Aug. 25, 2012).
Perhaps fearful that Marcó del Pont (like Redrado) might one day tire of being acquiescent, President Fernández de Kirchner continues to keep Marcó del Pont’s appointment “in commission” and subject to removal at any time for any reason. App. C,
TAC ¶ 96. That status—similarly held by all 6 of Marcó del Pont’s predecessor BCRA
Governors—violates Article 99(19) of the Argentine Constitution, which requires such appointments (1) to be made only when the Senate is in recess, and (2) to expire at the end of the next legislative session if not confirmed. App. C, TAC ¶ 96.
C. The Argentine Executive Dictates Monetary Policy To Further Its Political Agenda And Punish Its Political Enemies.
Former President Kirchner and current President Fernández de Kirchner forced
BCRA to implement whatever monetary policies the Executive deemed to be politically expedient. App. C, TAC ¶¶ 97-113; App. A, Opinion at 287-89. At times, this meant accumulating dollars and issuing pesos to artificially depress the price of Argentine exports.
Id. ¶¶ 98-103. At other times, the Executive has reversed course and ordered BCRA to sell dollars, causing an appreciation of the peso to punish political opponents. Id. ¶¶ 104-05.
And at still other times, the Executive has ordered BCRA to try to achieve a politically
-18- optimal valuation of the peso just before an election cycle to manufacture short-term economic vitality. Id. ¶ 106. All of these actions forced BCRA to violate what then was the core purpose of its Charter—preservation of the value of the peso and control over inflation— until in March 2012 the Republic amended the BCRA charter to permit such interference. Furthermore, although the Executive has sought to conceal this economic micro-management by manipulating statistics, independent economists agree that the result has been massive, detrimental inflation. Id. ¶¶ 107-13.
1. Formulation and manipulation of monetary policy.
Until March 2012, BCRA’s sole objective was to “maintain the value of legal tender,” and this objective was supposed to be fulfilled by BCRA without interference or pressure from the government. App. C, TAC ¶ 33. But in direct violation of this restriction, the
Republic has controlled BCRA’s formulation and day-to-day implementation of monetary policy. Id. 97-98.
Beginning in late 2004, acting on the orders of former President Kirchner, BCRA began purchasing dollars on a daily basis—and, as a consequence, releasing more pesos into the Argentine economy. App. C, TAC ¶ 99. Former President Kirchner initially forced
BCRA to adopt this policy for purely political reasons. Id. Specifically, he wanted BCRA to continue accumulating reserves (thereby increasing the amount of pesos in circulation) in order to keep down the value of the Argentine peso relative to the U.S. dollar, thereby boosting demand for exports from the Argentine agricultural and industrial sectors in the run- up to the October 2005 congressional elections. Id. After the October 2005 elections, the
Argentine government continued to pressure BCRA to accumulate dollars for another political reason: to finance the government’s debts. Id. ¶ 100. Although politically expedient, this strategy was irrational from BCRA’s perspective because BCRA’s investment in dollars only yielded 6% interest, while the bonds BCRA issued to acquire those
-19- investments yielded 11% interest. Id. ¶ 102. That is, BCRA guaranteed that it would lose money by using borrowed money for an investment that yielded roughly half of what BCRA was required to pay to borrow the money. Id.
The Republic’s disregard for the BCRA Charter and dictation of decisions that, as a matter of law, were solely in BCRA’s discretion is well-illustrated by former President
Kirchner’s announcement in mid-2006 that it was for him to quantify the precise level of reserves to be maintained by BCRA. App. C, TAC ¶ 101. As the Republic’s former Cabinet
Chief Aníbal Fernández explained, “[i]t wasn’t [the BCRA Governor] who accumulated the reserves … [i]t was [the Kirchners’] government. In this country, it’s not the [G]overnor of the Central Bank that makes the decisions.” Grosso Decl. Ex. 78, The Reserves, or Your Job,
ECONOMIST (Jan. 7, 2010); App. C, TAC ¶ 88. Former President Kirchner ordered that
BCRA reserves must reach US$30 billion by the end of that year. App. C, TAC ¶ 101. Of course, under the version of the BCRA Charter that was operative at that time, the Argentine government was prohibited from even influencing the process whereby the level of reserves held by BCRA is determined—let alone establishing a numerical target. Id.
The Republic’s reserves continued to grow at a remarkable pace, reaching US$50 billion by March 2008. App. C, TAC ¶ 103. Shortly thereafter, former President Kirchner ordered BCRA to begin selling dollars. Id. ¶ 104. This Executive directive caused the value of the Argentine peso to rise relative to the U.S. dollar, which in turn caused a decrease in the worldwide demand for Argentine exports. Id. The temporary shift in monetary policy was motivated at least in part by the desire to punish the Republic’s agricultural sector for its nationwide strike in opposition to the Kirchner administration’s tax policies. Id. In
September 2008, former President Kirchner ordered BCRA to sell over US$100 million in reserves “to teach a lesson to the countryside.” Id. ¶ 105. Ironically, the agricultural sector is
-20- among those whose electoral support the Kirchners previously curried by ordering BCRA to accumulate dollars and fuel an export-driven economy. Id. ¶ 104.
Leading up to the Republic’s 2009 mid-term elections, President Fernández de
Kirchner ordered BCRA to use all means necessary to maintain a “politically correct” exchange rate and thereby avoid the perception that her administration was mismanaging the economy. App. C, TAC ¶ 106. In March 2009, for example, she ordered BCRA to “take actions . . . to contain the dollar” in an attempt “to prevent the exchange rate of United States currency from becoming a factor that could divert votes.” Grosso Decl. 106, US$ 1 Billion
Sought from International Organizations to Contain the Dollar,EL CRONISTA (Mar. 25,
2009); App. C, TAC ¶ 106. At the Republic’s behest, BCRA sold in the first 6 months of
2009 reserves worth approximately US$878 million—or 80% of all dollars sold in during the entire year in 2008. App. C, TAC ¶ 106. Later in 2009 and in 2010, the Executive reversed course again, and BCRA resumed purchasing dollars. Id.
At the request of the Argentine Executive, BCRA continues to implement strict controls in order to acquire foreign currency, replenishing the stockpile of reserves routinely raided by the Argentine Executive to finance the Treasury and repay the Republic’s debts.
Grosso Dec. Exs. 141-142.
2. Concealment of inflation.
During the times that it has ordered BCRA to purchase hundreds of millions of dollars daily, the Argentine Executive has directed BCRA not to “sterilize” those purchases by removing a corresponding amount of pesos from circulation. App. C, TAC ¶ 107. The failure to sterilize is largely responsible for the country’s soaring inflation. Id. As a result of the Executive’s intervention, the Republic’s inflation exceeded 11% in 2005, reached approximately 25% in 2008, and remains near 25% today. Id. ¶ 108.
-21- The Republic has tried to conceal this inflaton by manipulating the inflation statistics published by its National Statistics and Census Institute (known as “INDEC”) in the same way that it manipulates BCRA—and has been repeatedly criticized by the IMF for doing so.
Id. ¶¶110-113. Aside from trying to deceive the world regarding the efficacy of its policies, the Republic also has a more practical reason to try to conceal the inflation it has created: much of the Republic’s outstanding debt is structured in the form of bonds whose yields are indexed to inflation, and a lower official inflation rate lowers the amounts that the Republic must pay. Id. ¶ 111.
Not surprisingly, BCRA was complicit in the Argentine government’s manipulation of inflation figures. App. C, TAC ¶ 113. BCRA’s own unrealistically low inflation projection for 2008, between seven to eleven percent, precisely matches that of INDEC. Id.
Indeed, President Fernández de Kirchner explicitly invoked BCRA’s inflation figures to shore up the credibility of INDEC’s projections. Id. The disparity between the official rate of inflation and the real rate of inflation remains just as wide today as it was in 2008. Id.
3. Change in purpose of BCRA.
When the Republic enacted Law 26.739 on March 22, 2012 (see supra, p.14-15) expressly to authorize its interference in BCRA’s setting and implementation of monetary policy, President Fernández de Kirchner ensured that the same law also amended the BCRA
Charter to redefine its purpose—which now includes promoting monetary and financial stability and promoting employment and economic development with social equity. App. C,
TAC ¶ 34. This broad triple mandate could be used to justify any policy that the Argentine
Executive might seek to force BCRA to implement. Thus, by eliminating the requirement that BCRA’s primary mission be to control inflation, this amendment eliminated one of the few nominal sources of legal independence BCRA once enjoyed, thereby eliminating any pretense that BCRA is independent of the Republic.
-22- ARGUMENT
I. THE COURT HAS JURISDICTION OVER BCRA.
A. The Legal Standard.
Defendants have moved to dismiss the Third Amended Complaint for lack of subject matter jurisdiction pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure, arguing that Plaintiffs failed to plead facts showing that BCRA is the Republic’s alter ego. When determining whether subject matter jurisdiction exists, a court may properly refer to evidence beyond the pleadings to resolve disputed jurisdictional facts. See, e.g., Mejia v. Barile, 485
F. Supp. 2d 364, 366 (S.D.N.Y. 2007) (considering evidence offered by plaintiff in opposing
Rule 12(b)(1) motion to dismiss). Thus, on a motion to dismiss under Rule 12(b)(1), courts commonly employ a standard that “is akin to that for summary judgment under Rule 56(e).”
