Opinion ID: 2832150
Heading Depth: 5
Heading Rank: 1

Heading: Extensive Control

Text: We address first Bancec’s “extensive control” prong. While measuring the level of control exercised over an instrumentality by a foreign sovereign is fact‐intensive, courts have articulated several indicia to guide the inquiry.57 Among the factors that have been deemed relevant are whether the sovereign nation: (1) uses the instrumentality’s property as its own; (2) ignores the instrumentality’s separate status or ordinary corporate formalities; (3) deprives the instrumentality of the independence from close political control that is generally enjoyed by government agencies; (4) requires the instrumentality to obtain approvals for ordinary business decisions from a political actor; and (5) issues policies or directives that cause the instrumentality to act directly on behalf of the sovereign state.58 These factors are relevant to answering the touchstone inquiry for “extensive control”: namely, whether the For instance, the Fifth Circuit in Bridas S.A.P.I.C. v. Gov’t of 57 Turkmenistan, 447 F.3d 411, 416‐18 (5th Cir. 2006), listed 21 factors to consider to determine whether the foreign state “complete[ly] control[led]” the instrumentality. See also Letelier, 748 F.2d at 794. 58 See, e.g., McKesson Corp. v. Islamic Republic of Iran, 52 F.3d 346, 352 (D.C. Cir. 1995); Hester Int’l Corp. v. Fed. Republic of Nigeria, 879 F.2d 170, 178 (5th Cir. 1989). 26 sovereign state exercises significant and repeated control over the instrumentality’s day‐to‐day operations.59 BCRA was founded in 1935 as Argentina’s Central Bank.60 By statute, it is “a self‐administered institution,” which is charged with acting as Argentina’s agent and depository before international monetary, banking, and financial entities, as well as with regulating the Argentine banking system and financial sector.61 BCRA’s primary responsibility is to maintain the value of legal tender in Argentina—accordingly, it shall “exclusively issue banknotes and coins in the Argentine Nation,” and “invest a portion of its external 59 See LNS Invs., Inc. v. Republic of Nicaragua, 115 F. Supp. 2d 358, 363 (S.D.N.Y. 2000) (alter‐ego test requires a showing that “the government exercises extensive control over the instrumentality’s daily operations and abuses the corporate form”), aff’d sub nom. LNC Invs., Inc. v. Banco Central de Nicaragua, 228 F.3d 423 (2d Cir. 2000) (affirming “for substantially the reasons stated by the district court”); Seijas, 502 F. App’x at 22 (Bancec requires extensive control of subsidiary’s “day‐to‐day activities” or abuse of the corporate form.); First Inv. Corp. of the Marshall Islands v. Fujian Mawei Shipbuilding, Ltd., 703 F.3d 742, 753 (5th Cir. 2012) (“[W]e look to the ownership and management structure of the instrumentality, paying particularly close attention to whether the government is involved in day‐to‐day operations, as well as the extent to which the agent holds itself out to be acting on behalf of the government.” (internal quotation marks omitted)); Doe v. Holy See, 557 F.3d 1066, 1080 (9th Cir. 2009) (Bancec requires allegations “of day‐to‐day control” in order “to overcome the presumption of separate juridical status”). 60 BCRA II, 652 F.3d at 177 (citing Law No. 24,144/92, ch. I, § 1 (Oct. 22, 1992, as amended) (“BCRA Charter”)). An English translation of the BCRA Charter is provided in the J.A. at 2786‐2800. BCRA Charter, arts. 1, 3‐4 (J.A. at 2786‐87); see also id. arts. 17‐18, 21‐22, 61 25 & 28‐29 (J.A. at 2791‐95). 27 assets in deposits or other interest‐bearing transactions with foreign banking institutions.”62 Moreover, BCRA is managed by an independent Board of Directors appointed by the “National Executive Power” with the consent of the national Senate.63 BCRA has the authority to purchase and sell property, hold accounts, and sue and be sued in courts under its own name.64 Thus far, “on paper,” BCRA appears to be a typical government instrumentality entitled to separate legal status. However, plaintiffs argue, and the District Court presumably accepted, that BCRA’s formal independence is belied by Argentina’s extensive control over BCRA’s day‐to‐day operations. Plaintiffs attempt to buttress this conclusion with three categories of factual allegations. Nonetheless, even if we assume the truth of all of them, these facts do not support a claim of “extensive control,” because whatever control Argentina exerted was not tied to BCRA’s day‐to‐ day operations. First, the TAC alleges that Argentina systematically eliminated BCRA’s legal independence by: (1) permitting the President to appoint BCRA officers for an unspecified period without Senate approval; and (2) removing BCRA governors who supported the central bank’s independence from the executive 62 Id. Arts. 30 & 33 (J.A. at 2795‐96). 63 See BCRA I, 473 F.3d at 479 n.15. 64 Id. 28 branch.65 But courts have consistently rejected the argument that the appointment or removal of an instrumentality’s officers or directors, standing alone, overcomes the Bancec presumption.66 The hiring and firing of board members or officers is an exercise of power incidental to ownership, and ownership of an instrumentality by the parent state is not synonymous with control over the instrumentality’s day‐ to‐day operations. Governments commonly exercise some measure of control over their instrumentalities, much like parent corporations commonly control certain aspects of otherwise independent subsidiaries. Missing from plaintiffs’ allegations are any claims that Argentina’s appointment of board members then caused it to interfere in and dictate BCRA’s daily business decisions. Ensuring that a board of directors of an instrumentality shares the sovereign’s goals and policies for the instrumentality is not, by itself, extensive control. The sovereign must instead use its influence over these directors in order to interfere with the instrumentality’s ordinary business affairs. 