Opinion ID: 2967955
Heading Depth: 2
Heading Rank: 1

Heading: facts

Text: On October 27, 1985, former NDSC Deputies for Development and Long-Term Planning, Ibnu Hartomo and Soebagyo Soedewo, issued a series of 505 Indonesian promissory notes collectively valued at US$3.2 billion. The notes bear the crest of the NDSC and are payable in U.S. Dollars to the Central Establishment for Trade and Investment — Beirut and or their Bearer in New York. Hartomo utilized the offices of the Syrian Government to validate and effect the issuance of the notes.1 At a signing ceremony at a hotel in Damascus, Syria, attended by the President of the Central Bank of Syria, Hartomo signed the notes, and Mawardi certified that they were Official/Governmental. A representative of the Syrian Ministry of Foreign Affairs notarized Mawardi’s signature on the notes. The Central 1 Two other actions brought by holders of promissory notes set forth essentially the same factual background of this case. See Phaneuf v. Republic of Indonesia, 106 F.3d 302 (9th Cir. 1997); Storr v. Nat’l Def. Sec. Council of the Republic of Indonesia, No. 95 CIV 9663, 1997 WL 633405, at  (S.D.N.Y. Oct. 14, 1997), aff’d, 164 F.3d 619 (2d Cir. 1998). 4 VELASCO v. THE GOVERNMENT OF INDONESIA Establishment for Trade and Investment then indorsed the notes, rendering them bearer in form. Thereafter, Hartomo exchanged the notes for notes issued by Hassan Zubaidi, a Syrian-based financier. Zubaidi placed some of the notes in the international market. Hartomo admitted that at the time he issued the notes, he knew he was not authorized to do so. The former NDSC Secretary General, Achmad Wiranatakusumah, declared that two letters of authorization purportedly signed by him and empowering Hartomo and Soedewo to issue the instruments on behalf of the NDSC were forgeries. Similarly, Ambassador Mawardi had not received an express delegation of authority from the Ministry of Finance or the Department of Foreign Affairs and, therefore, lacked the authority to confirm or legalize the notes.2 The notes themselves contain numerous facial irregularities and are distinguishable from notes issued by Bank Indonesia or the Indonesian Ministry of Finance, the only agents under Indonesian law with authority to issue promissory notes binding on the Government. Among other things, the notes lack a statement that they were issued under the authority of those entities, fail to designate a specific payment agent, place of payment, or exact amount and method of repayment, and omit other key terms. In late 1985, the NDSC became aware of reports that the notes 2 Under Indonesian law, an Ambassador does not have the inherent power to execute a loan or other financial instrument to receive foreign credit on behalf of the Republic of Indonesia. An ambassador must request and receive clearance from an interdepartmental committee established to review foreign financial credits. Upon receipt of such clearance, the Minister of Foreign Affairs issues Full Powers to the Ambassador. In cases where the Ambassador seeks authorization to execute a foreign credit under Presidential Decree No. 59/1972, the Minister of Finance must transmit a specific written delegation of authority to the Minister of Foreign Affairs. See Anwar Aff. at 2, JA 498. Mawardi’s attempted confirmation of the notes as official/governmental was meaningless and contrary to Indonesian law with respect to the legalization of Government documents. A document is legalized by the Department of Justice and the Department of Foreign Affairs by punching a hole through it, attaching a ribbon, and placing a hot wax seal on it to prevent alteration. Id. at 3, JA 499. VELASCO v. THE GOVERNMENT OF INDONESIA 5 were in circulation. On December 20, 1985, the Ministry of Finance issued a letter to certain Government ministerial departments alerting them of the alleged NDSC promissory notes, advising them that only the Ministry of Finance and Bank Indonesia are authorized to obtain foreign loans on behalf of the Republic of Indonesia, and requesting an investigation into the matter. The Ministry of Finance and Bank Indonesia determined that the purported NDSC notes were not issued in accordance with Indonesian law and, therefore, were not binding on the Republic of Indonesia. On January 21, 1986, the NDSC Secretary General sent a confidential memorandum to the Governor of Bank Indonesia stating that the NDSC had no authority to issue promissory notes and that it did not and could not authorize any NDSC official, including Hartomo and Soedewo, to issue any promissory notes. The Secretary General requested Bank Indonesia to issue notices announcing that the purported NDSC notes were void and invalid. On January 21, 1986, February 4, 1986, and March 2, 1987, Bank Indonesia issued circulars by telex alerting all foreign-exchange banks in Jakarta, Bank Indonesia’s branch offices, and Bank Indonesia’s Representative Offices worldwide of the unauthorized notes and advising them the issuance of such notes was conducted at the risk and responsibility of the individual issuers. On March 14, 1986, Hartomo was discharged from his position at the NDSC. On April 30, 1987, the NDSC issued a press release confirming that it was not authorized to issue promissory notes and that the purported NDSC notes were unauthorized and illegal. Subsequently, the international press, including the New York Times, the Asian Wall Street Journal, and Forbes Magazine, reported widely on the fake notes and Bank Indonesia’s repeated repudiation of them. It is undisputed that these events occurred prior to the time Velasco purchased his Note. Velasco purchased his Note in Panama on September 14, 1987 from Patrizion Bucciarelli, an Italian businessman, for US$1.8 million and approximately $300,000 in antique gold coins. When he presented the Note for payment at Banaico Bank in Panama City on November 16, 1987, one day after the Note’s maturity date, the bank informed him that Indonesia refused payment. Velasco presented the Note for payment on subsequent occasions at the Offices of the Indo- 6 VELASCO v. THE GOVERNMENT OF INDONESIA nesian Consulate General, which informed him that the Note was unauthorized and not payable. Velasco subsequently sued to enforce payment on the Note. His Amended Complaint states claims for fraud, negligent misrepresentation, unfair and deceptive trade practices, and breach of contract and demands specific performance as well as monetary damages. The Defendants moved to dismiss for lack of subject matter and personal jurisdiction, improper venue, insufficient service of process, and failure to state a claim upon which relief could be granted. The District Court held that the Plaintiff failed to prove that any former staff members of the NDSC had either actual or apparent authority to issue the Note. Accordingly, the Court held that the acts of the NDSC with respect to the issuance of the Note were not the acts of a foreign state and that the commercial activity exception to the FSIA did not apply. The District Court determined the Defendants to be immune from suit pursuant to the FSIA and granted the motion to dismiss for lack of subject matter jurisdiction without reaching the Defendants’ alternate bases for dismissal. Velasco contends that the District Court erred in ruling that the acts of the Defendants in conjunction with the issuance of the Note did not constitute commercial activity of a foreign state which abrogates sovereign immunity under the FSIA.