Id. In particular, where, as here, “jurisdiction is so intertwined with the merits that its resolution depends on the resolution of the merits, the trial court should employ the standard applicable to a motion for summary judgment” and dismiss only where “no triable issues of fact” exist. London v. Polishook, 189 F.3d 196, 198-99 (2d Cir. 1999) (citation omitted).
BCRA has moved to dismiss the Third Amended Complaint for lack of subject matter jurisdiction under Rule 12(b)(2). “Personal jurisdiction over a foreign state shall exist as to every claim for relief over which the district courts have jurisdiction under [28 U.S.C.
§ 1330(a)] where service has been made under section 1608 of this title.” Section 1330(a), in turn, governs subject matter jurisdiction. Because BCRA has not contested the adequacy of service, its challenge to personal jurisdiction turns on the existence of subject matter jurisdiction, and thus must be evaluated under the same standard.
Defendants also have moved to dismiss the Third Amended Complaint for failure to state a claim upon which relief may be granted, pursuant to Rule 12(b)(6), again arguing that
Plaintiffs have not pled facts sufficient to allege an alter ego claim. To survive a Rule
-23- 12(b)(6) motion, Plaintiffs need only allege facts which, when taken as true, state a claim for declaratory judgment of alter ego “that is plausible on its face.” Bell Atl. Corp. v. Twombly,
550 U.S. 544, 570 (2007). When determining the sufficiency of a claim for Rule 12(b)(6) purposes, consideration is limited to the factual allegations in the complaint, which are accepted as true, and to documents attached to the complaint, incorporated in the complaint by reference, or integral to the complaint. Chambers v. Time Warner, Inc., 282 F.3d 147,
152-53 (2d Cir. 2002).
B. The Republic Has Waived Immunity From Jurisdiction, And That Waiver Must Be Imputed To BCRA.
Courts in the United States have jurisdiction over foreign states in any action “in which the foreign state has waived its immunity either explicitly or by implication.” 28
U.S.C. § 1605(a)(1). Both the Second Circuit and this Court have repeatedly enforced the
Republic’s broad waivers of immunity from jurisdiction and from execution in the FAA. See, e.g., App. B, BCRA II at 176 n.3; App. A, Opinion at 301; EM Ltd. v. Republic of Argentina,
695 F.3d 201, 203 (2d Cir. 2012) (“Jurisdiction in the district court was premised on
Argentina's broad waiver of sovereign immunity in the bond indenture agreements.”). The
Republic’s waiver of immunity from jurisdiction includes both declaratory and money judgment actions, such as those alleged in the Third Amended Complaint. Because BCRA is the Republic’s alter ego, the Republic’s waiver of immunity must be imputed to BCRA.
1. The Republic has waived immunity with respect to this action.
The FAA contains both a submission to this Court’s jurisdiction and a waiver of immunity. The Republic submitted to the jurisdiction of this Court (referred to as a
“Specified Court”) with respect to “any suit, action, or proceeding against it or its properties, assets or revenues with respect to the Securities of this Series or the Fiscal Agency
Agreement (a ‘Related Proceeding’).” 12/7/09 Hranitzky Decl. Ex. 1, FAA at A-17; App. A,
-24- Opinion at 278. In addition, the Republic agreed that judgments entered in Related
Proceedings “may be enforced in any Specified Court … by a suit upon such judgment.” Id.
With respect to both types of proceedings, the Republic both waived and agreed not to claim any “immunity from suit, from the jurisdiction of any court, … or from any other legal or judicial process or remedy.” 12/7/09 Hranitzky Decl. Ex. 1, FAA at A-18; App. A, Opinion at 278.
All of the causes of action set forth in the Third Amended Complaint are “Related
Proceedings” because they seek to establish that BCRA is liable for obligations of the
Republic governed by the FAA. There can be no question that an action determining who is liable for debts incurred under the FAA (or judgments entered on such debts) is an action
“with respect to the Securities of this Series or the Fiscal Agency Agreement.” Thus, this action falls squarely within the Republic’s submission to jurisdiction and waiver of immunity, and this Court has subject matter jurisdiction under § 1605(a)(1) of the FSIA.
Additionally, this Court has jurisdiction over Plaintiffs’ claims in this action because they are “brought solely for the purpose of enforcing or executing any Related Judgment.”
Plaintiffs have obtained 6 money judgments against Argentina, which are referred to as
“Related Judgments” in the FAA. The only purpose of this action is to enforce these
“Related Judgments” against assets held in the name of the Republic’s alter ego, BCRA.
Although the Republic suggests that its waiver of immunity only covers execution proceedings, the Republic in fact submitted to proceedings “enforcing or executing” Related
Judgments. 12/7/09 Hranitzky Decl. Ex. 1, FAA at A-18 (emphasis added). The disjunctive
“or” evinces a clear contractual intent that enforcement is distinct from execution, and
“enforcement” is a broad term that means “[t]he act or process of compelling compliance with a law, mandate or command.” BLACK’S LAW DICTIONARY 549 (7th ed. 1999).
-25- 2. The Republic’s waiver of immunity must be imputed to BCRA.
It is well-settled that if a foreign state and one of its agencies or instrumentalities are alter egos, their acts may be imputed to each other. Bancec, 462 U.S. at 629-30. This principle is not limited to liability; jurisdictional acts that waive immunity under the FSIA also may be imputed to alter egos. See, e.g., U.S. Fid. & Guar. Co. v. Braspetro Oil Servs.
Co., 199 F.3d 94, 98 (2d Cir. 1999) (“[T]he acts of a state’s ‘alter ego’ may be attributed to the state in determining whether § 1605(a)(2) applies.”); see also First City, Texas-Houston,
N.A. v. Rafidain Bank, 150 F.3d 172, 176-77 (2d Cir. 1998) (reversing dismissal to allow discovery into whether the existence of an alter ego relationship allowed commercial activities to be attributed to a foreign state).
The Republic’s waiver of immunity must be imputed to BCRA because BCRA is an alter ego of the Republic. App. A, Opinion at 301-02; see also Kensington Int’l Ltd. v.
Republic of Congo, No. 03 Civ. 4578 (LAP), 2007 WL 1032269, at *12-13 (S.D.N.Y. Mar.
30, 2007) (imputing Congo’s waiver of immunity to an instrumentality of Congo).
Consequently, this Court has jurisdiction over BCRA under § 1605(a)(1) of the FSIA to the same extent as if BCRA had issued the waiver.
Indeed, this Court decided this issue when it held that the Republic’s waiver of immunity from attachment and execution could be imputed to BCRA. App. A, Opinion at
301-02. Importantly, in that opinion, the Court did not distinguish among immunity from jurisdiction, immunity from execution, and liability. Id. at 302 (“[T]here is the kind of fraud and injustice, referred to in the Bancec case, which justifies disregarding the formal separateness of the Republic and BCRA and treating the funds in the hands of BCRA as of
December 2005 as the funds of the Republic.”) That ruling is binding on Defendants, and this proceeding is indistinguishable in all material respects from the proceeding that led to the
Court’s ruling. Both proceedings seek to hold BCRA liable for the Republic’s debts so that
-26- Plaintiffs can attach and execute upon property held in the name of BCRA. This Court’s prior ruling that BCRA is the alter ego of the Republic was not tied to the nature of the specific property then at issue (i.e., the FRBNY Account), but rather to the Republic’s disregard of BCRA’s status as an independent entity and its use of BCRA’s resources—facts that have become even more pronounced since 2010.
Nothing in the Second Circuit’s decision is inconsistent with this Court’s 2010 alter ego holding or this Court’s ability to impute the Republic’s waiver of immunity from jurisdiction to BCRA. In that decision, the Second Circuit addressed the entirely separate question of whether the Republic’s general waiver of immunity in the FAA could be considered a waiver of the specific attachment and execution immunity conferred on certain central bank assets by § 1611(b)(1) of the FSIA. App. B, BCRA II at 195.8 The Second
Circuit concluded that, regardless of whether a central bank or monetary authority is a juridically separate entity, a waiver of immunity must specifically refer to central bank assets to overcome § 1611(b)(1), to the extent that section applies. Id. at 196. (Plaintiffs’ inability to execute upon assets used for central banking activity in the United States therefore does not preclude the relief that Plaintiffs seek here because the Second Circuit recognized that it is also possible for a central bank to have assets in the United States that are not used for such central banking activities. See infra Section II.) Thus, the Second Circuit found the
Republic’s waiver of immunity to be insufficient to cover BCRA’s assets not because BCRA is a separate entity (which, as an alter ego, it is not), but rather because the waiver did not refer specifically to central bank assets. Id. at 195-96.9
8 Section 1611(b)(1) allows central bank assets to be attached or executed upon only when the “bank or authority, or its parent foreign government, has explicitly waived its immunity from attachment in aid of execution, or from execution … .”
