Anna Galpern, a specialist from Georgetown University Law Center, explained it like this: “Imposing a fine is not the same as collecting it. Russia hasn’t paid its rapidly-accumulating fines, which now total around $15 million.” But if sanctions were of a non-monetary nature, that protection would be off.

Wednesday, October 1, 2014

Non-monetary fines may be contempt key

Cleary’s lawyer Jonathan Blackman (left) exits Griesa’s court room on Monday.

Declaring it is easy but what it actually means for the country is difficult to determine

Legal experts debated yesterday what US District Judge Thomas Griesa’s contempt order would mean for Argentina, due to the unusual nature of the case and the scarcity of legal precedents.

The real question now is whether the ruling will have “real repercussions or mostly symbolic ones,” sovereign debt lawyer Antonia Stolper said to Del Plata radio yesterday. So far, Judge Griesa didn’t impose any fines to go along with his contempt-of-court ruling, but that course of action, originally proposed by holdout lawyer Robert Cohen, could still be in the cards.

“The holdouts are going to ask for something else, but we don’t know what the judge is going to give them,” said Solper.

Along those lines, José Ignacio García Hamilton considered that “if the order had been against a physical person, he or she could be facing prison at worst, but this is a country, so that can’t happen.”

What those sanctions might be remains the big question. The lawyers for the hedge funds suing Argentina say that considering any fines would be ignored, the judge should impose “non-monetary sanctions,” such as a ban on operating with US banks. That would open up a whole host of other questions though about Griesa’s authority to make this type of decision.

Last week, Reuters analyst Alison Frankel considered that it was non-monetary sanctions that could give teeth to a contempt ruling.

“Remember: The hedge funds were able to force Argentina into default because they persuaded Griesa that the courts had the authority to block third parties — such as bond trustees BNY Mellon and Citigroup — from processing Argentina’s payments to exchange bondholders. Institutions with operations in the United States don’t have Argentina’s foreign sovereign immunity, so they are much more reluctant to defy US court orders,” Frankel explained.

According to Frankel, barring Argentina from making any transaction through US banks, or forbidding Argentina’s Central Bank from “doing business with the Federal Reserve” could be a financial exile that the country might not withstand, though the nature of these scenarios remains highly speculative.

“It’s not the first time that a sovereign country is declared in contempt, and in even fewer ones have we seen fines applied. But generally they are impossible to enforce,” said Antonia Stolper.

The US Foreign Sovereign Immunities Act (FSIA) can be seen as protecting sovereign nations from any kind of asset seizure to force compliancy on debts or any other kind of legal obligations.

That does not mean it protects countries from all kinds of sanctions.

OTHER CASES

That also did not stop US courts from placing sanctions on Congo and Russia within the last five years, the Wall Street Journal informed.

Anna Galpern, a specialist from Georgetown University Law Center, explained it like this: “Imposing a fine is not the same as collecting it. Russia hasn’t paid its rapidly-accumulating fines, which now total around $15 million.” But if sanctions were of a non-monetary nature, that protection would be off.

In a recent paper co-written with University of North Carolina (UNC) School of Law expert Mark C. Weidemaier, Galpern summarized this legal, financial and geopolitical puzzle: “Enforcement objections assign too much significance to the court’s inability to impose meaningful contempt sanctions (on sovereign countries), overlooking the fact that, when a foreign sovereign is involved, enforcement can be granted by creating embargoes” not on the sovereign itself, but on “third parties,” discouraging them from dealing with the country.

The most beneficial way forward for the vulture funds, and the most damaging to Argentina and third parties, might not be so structurally different from the original Griesa ruling, that forced Argentina into default against its will, by threatening the third parties involved in the repayment with contempt orders that they, as opposed to Argentina, would find more difficult to ignore.

Even when Argentina tried to bypass the ruling, Euroclear or the Bank of New York did not. Other third parties may be similarly discouraged.

Herald with DyN,Télam