Sovereign Debt and the Problem of Sovereign Immunity Julian Ku John D. Gregory Research Professor of Law December 11, 2013

Overview  Introduction: Argentina’s Waiver  Background: Foreign Sovereign Immunity in the United States  NML and Sovereign Immunity Workarounds  Assessment and Proposals for Reform

Foreign Sovereign Immunity A sovereign’s immunity from jurisdiction of foreign courts is “absolute.” – C.J. Marshall, Schooner Exchange v. McFadden (1812) But waivers permitted

Argentina’s 1994 Waiver [Argentina] has irrevocably agreed not to claim and has irrevocably waived such immunity to the fullest extent permitted by the laws of such jurisdiction and consents generally for the purposes of the Foreign Sovereign Immunities Act to the giving of any relief or the issue of any ….

Argentina’s 1994 Waiver Argentina also waived immunity for, “any of its revenues, assets or properties” that would otherwise be entitled to immunity “from attachment prior to judgment, from attachment in aid of execution of a judgment or from any other legal or judicial process or remedy.” Submitted to jurisdiction of New York courts

Collecting Against Argentina How much money has been collected against Argentina in U.S. litigation since its 2002 default on around $80 Billion? – ZERO.

Background: Foreign Sovereign Immunity in the United States Pre-WWII: U.S. courts would allow sovereigns to revoke waivers after litigation arose Post WWII: U.S. shifted to a “restrictive” theory of immunity for sovereign commercial activities 1976: Congress enacts Foreign Sovereign Immunities Act (waiver revocations disallowed, no immunity for commercial activity) 1991: U.S. Supreme Court finds that issuing sovereign debt is a “commercial activity” Spectator, UK

Why Can’t Creditors Collect? Foreign Sovereign Immunities Act, Section 1610 and 1611: – Limits execution of judgments to assets used for “commercial activity in the United States” – Further excludes: Central bank property held for “its own account” Military-related assets Diplomatic assets

Creditors’ Workaround EM v. Republic of Argentina – Allege that many central bank assets are actually used for other activities, such as paying exchange bondholders Rejected by Court of Appeals NML v. Argentina – Demand repayment under interpretation of the pari passu “equal treatment” clause Upheld by Court of Appeals,

FSIA and the Pari Passu Injunction Argentina argues that Pari Passu injunction is really an “attachment” of assets outside of U.S. FSIA does not permit “attachment” of assets outside U.S. territory If Supreme Court grants certiorari, this will likely be central issue

Assessment Foreign sovereigns raising debt from private creditors should be subject to same legal obligations as private companies to the extent possible U.S. law effectively makes foreign sovereign waivers meaningless for private creditors “Pari Passu” workaround is a useful corrective.

Proposals for Possible Reform Take Waiver Seriously – Read general waivers like Argentina’s to include central bank property, other non-commercial assets (planes, ships, etc.) Rely on domestic courts instead of new international mechanisms Do not fear deterring new foreign sovereign debt offerings