9 Although the Second Circuit analogized to cases holding that a foreign state can expressly waive its instrumentalities’ immunity, neither the Second Circuit nor the cases upon which it relied suggest that an alter ego relationship cannot substitute for a
-27- The very fact that the Second Circuit even reached § 1611(b) in its decision demonstrates that the Republic’s waiver of immunity can be imputed to BCRA. Section
1609 of the FSIA immunizes all of an instrumentality’s assets from attachment and execution, subject to the exceptions to immunity in § 1610. An instrumentality’s assets can be subject to attachment and execution under § 1610 if the instrumentality is engaged in commercial activities in the United States. 28 U.S.C. § 1610(b). Understanding that many central banking activities are commercial activities, Congress added § 1611 to provide additional protections to central bank assets that otherwise would be subject to execution under § 1610. If the Republic’s waiver of immunity could not be imputed to BCRA, the
Second Circuit’s analysis need not have proceeded beyond § 1610—which was the exception to § 1609 invoked by Plaintiffs. Thus, the Second Circuit did not call into question the principle that if a foreign state waives immunity, that waiver can be imputed to its alter egos.10
Defendants’ attempts to cabin this principle are unavailing. First, because under controlling precedent it is irrelevant whether the putative alter ego entity existed at the time of the waiver, it necessarily follows that it is irrelevant whether that entity was an alter ego at the time of the waiver. In Kensington, the court rejected the defendants’ argument that a waiver of immunity should not be attributed to an alter ego because the alter ego did not exist at the time of the waiver. The court reasoned that it should only consider the instrumentality’s current alter ego status because a rule requiring courts to look back to the
waiver of immunity. See LNC Investments, Inc. v. Republic if Nicaragua, 115 F. Supp. 2d 358, 361 (S.D.N.Y. 2000).
10 This principle should not be conflated with the separate principle that a foreign state may waive its agencies and instrumentalities’ sovereign immunity, even if they are not alter egos of the foreign state. Such a waiver is not based on imputation between alter egos, but rather on the power held by foreign states over their agencies and instrumentalities. An exercise of this power must, of course, be made explicitly.
-28- time a waiver was given would allow a foreign state to eviscerate its waivers by changing its corporate form. Kensington, 2007 WL 1032269, at *13. Consequently, the Kensington court imputed Congo’s waiver of immunity to an instrumentality based on the fact that they were alter egos at the time of Plaintiffs’ action. Id.
Second, an alter ego need not participate in granting a waiver of immunity or in the conduct giving rise to an action for the waiver and the conduct to be binding on and imputed to the alter ego. To the contrary, in Kensington a waiver was imputed to an entity that did not exist at the time the waiver was given—and that necessarily could not have participated in giving the waiver. Kensington, 2007 WL 1032269, at *13. None of the cases cited by BCRA supports a contrary conclusion. BCRA Mem. at 15. In Gabay v. Mostazafan Foundation of
Iran, 151 F.R.D. 250, 255 (S.D.N.Y. 1993), despite its dicta to the contrary,11 the court declined to require that a foreign state have participated in its alter ego’s commercial activities for those activities to be attributed to the foreign state. In addition, Gibbons v.
Republic of Ireland, 532 F. Supp. 668 (1982), was decided before Bancec and is inapposite because it did not apply an alter ego theory at all.
Finally, although BCRA suggests that some special alter ego standard beyond what
Bancec requires must be met for both a waiver of immunity from jurisdiction and liability to be imputed to BCRA (BCRA Mem. at 14-15), this Court did not limit its alter ego holding to one specific context. Instead, this Court held that because BCRA is the Republic’s alter ego under Bancec, the Republic’s waiver of immunity applies to it, and BCRA’s property can be seized to satisfy the Republic’s debts. App. A, Opinion at 301-02.
11 The court asserted that courts “frequently” require participation in a wrong by both entities, or an abuse of the corporate form, to hold one entity liable under an alter ego theory for the actions of another. However, the court held that this principle was irrelevant to the question of attributing the jurisdictional acts of one alter ego to another.
-29- Moreover, the cases cited in BCRA’s brief do not support its assertion. BCRA Mem. at 14. In Baglab Ltd. v. Johnson Matthey Bankers Ltd., 665 F. Supp. 289, 296 (S.D.N.Y.
1987), the court held that the Bank of England did not direct certain commercial activities in the United States, precluding an agency theory of waiver, and that the plaintiff had not supported its alternative alter ego theory with anything beyond “wishful characterization.”
Baglab Ltd., 665 F. Supp. at 296. The Baglab court was careful not to conflate the notion that a principal is accountable for actions it directs with the separate Bancec theory of alter ego. Similarly, the Seventh Circuit’s decision in Amoco Corp. v. Comm’r of Internal
Revenue, 138 F.3d 1139 (7th Cir. 1998) did not involve an action against a foreign state at all, but rather an action between Amoco and the IRS regarding whether Amoco could deduct certain foreign tax payments. The Seventh Circuit merely created a rule to govern when a foreign state and an instrumentality should be considered a single entity for the purpose of calculating a U.S. taxpayer’s liability under the Internal Revenue Code. Amoco Corp., 138
F.3d at 1149. Finally, the Second Circuit’s decision in U.S. Fid. & Guar. Co. v. Braspetro
Oil Servs. Co., 369 F.3d 34, 73 n.31 (2d Cir. 2004) does not draw a distinction between alter ego standards. Instead, the Second Circuit declined to hold, in the absence of district court findings, that an alter ego relationship could be used to validate a liquidated damages clause that otherwise would be considered an unenforceable penalty. U.S. Fid. & Guar. Co., 369
F.3d at 73 n.31.
C. Plaintiffs’ Causes Of Action Are Based Upon Defendants’ Commercial Activities In The United States.
Even if Argentina’s waiver of immunity could not be imputed to BCRA as its alter ego (which, as the preceding section explains, it can be), Defendants would nonetheless be subject to jurisdiction because this action is based upon commercial activities in the United
States. BCRA and the Republic both were involved in commercial activities giving rise to this action, and their activities can be imputed to each other.
-30- Section 1605(a)(2) of the FSIA provides that a foreign state is not immune from jurisdiction where, among other things, “the action is based . . . upon a commercial activity carried on in the United States by the foreign state; or upon an act performed in the United
States in connection with a commercial activity of the foreign state elsewhere.”12 Section
1605(a)(2) requires that the “basis” of a plaintiff’s action (i.e., the elements of its cause of action) must be commercial activity. Saudi Arabia v. Nelson, 507 U.S. 349, 357 (1993).
However, the Supreme Court noted that it did “not mean to suggest that the first clause of
§ 1605(a)(2) necessarily requires that each and every element of a claim be commercial activity by a foreign state.” Id. at 358 n.4. Moreover, while the Second Circuit has required a “degree of closeness” between the “gravamen” of Plaintiffs’ complaint and one of the types of activity listed in § 1605(a)(2), it has never held that every element must constitute such a type of activity. Kensington Int’l Ltd. v. Itoua, 505 F.3d 147, 155 (2d Cir. 2007) (holding that a “‘degree of closeness’ must exist between the commercial activity and the gravamen of the plaintiff's complaint”) (citations omitted); see also BP Chems. Ltd. v. Jiangsu Sopo Corp.,
285 F.3d 677, 682 (8th Cir. 2002) (“We emphasize that only one element of a plaintiff's claim must concern commercial activity carried on in the United States.”); Sun v. Taiwan, 201 F.3d
1105, 1109 (9th Cir. 2000) (“The entire case need not be based on the commercial activity of the defendant.”).
One of the core allegations in the Third Amended Complaint is that BCRA acts as an instrument used by the Republic to shield its assets from creditors. More specifically, BCRA engages in banking activities in the United States that are indisputably commercial in nature,
12 Plaintiffs also pled facts sufficient for the Court to conclude that jurisdiction exists under § 1605(a)(2) because Plaintiffs’ cause of action is based “upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States”: namely, the use of BCRA’s purportedly separate status to block creditors’ efforts to attach or execute upon BCRA’s assets. App. C, TAC ¶ 118.
-31- and relies on its special immunity under § 1611(b) of the FSIA to shield the funds involved in those transactions from the Republic’s creditors—all the while allowing the Republic to take those assets at will, without recourse. App. C, TAC ¶¶ 31-75, 118. This constitutes a fraud and injustice, and is a reason why BCRA must be deemed to be an alter ego of the Republic
(Id. ¶¶ 114-118). Moreover, the Republic dominates and controls BCRA to such a degree that BCRA must be deemed to be an alter ego of the Republic. Id. ¶¶ 76-113. Each reason is sufficient to hold BCRA liable for the Republic’s debts. Many of the transactions upon which these claims are based—including transactions upon which this Court has relied in finding BCRA to be an alter ego of the Republic—include commercial activities in the
United States.
First, Plaintiffs have alleged that the Republic, through its alter ego BCRA, is engaged in a scheme to acquire dollars in the United States that can be used to service the
Republic’s debts. In furtherance of this, BCRA has issued regulations requiring Argentine banks to sell so-called “excess U.S. dollar positions” to BCRA at the FRBNY, and requiring exporters to sell the U.S. dollar proceeds of their exports to BCRA at the FRBNY. Id. ¶¶ 97-
106. BCRA also engages in spot transactions at the FRBNY to buy and sell dollars. Grosso
Decl. Ex. 138, Stipulation of Facts ¶ 11. Thus, commercial activities at the FRBNY are the tools through which the Republic’s manipulation of BCRA is implemented—and this Court has already found such activities to be commercial in nature. App. A, Opinion at 302-03.
Second, Plaintiffs have alleged that the Republic regularly raids BCRA’s reserves in order to pay its debts. Such raids involve at least two commercial activities in the United
States: the directed acquisition of the dollar reserves that the Republic intends to raid, and the use of BCRA’s account at the FRBNY when BCRA is acting as “fiscal agent for the
National State” and “execut[ing] certain payment instructions of the Republic.” Grosso Decl.
Ex. 138, Stipulation of Facts ¶¶ 26, 27. Commercial activities in the United States thus are
-32- the source of the dollars the Republic exploits to pay its debts, and the mechanism the
Republic uses to make such payments.
Nothing in the Second Circuit’s decision contradicts this Court’s 2010 conclusion that
BCRA’s activities at the FRBNY are commercial in nature. See App. A, Opinion at 303
(“Since the type of activity was of the commercial type, it does not matter what purpose
BCRA was using the funds for. This is just as true as what the Supreme Court said about a sales contract to acquire goods, which might be to buy army boots or bullets, but the type of activity was still commercial activity.”). The Second Circuit interpreted § 1611(b)(1) of the
FSIA to protects property “if the central bank uses such property for central banking functions as such functions are normally understood, irrespective of their commercial nature.” App. B, BCRA II at 194 (emphasis added). Because the Second Circuit’s interpretation applies to certain central banking functions regardless of whether those actions constitute commercial activity, the Second Circuit’s holding is not mutually exclusive with this Court’s ruling that BCRA is engaged in commercial activities at the FRBNY. Even if
Section 1611 limits execution under Section 1610 on the funds used for such commercial activities, that limitation does not in any way affect the viability the commercial activity exception to jurisdiction in § 1605.13
II. THE COURT SHOULD AWARD DECLARATORY RELIEF.
Declaratory relief will resolve the ongoing dispute between Plaintiffs and Defendants regarding whether BCRA can be held liable for the Republic’s debts to Plaintiffs. This dispute has repeatedly manifested itself in both discovery and execution proceedings— including ongoing disputes in Plaintiffs’ actions against the Republic. Consequently, an exercise of discretion in favor of issuing declaratory relief is both necessary and appropriate.
13 In addition to the commercial activities in which BCRA was directly involved, the commercial activities of the Republic may be imputed to BCRA because BCRA is the alter ego of the Republic.
-33- In determining whether declaratory relief is warranted, courts must consider whether a declaratory judgment will either “serve a useful purpose in clarifying and settling the legal relations in issue” or “afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding.” ACE Am. Ins. Co. v. Bank of the Ozarks, No. 11 Civ. 3146 (PGG),
2012 WL 3240239, at *8 (S.D.N.Y. Aug. 3, 2012). “When the court in its discretion determines that either of these conditions is satisfied, it is required to entertain a declaratory judgment action.” Id. (quoting Cosa Instrument Corp. v. Hobre Instruments BV, 698
F. Supp. 2d 345, 350 (E.D.N.Y. 2010)).
There is no doubt that declaratory relief would serve a useful purpose in settling the legal relations at issue, and in affording relief from the controvesy giving rise to this proceeding. For one thing, it would confirm and reduce to a final judgment this Court’s prior ruling on the issue of whether BCRA can be held liable for the Republic’s debts to
Plaintiffs—thereby confirming that BCRA’s assets are subject to discovery, attachment, and execution in this and other jurisdictions. This alone is sufficient to establish that this Court should exercise its jurisdiction under the Declaratory Judgment Act. See Kensington Int’l
Ltd., 2007 WL 1032269, at *17-18 (exercising discretion to hear declaratory judgment action because “[b]ased on the allegations in the Complaint, there is an actual and active controversy between and among the parties, viz., Kensington is seeking to enforce against
SNPC a judgment entered in this Court, and Congo and SNPC do not agree to such enforcement”). Although Defendants argue that the Court should exercise discretion to deny declaratory relief, based on BCRA’s speculation that a declaratory judgment would not aid in
Plaintiffs’ enforcement efforts, they cannot establish that BCRA’s tens of billions of dollars of assets located around the world are permanently immune in every jurisdiction where they are held. Indeed, Defendants cannot establish that BCRA’s assets are absolutely protected
-34- from enforcement in the United States. Yet this is essentially what Defendants would have to establish in order to prevail on their futility argument.
Furthermore, resolution of Plaintiffs’ declaratory judgment claim will lay to rest other disputed matters before this Court. For example, the Second Circuit has definitively established that Plaintiffs are permitted to take discovery regarding the Republic’s assets, wherever in the world they may be located. EM Ltd. v. Republic of Argentina, 695 F.3d 201,
209 (2012) (“Whatever hurdles NML will face before ultimately attaching Argentina’s property abroad (and we have no doubt there will be some), it need not satisfy the stringent requirements for attachment in order to simply receive information about Argentina’s assets.”). However, the Republic has consistently objected to and sought to quash discovery requests and subpoenas that include BCRA in the definition of “Argentina” based on its assertion that BCRA is not liable for the Republic’s debts. See, e.g., Grosso Decl. Ex. 139,
Responses and Objections at ¶ 3 (objecting to responding with respect to “[BCRA] and any other entities separate from the Republic under the FSIA”); Grosso Decl. Ex. 140, Responses and Objections at ¶ 10 (objecting because “BCRA is an agency or instrumentality of the
Republic not liable for the Republic’s debts under Section 1603(b) of the FSIA … .”).14
Resolving the declaratory judgment action also would confirm (contrary to the
Defendants’ continuing objections) that Plaintiffs are able to execute on all non-immune
BCRA assets. The Second Circuit did not hold that all of BCRA’s property in the United
States is immune from attachment and execution; instead, it held that the particular funds at issue were immune because they were used for “paradigmatic central banking activity” during a particular period in 2005. App. B, BCRA II at 195. The fact that particular assets at
14 For this same reason, there is no merit to BCRA’s speculation that it might not be the Republic’s alter ego in the future, and that res judicata might not bar it from re- litigating the issue. BCRA Mem. at 22-23. The ongoing, frivolous attempts to block Plaintiffs’ discovery requests are an issue that has already arisen and that would be resolved by entry of a declaratory judgment.
-35- the FRBNY were used for “paradigmatic central banking activity” does not mean that they currently are used exclusively for such activity, or that they will be used for such activities in the future.15 Moreover, the Second Circuit made no findings at all concerning any property held outside of the FRBNY Account. BCRA held funds at other banks in New York in the past, and may be doing so now. See, e.g., BCRA Memo. at 19 n.14 (acknowledging existence of account at Banco de la Nación Argentina in 2005). Indeed, BCRA acknowleded that it maintains at least some property in the United States outside of the FRBNY Account when it argued that the FRBNY Account holds its only “substantial assets” in the United
States (BCRA Memo. at 19)—begging the question of what BCRA deems to be insubstantial.
If BCRA is liable for the Republic’s debts, Plaintiffs should be allowed to discover these assets and test BCRA’s representations. A declaratory judgment would resolve whether
Plaintiffs are entitled to do so.
Finally, if Plaintiffs cannot locate assets in the United States that are subject to attachment and execution, Plaintiffs can seek to execute upon assets held by BCRA abroad, which can be located through U.S. proceedings. Plaintiffs disagree with BCRA’s assessments of foreign law regarding whether a declaratory judgment could be enforced in certain jurisdictions, and whether central banks assets are entitled to immunity. However, it is unnecessary for the Court to reach these foreign law issues because the standard for exercising discretion in favor of hearing Plaintiffs’ claim declaratory judgment is more than satisfied based solely on the U.S. proceedings described above. Moreover, even if Plaintiffs’ assessment of foreign law were credited, those opinions would only establish that a handful of jurisdictions might not allow execution upon BCRA’s assets—not that every jurisdiction in
15 The Second Circuit acknowledged that the scope of “paradigmatic central banking activity” may change over time, meaning that BCRA’s 2005 activities may not support an immunity determination indefinitely into the future. App. B., BCRA II at 194 n.20.
-36- the world would refuse to recognize a judgment in favor of Plaintiffs and hold that all of
BCRA’s assets are absolutely immune from execution.
III. PLAINTIFFS ARE ENTITLED TO MONEY JUDGMENTS AGAINST BCRA.
Even assuming (without conceding) that BCRA is correct in its argument that
Plaintiffs cannot seek money judgments as independent causes of action, BCRA’s argument merely proves why the Court should exercise its discretion in favor of granting declaratory relief to Plaintiffs. Because BCRA is the alter ego of the Republic, Plaintiffs have the right to execute upon BCRA’s non-immune assets. If BCRA is correct that a declaratory judgment action is the only way to get money judgments that Plaintiffs can enforce against BCRA, then there is no question that granting declaratory and additional monetary relief serves a “useful purpose,” and that the Court should grant such relief. See ACE Am. Ins. Co., 2012 WL
3240239, at *8 (exercising discretion to grant declaratory relief appropriate where it would
“serve a useful purpose in clarifying and settling the legal relations in issue”).
As BCRA acknowledges (BCRA Mem. at 24), the Declaratory Judgment Act authorizes the Court to grant additional relief—such as monetary relief—in declaratory judgment actions. 28 U.S.C. § 2202 (“Further necessary or proper relief based on a declaratory judgment or decree may be granted, after reasonable notice and hearing, against any adverse party whose rights have been determined by such judgment.”). Thus, even
BCRA acknowledges that Plaintiffs can properly seek money judgments against BCRA if the
Court chooses to exercise its discretion under the Declaratory Judgment Act in favor of granting declaratory relief.
BCRA then asserts that because a declaratory judgment action is the only proper way to get such relief, Plaintiffs’ requests for such relief “do not alter the Court’s power under the
DJA to decline to exercise jurisdiction over the action as a whole.” BCRA Mem. at 24. This analysis, however, deliberately misses the point of Plaintiffs’ requests for money judgments.
-37- The Court’s 2010 alter ego ruling cannot be registered and enforced as a final judgment in other courts, but final money judgments can be. Thus, by granting Plaintiffs money judgments against BCRA, the Court would be granting Plaintiffs the right to enforce the
Republic’s debts directly against BCRA’s assets, and settling the legal relations between
Plaintiffs and BCRA. BCRA’s argument therefore provides an additional reason why the
Court should exercise its discretion to grant declaratory relief, rather than a reason why the
Court should dismiss the Complaint.16
IV. PLAINTIFFS HAVE STANDING.
To establish standing, Plaintiffs must show: (1) that they have “suffered an injury-in- fact—an invasion of a legally protected interest which is (a) concrete and particularized ... and (b) actual or imminent, not conjectural or hypothetical”; (2) that there was a “causal connection between the injury and the conduct complained of”; and (3) that it is “likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision.”
Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992) (citations omitted). Each of these elements is established here.
Plaintiffs have suffered concrete injuries: the Republic has defaulted on bonds held by Plaintiffs, and the Republic has nominally sheltered its assets from being applied to those debts. The Republic and BCRA jointly caused the second of these injuries through the illegitimate use of BCRA’s corporate form, which they consistently assert as a defense both to post-judgment asset discovery and to attachment and execution efforts. Declaratory
16 BCRA’s cases do not support a different conclusion. BCRA Mem. at 24. Powell v. McCormack, 395 U.S. 486 (1969), and Fred Ahlert Music Corp. v. Warner/Chappell Music, 155 F.3d 17 (2d Cir. 1998), merely support the idea that additional relief can be granted under the Declaratory Judgment Act. Velvet Underground v. Andy Warhol Found. for the Visual Arts, Inc., No. 12 Civ. 201 (AJN), 2012 WL 3893518 (S.D.N.Y. Sept. 7, 2012), held that seeking additional monetary relief under the Declaratory Judgment Act cannot create a live case or controversy where one does not otherwise exist.
-38- judgments and money judgments redress these injuries by establishing Plaintiffs’ legal right to conduct discovery into BCRA’s assets and execute upon any non-immune assets.
BCRA’s novel theory that an injury is not redressable if it is uncertain that a money judgment could be successfully satisfied is wrong because money judgments themselves redress monetary losses. Amusement Indus., Inc. v. Midland Avenue Assocs., LLC, 820 F.
Supp. 2d 510, 523 (S.D.N.Y. 2011) (“Amusement alleges that the defendants improperly transferred and/or received Amusement's money, thus showing a causal connection between the defendants' actions and the injury Amusement claims, and that the complaint seeks a money judgment against the defendants, which will obviously redress the injury Amusement suffered a result of losing its money. Thus, Amusement has standing to bring this action.”).
If BCRA’s argument were correct, rendering oneself judgment-proof would preclude a court from determining liability. That is not the law, and BCRA cites no authority supporting its position. See Carl Marks & Co., Inc. v. Union of Soviet Socialist Republics, 665 F. Supp.
323, 346 (S.D.N.Y. 1987) (“That does not mean that the obligations are enforceable in the
United States courts—that is, that the Soviet Union would not have been immune from suit on those obligations. Creditors of the Soviet Union would have a right without a remedy; but this would put them in the same position any creditor was in, with respect to a sovereign, before the Tate Letter.”)
V. BCRAISTHEALTEREGOOFTHEREPUBLIC AND IS LIABLE FOR THE REPUBLIC’S DEBTS.
Bancec instructs that the presumption of separateness between a foreign sovereign and a nominally separate entity must be disregarded (1) if one “is so extensively controlled by [the other] that a relationship of principal and agent is created,” or (2) where recognition of corporate separateness would “work [a] fraud or injustice.” 462 U.S. at 629. The detailed facts set forth in the Third Amended Complaint, as summarized below and amplified by a discussion of subsequent new evidence, more than states a “plausible” claim as to each prong
-39- of Bancec’s disjunctive test for treating BCRA as an alter ego of the Republic. Bell Atl.
Corp., 550 U.S. at 570. Defendants’ motion therefore should be denied.17
A. This Court Has Already Found That The Republic So Extensively Controls BCRA That The Two Share A Principal-Agent Relationship; Subsequent Evidence Confirms That Finding.
Rather than apply a rigid “mechanical formula” or bright line rule, the Supreme Court identified a non-exhaustive list of factors derived from long-standing tenets of agency law to be applied on a case-by-case basis when evaluating the first Bancec prong. Bancec, 462 U.S. at 633; see id. at 629 (citing NLRB v. Deena Artware, Inc., 361 U.S. 398, 402-04 (1960)
(discussing multiple considerations for finding control sufficient to create principle-agent relationship, and noting these are “some, though by no means all, of the relevant considerations, as the authorities recognize”)); In re 650 Fifth Ave. & Related Props., No. 08
Civ. 10934 (KBF), 2012 WL 3070028, at *10 (S.D.N.Y. July 27, 2012) (denying motion to dismiss where allegations demonstrating alleged alter ego’s inability “to act in any significant way without authorization from” sovereign government was “certainly enough” at motion to dismiss stage to state plausible Bancec claim). Accordingly, Defendants’ assertion that the first Bancec prong can be satisfied only by a showing that the Republic “exercise[d] extensive control over [BCRA’s] daily operations” (Rep. Mem. at 10 (internal citations omitted)) is wholly incorrect. See TMR Energy Ltd. v. State Prop. Fund of Ukraine, 411 F.3d
296, 301-02 (D.C. Cir. 2005) (joined by Roberts, J.) (applying Bancec without considering control over day-to-day operations).18
17 Plaintiffs believe that the allegations set forth in the Third Amended Complaint easily defeat Defendants’ Rule 12(b)(6) motion. However, should the Court reach a different conclusion, Plaintiffs respectfully request an opportunity to conduct expedited, limited jurisdictional discovery as further discussed in Section V.C. below.
18 Contrary to Defendants’ contention (Rep. Mem. at 10), the Second Circuit did not reject the claim of alter-ego liability in De Letelier v. Republic of Chile, 748 F.2d 790 (2d Cir. 1984), due to any lack of day-to-day control; indeed, neither that phrase nor any variation on it appears anywhere in the opinion. Rather, the Second Circuit
-40- In April 2010, this Court held that BCRA is an alter ego of the Republic under the first Bancec prong despite the Court’s view at the time that the Republic “did not manage the day-to-day operations of BCRA” such as “routine transactions regarding Argentine pesos and foreign currency.” App. A, Opinion at 299. The Court appropriately relied instead on
“certain larger, non-regular monetary operations which BCRA carried out at the behest of
Argentina in order to serve the Republic’s (not BCRA’s) political and economic purposes” and which “demonstrated that the Republic could draw on the resources of BCRA at will.”
App. A, Opinion at 299-300. As the Court concluded:
The Republic ignored the mandate of BCRA’s charter, which provided that BCRA would not be subject to any order or instruction of the National Executive in connection with the implementation of monetary and financial policy. The management of BCRA posed no obstacles to the Republic's use of the resources of BCRA exactly as the Republic wished. The Republic's control in this regard was complete. The court concludes that the presumption of separateness is overcome, and that BCRA was the servant or the agent of the Republic as to its funds, within the meaning of the Bancec case. As of the end of 2005, when the attachments and restraints in this case were issued, the funds of BCRA were in effect the funds of the Republic. This was not because of some formal change of title. It was the result of the kind of control referred to in the Bancec case.
App. A, Opinion at 300.
observed that the district court’s findings merely demonstrated “[j]oint participation in a tort” by the government of Chile and its national airline. Id. at 794. The Second Circuit concluded that such joint activity “is not the ‘classic’ abuse of corporate form” giving rise to alter-ego liability under Bancec. Id. Similarly, although the district court in LNC Investments, Inc. v. Republic of Nicaragua, 115 F. Supp. 2d 358 (S.D.N.Y. 2000), correctly observed that an instrumentality is an alter ego when “its parent government . . . exercises extensive control over the instrumentality’s daily operations and abuses the corporate form” (id. at 363), that case did not hold that Bancec’s first prong requires a showing of daily control. Indeed, the district court in LNC concluded that this prong was not met only after evaluating a host of characteristics. Id. at 363-65. The Second Circuit affirmed “for substantially the reasons stated by the district court.” LNC Invs., Inc. v. Banco Cent. de Nicaragua, 228 F.3d 423, 423 (2d Cir. 2000).
-41- The Court’s ruling in this regard was left untouched by the Second Circuit and remains as correct today as it was when issued. If anything, the ruling is even more correct following nearly three more years of the Republic’s continued and heightened domination over the BCRA in at least four significant ways: (1) the Republic uses the BCRA’s assets at will; (2) the Republic owns BCRA and, by law, can control nearly all of its activities; (3) the
Republic freely replaces any BCRA official who refuses to do its bidding; and (4) the
Republic dictates and implements BCRA’s monetary policy. Defendants’ persistence in separately analyzing each of these instances of domination evince a tacit acknowledgement that, when considered as a whole as required by Bancec, the specific facts of this case squarely establish a principal-agent (i.e., alter ego) relationship between the Republic and
BCRA.19
1. The Republic uses BCRA’s assets at will.
It is indisputable that the Republic has relied heavily on BCRA reserves over the last decade. Beginning with Decrees 1599/2005 and 1601/2005, which allowed the Republic to use BCRA to repay the International Monetary Fund (“IMF”) in December 2005,20 and
19 While Plaintiffs may disagree with this Court’s opinions holding that the Republic does not have an alter-ego relationship with certain other Argentine entities, those opinions demonstrate by comparison the depth of control that the Republic has over BCRA and the correctness of the Court’s alter ego finding in this case. Compare Seijas v. Republic of Argentina, No. 10 Civ. 4300 (TPG), 2011 WL 1137942, at *12 (S.D.N.Y. Mar. 28, 2011) (“no indication” that the Republic Argentina was directing the details of Banco de la Nation Argentina’s “commercial banking business”); NML Capital, Ltd. v. Republic of Argentina, No. 09 Civ. 7013 (TPG), 2011 WL 524433, at *7 (S.D.N.Y. Feb. 15, 2011) (“[t]he ENARSA situation is different from what this court dealt with when it held that the central bank of Argentina was an alter ego of the Republic”); Seijas v. Republic of Argentina, No. 04 Civ. 400 (TPG) (S.D.N.Y. Aug. 19, 2009) (11/27/2012 Boccuzzi Decl. Ex. E) (“there is no evidence that the Republic has manifested any intent for Aerolíneas to act as its agent, or that Aerolíneas agreed to do so”).
20 The Republic’s reliance on an amicus curiae brief filed by the United States in the Second Circuit in arguing that “the Republic’s decision to use the BCRA to repay its debt to the IMF is not indicative of the type of extensive control that concerned the Supreme Court in Bancec, nor is it evidence of fraud and injustice” (Rep. Mem. at 18-
-42- continuing with the improper establishment of the Bicentennial Fund for Debt Reduction in
December 2009 and enactment of Law 26.739, the Republic has established a pattern of controlling and dominating BCRA reserves. The Republic has continued to use BCRA funds to the present day, increasing its reliance on BCRA and making BCRA its central piggy bank.
Grosso Decl. Ex. 119, Debt to the BCRA, an Unpayable Bill,LA NACIÓN (Oct. 14, 2012).
Unsurprisingly, use of BCRA reserves only increased throughout 2012, at times reaching record levels. The overwhelming evidence leads to one conclusion: “[s]ince 2006, the BCRA has taken on a role as an auxiliary cash fund for the Treasury.” Id. Examples of the Republic’s control of BCRA funds are highlighted below:
• Since 2006, the Republic will have taken nearly US$40 billion in BCRA reserves to pay its own debt. Grosso Decl. Ex. 120, Treasury Bills in Hands of Central Bank Will Reach $US40 billion,CRONISTA (Sept. 25, 2012).
• Use of BCRA reserves increased from $67.1 billion pesos in 2011 to $127.3 billion pesos in 2012, an increase of nearly 90% in just one year. Grosso Decl. Ex. 121, BCRA Charter May Be Amended Due to Levels of Peso Issuance,LA NACIÓN (Jan. 13, 2013).
• In August 2012, temporary advances issued by the monetary authority increased another $10.8 billion pesos bringing total loans to the government to a new record high. Grosso Decl. Ex. 123 (BCRA Steps Up Peso Issuance for Loans to Treasury,ÁMBITO (Sept. 3, 2012).
• In a single day in November, BCRA broke its own record and transferred $8.709 billion pesos to the Treasury, more money than it typically transfers in an entire month. Grosso Decl. Ex. 122, Record BCRA Transfer of Almost $9 Billion in Single Day,CRONISTA (Dec. 3, 2012).
• The Republic has expanded its use of BCRA reserves to pay public debt. It is expected that the Debt Relief Fund will reach almost US$8 billion in 2013, an increase of nearly US$2.5 billion. Grosso Decl. Ex. 124, Government Will Be Able to Use More Reserves for Expenditures,
19) is misplaced. An alter ego finding rests exclusively within the purview of this Court, and Plaintiffs rely in any event on many more indicia of control than the IMF repayment. Indeed, far from using BCRA to “perform payment functions for the[] government[]” (Rep. Mem. at 18), the Republic uses BCRA’s reserves as a private slush fund.
-43- LA NACIÓN (Sept. 21, 2012); Grosso Decl. Ex. 125, In 2013 Debt Will Again Be Paid with BCRA Reserves,LA NACIÓN (Sept. 14, 2012).
Projections suggest that reliance on BCRA reserves will increase in 2013, particularly given that it is an electoral year. Grosso Decl. Ex. 143, Inflation: Addiction,LA NACION (Jan.
27, 2013); see also Grosso Decl. Ex. 126, Debt Payments,BLOOMBERG (Sept. 20, 2012);
Grosso Decl. Ex. 127, Argentina Gov’t to Lean More on Central Bank in 2013, DOW JONES
(Sept. 20, 2012). Notably, the 2013 budget allows the Republic to use BCRA funds, specifically the Debt Reduction Fund, both to repay the country’s debt and to finance capital expenditures, such as construction and investments in the newly-expropriated state oil- company. See, e.g., Grosso Decl. Ex. 128, Reserves for One and All,LA NACIÓN (Sept. 24,
2012); Grosso Decl. Ex. 124, Government Will Be Able to Use More Reserves for
Expenditures,LA NACIÓN (Sept. 21, 2012); Grosso Decl. Ex. 125, In 2013 Debt Will Again
Be Paid with BCRA Reserves,LA NACIÓN (Sept. 14, 2012).
In return for these excessive “loans” from BCRA, the Argentine Treasury has issued a number of “notes.” It is widely understood that the Republic can issue these notes regularly because “[i]n practice, however, these funds are never paid back.” Grosso Decl. Ex. 123,
BCRA Steps Up peso Issuance for Loan Treasury,ÁMBITO (Sept. 3, 2012); Grosso Decl.
Ex.119, Debt to the BCRA, an Unpayable Bill,LA NACIÓN (Oct. 14, 2012) (“[T]he debt to the Central Bank will never be paid. . ..”). According to former BCRA President Martín
Redrado, as of September 2012, BCRA held approximately US$40 billion in notes that the
Treasury has no intention of repaying. Grosso Decl. Ex. 129, Redrado: “Central Bank Holds
US$40 Billion in Vouchers That Will Not Be Paid,” INFOBAE (Sept. 26, 2012); Grosso Decl.
Ex. 120, Treasury Bills in Hands of Central Bank Will Reach US$40 Billion,CRONISTA
(Sept. 25, 2012).
The Republic conveniently ignores all of these facts. Instead, it offers only that a parent government’s “borrowing of funds” from its instrumentality is insufficient to establish
-44- the alter ego relationship. Rep. Mem. at 17. This argument is untenable for multiple reasons.
First, the Republic’s “borrowing” (more aptly described as “snatching”) of BCRA funds illustrates that the Republic completely controls BCRA under Bancec. Second, the
Republic’s argument reflects an impermissibly fragmented analysis of the facts. The
Republic also controls the BCRA’s monetary policy, BCRA Governors, and the laws affecting the relationship between BCRA and the Republic. In conjunction, these facts strongly support the conclusion that the Republic and BCRA share the principal-agent relationship contemplated by Bancec.
2. The Republic owns BCRA and, by law, can control nearly all of its activities.
As detailed in the Third Amended Complaint, and already found by this Court, over the past thirteen years, the Republic has enacted laws and issued decrees to expand its control over virtually all of BCRA’s activities. Any time a nominal legal barrier appears to restrict the Argentine government’s ability to use BCRA for its own (often political) purposes, the government has either violated it or simply changed the law.
The numerous laws and decrees issued since 1999 have served a variety of the government’s purposes at the expense of BCRA’s ever-decreasing independence. For example, the Argentine government has repeatedly increased the amount of money that
BCRA may “lend” to the government. A number of these “loans” have been used to pay the government’s external debts—a use not tied to BCRA’s primary mandate to safeguard the nation’s currency—and have been made in exchange for non-transferable treasury notes that pay an effective interest rate of zero percent. See App. C, TAC ¶ 34 (discussing, e.g.,
Executive Decree No. 298/2010, Resolution No. 131/2012, and Executive Decree No.
928/2012).
Recently, the Argentine government enacted new legislation that essentially removed any remaining limitations on its power over BCRA. See generally App. C, TAC ¶¶ 33-35,
-45- 68-71. In March 2012, President Fernández de Kirchner promulgated Law 26.739, a sweeping piece of legislation that amended the BCRA Charter to allow the government virtually unfettered control over BCRA. Law 26.739 redefined the mission of BCRA, eliminated the requirement that BCRA maintain reserves in an amount equal to the monetary base, allowed the Republic to repay bilateral loans using BCRA reserves, and freed up more
BCRA resources for the government’s use. App. C, TAC ¶¶ 67-70. Thus, in addition to promoting monetary and financial stability, which is the most basic and typical function performed by central banks around the world, BCRA now must also promote employment and economic development with social equity. Id. ¶ 68. Within weeks of the law’s enactment, the Republic quickly announced that it would “borrow” US $5.7 billion to repay certain of its debts. Id. ¶ 72.
Law 26.739 has been met with widespread criticism from both within the Republic and abroad for allowing the government obvious and unrestricted control over BCRA’s assets. App. C, TAC ¶ 71. Commentators have reported that the legislation resulted in
BCRA having “lost the last shred of its independence and become the piggy bank of
President Cristina Fernández’s government” (Grosso Decl. Ex. 63, Piggy Bank, Rootling around for Cash,THE ECONOMIST (Mar. 31, 2012)), and that the government effectively
“storm[ed] the [C]entral [B]ank” (Grosso Decl. Ex. 64, Kirchner Grabs the Central Bank,
WALL ST. J. (Apr. 2, 2012)). The pattern promises to continue. Less than one year after a significant reform to the BCRA Charter, commentators have speculated that another amendment to the BCRA charter will be necessary. The reform is necessary because the
Republic, a mere 11 months after passing and implementing changes to the BCRA Charter, is close to violating Article 20 by exceeding its allowance. Grosso Decl. Ex. 121, BCRA
Charter May Be Amended Due to Levels of Peso Issuance,LA NACIÓN (Jan. 13, 2013).
-46- Defendants predictably try to minimize the significance of this conduct by tying it to the country’s financial crisis in 2001. Rep. Mem. at 15. But this ignores the fact that many of the laws and decrees discussed in the Third Amended Complaint were enacted much more recently (including last year), during times when the Republic enjoyed strong economic growth and a record level of BCRA reserves. The Republic further attempts to downplay this conduct by describing these laws and decrees as “permissive.” Rep. Mem. at 16. Of course, the Argentine government has taken full advantage of the added authority it has granted itself repeatedly to raid BCRA reserves, and BCRA has been powerless to do anything about it— both because of the reduction of its authority through amendments to its Charter, and because
(as discussed in Section V.A.3. below), any BCRA Governor who has deigned to disagree with the government has been removed from office.
Whether or not the laws and decrees that establish the Republic’s control over BCRA were “duly enacted under Argentine law” is irrelevant. Rep. Mem. at 16. By Defendants’ logic, the country could duly enact a law appointing the President of the Republic as BCRA
Governor, and this would not create an alter ego relationship so long as the law had been properly enacted. That is absurd.
3. The Republic freely replaces any BCRA official who refuses to do its bidding.
As Plaintiffs have shown, the Republic has continuously maintained a tight grip on the day-to-day activities of BCRA by replacing any Governor who resists the government’s wishes or even attempts to assert BCRA’s independence. App. C, TAC ¶¶ 76-96. Despite the provision of the BCRA Charter that the Governor’s term is six years—with the possibility of reappointment—there have been seven BCRA Governors since 2001. Id. ¶ 78. This is one of the highest turnover rates in the world. Id. ¶ 77. The only two recent Governors who have managed to stay in office for even a third of the six-year term are those who dutifully carried
-47- out the government’s every wish—and when one of those, Martín Redrado, showed any backbone, he was immediately removed from his post.
Contrary to Defendants’ assertions, Plaintiffs do not argue that the Argentine
Executive’s ability to hire and fire the BCRA Governor is, by itself, sufficient to demonstrate day-to-day control. Rep. Mem. at 11. Rather, the Republic’s flagrant abuse of that power is but one way in which the Republic dominates BCRA. To maintain this control, the
Argentine Executive has repeatedly made interim appointments—in violation of the federal constitution—to ensure that it can swiftly replace any Governor who does not comply with its every demand by the simple act of issuing a decree, skirting the need to consult with or gain the approval of the Argentine Congress. App. C, TAC ¶ 32; see also id. at ¶ 96.
While critical of Plaintiffs’ reliance on undisputed evidence of frequent turnover among BCRA Governors, Defendants notably do not make any serious attempt to refute the reason for this high rate. Rep. Mem. at 11 & n.4. Nor could they. The Redrado scandal is one of the most damning pieces of evidence illustrating the great lengths to which the
Argentine Executive will go to great lengths to maintain control over BCRA and more specifically, the BCRA Governor. See Grosso Decl. Ex. 131, Martin Redrado, No Reserve:
The Limit of Absolute Power (2011) at 217-25.
Redrado served as Governor for more than five years so long as he faithfully followed the government’s instructions, which were often provided multiple times per day. App. C,
TAC ¶ 87. The moment Redrado resisted an instruction from President Fernández de
Kirchner to implement the controversial Bicentennial Fund, however, she immediately demanded his resignation. Id. ¶ 88. At the time, the Cabinet Chief made no secret that the use of Central Bank reserves to repay sovereign debt was “‘a decision of the president [of
Argentina]”’ and that such decisions “aren’t discussed at the [C]entral [B]ank because it’s the president [of Argentina] who makes decisions.’” Id. (quoting Grosso Decl. Ex. 77, Argentina
-48- Seeks Central Bank Ouster Over Debt Plan,BLOOMBERG (Jan. 6, 2010)). Fernández further claimed that “‘[i]n this country, it’s not the [G]overnor of the Central Bank that makes the decisions.’” Id. (quoting Grosso Decl. Ex. 78, The Reserves, or Your Job,ECONOMIST (Jan.
7, 2010)).
The Redrado episode provides clear evidence that in order to survive as Governor of
BCRA, one must be the obedient lapdog of the government and follow instructions unquestioningly. It is perhaps unsurprising that Defendants ignore these facts, because they cannot argue in good faith that the Redrado affair was anything but a blatant demonstration of the Republic’s control of BCRA.
4. The Republic dictates the setting and implementation of BCRA’s monetary policy.
Yet another example that the Republic controls BCRA is the Republic’s dictation of
BCRA’s monetary policies. While setting and implementing monetary policy is central to
BCRA’s function and activities, over the course of the last decade, the Argentine Executive confiscated that role.
This is evidenced by the fact that BCRA’s policy has varied widely over the course of the past ten years, and yet, despite this variance, BCRA’s policies have always aligned with political objectives. While some “coordination” of monetary policy is common between central banks and parent governments (Rep. Mem. 14-15), it is the government’s extreme involvement in setting and implementing BCRA policy distinguishes this central bank-parent government relationship from others.
As described in detail in the Third Amended Complaint and summarized above, the
Republic has a long-standing pattern of using BCRA reserves to pay its debt, which far exceeds in its brazenness any arms-length loans from a typical subsidiary to its parent. After a “loan” is made to the Treasury, it is then incumbent on BCRA to, once again, increase its reserves. See, e.g., App. C, TAC ¶ 100. Unsurprisingly, this pattern continues today. In
-49- December 2012, immediately after making a payment on debt maturities using BCRA reserves, BCRA aggressively began purchasing additional foreign currency. In only ten business days, BCRA purchased about US$ 760 million in order to offset the bond payment.
Grosso Decl. Ex. 132, In fifteen days, the Central Bank bought more foreign currency than in the last five months,CRONISTA (Dec. 17, 2012).
The Republic’s dominance over monetary policy was also clear in 2012 when the
Executive and BCRA allied and implemented drastic measures to limit the purchase of foreign currency. While President Fernández de Kirchner originally launched an aggressive campaign to “pesify” the economy and encourage Argentines to use pesos and limit foreign currency purchase, it was BCRA that implemented policies to support her campaign. In July
2012, BCRA circulated a list of acceptable reasons to justify foreign currency purchases.
Dollars purchased for reasons other than those listed were to be “suspended.” Grosso Decl.
133 (Argentine Dollar Bonds Fall After Ban on Savings in Dollar,BLOOMBERG (July 6,
2012)).21
B. Recognizing The Putative Legal Separateness Of BCRA And the Republic Would Result In Fraud Or Injustice.
Bancec’s second, independent prong asks whether recognizing the presumption of separateness “would work a fraud or injustice.” Bancec, 462 U.S. at 629. Disregarding the
21 Defendants point to the Second Circuit’s dicta that “[P]laintiffs’ ‘independence’ theory ‘renders BCRA more independent than the Federal Reserve System[.]” Rep. Mem. at 2, (quoting App. B., BCRA II at 190 (emphasis in original)). Plaintiffs dispute that conclusion and note in any event that Dr. Cukierman’s analysis of BCRA’s lack of “independence” was intended to assist the courts in making a legal determination under Bancec—not to replace the Bancec analysis. Moreover, the U.S. Congress has “structured the Federal Reserve to ensure that its monetary policy decisions … do not become subject to political pressures that could lead to undesirable outcomes.” Grosso Decl. Ex. 130 (Federal Reserve FAQs, http://www.federalreserve.gov/faqs/about_12799.htm). BCRA operates almost exclusively subject to political pressures. In addition, to the extent policies implemented by the Federal Reserve may be similar to BCRA’s policies—which they are not—such policies were the product of independent judgment and not Executive fiat.
-50- presumption to avoid “fraud or injustice” may be necessary in a wide variety of circumstances, including “to prevent the misuse of the privileges of legal personality, as in certain cases of fraud or malfeasance, to protect third persons such as a creditor or purchaser, or to prevent the evasion of legal requirements or of obligations.” Id. at 630 n.20 (internal citation and quotation marks omitted). The overarching principle is that “foreign states cannot avoid their obligations by engaging in abuses of corporate form.” De Letelier, 748
F.2d at 794.
This Court already held in April 2010 that “the use by the Republic of the resources and funds of BCRA . . . has contributed to fraud and injustice perpetrated by the Republic on the bondholders” because the Republic selectively elects to use BCRA’s funds to pay off certain debt holders ahead of schedule while refusing to pay those with judgments against the
Republic on long-overdue debt. App. A, Opinion at 301-02. Subsequent facts reaffirm and strengthen not only that the Republic and BCRA share a principal-agent relationship, but also that the Republic continues to invoke illusory separateness from BCRA in order to cherry pick those creditors it chooses to repay and to use BCRA funds in other ways.
U.S. courts have grown increasingly frustrated with the Republic’s recalcitrance. The
Republic has engaged in a long and repetitive pattern of failing to honor the judgments entered against it in this Court. Most recently, President Fernández de Kirchner unabashedly announced that Argentina would not pay “one dollar” to so-called “vulture funds.” Grosso
Decl. 134, U.S. Judge Insists Argentina Must Pay Holdout Creditors,REUTERS (Nov. 9,
2012); see also Grosso Decl. Ex. 135, Argentina unmoved on debt ‘holdouts’ payment,FIN.
TIMES (Nov. 18, 2012) (“The Argentine government has vowed only to pay creditors who restructured their debt and has ruled out a new default as it does legal battle with holders of defaulted debt seeking full repayment.”). In response, during a November 9, 2012 hearing on a different, but related, matter, this Court stated that U.S. Courts “are not helpless” when
-51- responding to the Republic’s defiant and unlawful behavior. Grosso Decl. Ex. 136, NML
Capital, Ltd. v. Republic of Argentina, Nos. 08 Civ. 6978, 09 Civ. 1707, 09 Civ. 1708 (TPG),
Hr’g Tr. 10:25, 18:5 (November 9, 2012). The Court is not helpless in part because of the clear direction provided by Bancec to disregard the presumption of separateness between the
Republic and BCRA in order to prevent “fraud or injustice.” Bancec, 462 U.S. at 629.
Despite Defendants’ contentions to the contrary, Bancec’s second prong is not limited to cases where the instrumentality was a vehicle through which the sovereign incurred liability. See Rep. Mem. at 20. It is hardly surprising that no court has adopted Defendants’ narrow construction, because it ignores that the relevant inquiry under Bancec is not whether instrumentality partook in the underlying conduct giving rise to the sovereign’s liability—but simply whether recognition of the instrumentality as a separate entity would “work fraud or injustice.” Bancec, 462 U.S. at 629 (internal citation omitted). Indeed, the Supreme Court in
Bancec expressly rejected Defendants’ construction—which had been adopted by the Second
Circuit below—reasoning that it would enable a sovereign to “escape liability . . . simply by retransferring [its] assets to separate juridical entities . . . [or] by creating juridical entities whenever the need arises.” Id. at 633; see also id. at 634 (Stevens, J., concurring in part and dissenting in part) (rejecting legal analysis now mirrored in the Republic’s brief)). As demonstrated by subsequent cases, including those on which Defendants rely, many factors are relevant to the fraud or injustice determination, such as whether the debtor was seeking to enforce its rights while simultaneously seeking to avoid the consequences, and whether the debtor or instrumentality transferred assets in order to avoid attachment. See, e.g., Pravin
Banker Assocs., Ltd. v. Banco Popular del Peru, 9 F. Supp.2d 300, 305 (S.D.N.Y. 1998), cited at Rep. Mem. at 20.
Defendants’ reliance on other authorities outside this jurisdiction is misplaced. In
Alejandr v. Telefonica Larga Distancia de PuertoRico, 183 F.3d 1277 (11th Cir. 1999), the
-52- Eleventh Circuit held that plaintiffs’ inability to collect on a judgment did not, standing alone, establish fraud or injustice. Id. at 1286-87. In Hercaire International v. Argentina, 821 F.2d
559, 565 (11th Cir. 1987), the Eleventh Circuit held, based on the facts in that case, that the lack of any connection between the Republic’s airline and the underlying dispute against the
Republic dispelled any possibility of fraud or injustice. In Bayer & Willis Inc. v. Republic of
Gambia, 283 F. Supp. 2d 1 (D.D.C. 2003), the court held only that the question of whether a sovereign and its instrumentality were alter egos warranted additional discovery. Id. at 7.
Moreover, it is the Republic’s manipulation of BCRA that enables the Republic to perpetrate the injustice of making payments it could not have otherwise made while evading its judgment-backed obligations to EM and NML (and other judgment creditors). It simply is not true that BCRA had no “involvement in the Republic’s issuance of, and eventual suspension of payments on, plaintiffs’ bonds.” Rep. Mem. at 20. To the contrary, the record reflects that BCRA removed assets from the United States in anticipation of and in the years following the Republic’s 2001 economic crisis precisely because it feared that creditors might attempt to attach these assets to satisfy judgments on defaulted Argentine bonds. BCRA has admitted that its reserves “were transferred to more protective jurisdictions as a preventive measure against possible wrongful attachment efforts by creditors of the Republic.” Grosso
Decl. Ex. 137, Declaration of Juan Basco, EM Ltd. v. Argentina, 03 Civ. 2507 (S.D.N.Y.
March 14, 2005) ¶ 18; see also App. C, TAC ¶ 117; Rep. Mem. at 22 (admitting that BCRA transferred assets as a “prudent minimization of risk”).22
22 Defendants’ argument that “BCRA’s use of its funds can be considered a fraud or injustice ‘only if BCRA is an illusory corporate fiction’” (Rep. Mem. at 22) is unsustainable, as it would ignore Bancec’s express creation of two disjunctive prongs for establishing alter ego status and disregarding the presumption of separateness.
-53- C. Plaintiffs Are Entitled To Expedited, Limited Jurisdictional Discovery About The Relationship Between The Republic And BCRA.
Plaintiffs believe that the Third Amended Complaint and other materials submitted in opposition to Defendants’ motion to dismiss present more than sufficient facts to state a plausible Bancec claim and defeat dismissal.23 However, should the Court have any doubt in this regard, Plaintiffs respectfully request that they be allowed to conduct limited, expedited discovery regarding the nature of the relationship between BCRA and the Republic. See, e.g., First City, Texas-Houston, N.A. v. Rafidain Bank, 150 F.3d 172, 177 (2d Cir. 1998)
(holding that the “district court should have permitted full discovery against [the debtor], which would have allowed [plaintiff] a fair opportunity to conduct jurisdictional discovery without further impinging on [the alleged alter ego]’s immunity. Following [such] discovery
…, the district court would then have been in a better position to assess whether discovery from [the alleged alter ego] on the alter ego question was sufficiently likely to be productive as to warrant compelling additional jurisdictional discovery”); Olympic Chartering S.A. v.
Ministry of Indus. & Trade of Jordan, 134 F. Supp. 2d 528, 535 n.5 (S.D.N.Y. 2001) (“An immune party may be subject to jurisdictional discovery and liability if the judgment creditor claims that it is an alter ego of a non-immune judgment debtor.”) (citations omitted).
23 Plaintiffs obviously have relied on press articles in describing the relevant facts. As this Court previously noted, the “financial press in Argentina, in the United States, and elsewhere is likely to be well versed concerning financial issues which they report about, including matters in Argentina, and because well-established press organs are likely to contain accurate quotations.” App. A, Opinion at 280; cf. NML Capital, Ltd. v. Republic of Argentina, 699 F.3d 246, 264 n.17 (2d Cir. 2012) (relying on press and other publicly available sources for information about actions of the Argentine government). To the extent Defendants allege that these press reports are inaccurate, the veracity of the information contained therein only can be tested upon examination through discovery of information exclusively within the possession and custody of Argentina and/or BCRA.
-54- CONCLUSION
For the foregoing reasons, Plaintiffs respectfully request that Defendants’ motions to dismiss be denied.
Dated: January 30, 2013 New York, New York
DEBEVOISE & PLIMPTON LLP DECHERT LLP
By: /s/ David W. Rivkin By: /s/ Robert A. Cohen David W. Rivkin Robert A. Cohen ([email protected]) ([email protected]) John B. Missing Dennis H. Hranitzky ([email protected]) ([email protected]) Suzanne M. Grosso Eric C. Kirsch ([email protected]) ([email protected]) 919 Third Avenue 1095 Avenue of the Americas New York, New York 10022 New York, New York 10036 Tel. (212) 909-6000 Tel. (212) 698-3500
Attorneys for GIBSON, DUNN & CRUTCHER LLP Plaintiff EM Ltd. By: /s/ Theodore B. Olson Theodore B. Olson ([email protected]) Matthew D. McGill ([email protected]) 1050 Connecticut Avenue, NW Washington, D.C. 20036 Tel. (202) 955-8500
Attorneys for Plaintiff NML Capital, Ltd.
-55-