65 See J.A. at 3056‐66 (TAC ¶¶ 76‐96). 66 See Transamerica Leasing, Inc. v. La República de Venezuela, 200 F.3d 843, 849 (D.C. Cir. 2000) (“If majority stock ownership and appointment of the directors were sufficient, then the presumption of separateness announced in Bancec would be an illusion.”); Foremost‐McKesson, 905 F.2d at 440 (“[M]ere involvement by the state in the affairs of an agency or instrumentality does not answer the question whether the agency or instrumentality is controlled by the state for purposes of FSIA.”); Hester Int’l Corp., 879 F.2d at 181 (“The two factors of 100% ownership and appointment of the Board of Directors cannot by themselves force a court to disregard the separateness of the juridical entities.”). 29 Second, the TAC alleges that Argentina issued executive decrees and legislative amendments to make it easier for the government to borrow from BCRA, and that Argentina subsequently borrowed tens of billions of dollars from BCRA in order to pay Argentina’s debts to the IMF and other private creditors (but not to these plaintiffs).67 However, as the United States argued before us as amicus in BCRA II,68 the repayment by BCRA of Argentina’s other debts does not establish the existence of an alter‐ ego relationship, because “central banks commonly perform payment functions for their governments, including central banks that are relatively independent from their governments.”69 Although the United States also argued that the IMF’s status as a preferred 67 See J.A. at 3036‐56 (TAC ¶¶ 33‐75) (BCRA’s loans to Argentina between 2005 and 2010 included: (1) $8 billion to pay its debt to the IMF in 2005; (2) $6.7 billion to pay its debt to the Club of Paris in 2008; (3) $6.6 billion to pay its debt to private creditors in 2010; and (4) $17 billion from 2010 to 2012 to pay a variety of other debts). The “Club of Paris” is “an international organization established for the purpose of settling controversies concerning debts that were guaranteed or owed by LDC [Less Developed Country] governments to creditor governments.” BCRA I, 473 F.3d at 466 n.2 (internal quotation marks omitted) (alteration in the original). 68 In BCRA II, we did not reach the District Court’s earlier holding that BCRA was Argentina’s alter ego. However, the United States—which appeared as amicus in BCRA II in support of the position of BCRA—argued in the alternative that the District Court’s analysis of the alter‐ego issue in that earlier case was flawed. The amicus brief of the United States from BCRA II has been included in the record for this appeal. See J.A. at 3543‐3573. 69 J.A. at 3569; see also id. at 3552 (“[T]he United States urges the Court to clarify that the BCRA’s involvement in repaying the IMF does not support disregarding the BCRA’s separate juridical status.”). 30 creditor justified the payments,70 that question goes to whether Argentina’s choice to pay one set of creditors over another was legitimate—an inquiry that is unrelated to whether Argentina controlled BCRA in order to accomplish those payments. Here, the Republic’s plan to borrow money from BCRA was not executed by the Argentine government alone. Instead, the proposals received the necessary review and approval by BCRA’s legal advisers and BCRA’s Board of Directors,71 and one BCRA Specifically, the United States argued that Argentina’s use of BCRA 70 funds to repay the IMF did not justify ignoring BCRA’s separate juridical status, because the decision to pay the IMF in preference to its other creditors was consistent with the long‐standing policy of the United States and the other sovereign members of the IMF to recognize the preferred creditor status of the IMF. In order to protect the funds of its member states (including the funds invested by the United States), the IMF rightly expects to be paid even when other creditors are not. See, e.g., International Monetary Fund, Financial Risk in the Fund and the Level of Precautionary Balances (Feb. 3, 2004) at 4 (“Member governments and other creditors have agreed to treat the Fund as a preferred creditor to help achieve its purposes. Preferred creditor status is fundamental to the Fund’s financial responsibilities and the Fund’s financing mechanism as this means that members give priority to repayment of their obligations to the Fund over other creditors thus protecting the reserve assets that other members have placed in the custody of the Fund.”). Id. at 3568‐69. In fact, “[a]ccording to the IMF staff, many other countries had repaid the IMF out of international reserves held by the debtor country’s central bank.” Id. at 3569. 71 See id. at 3049‐50 (TAC ¶ 61). 31 Governor testified before Argentina’s Congress that it made policy sense to permit the government to borrow funds from BCRA while its reserves earned relatively low interest.72 Therefore, the Republic’s decision to use BCRA to repay its debt to the IMF and other creditors is not indicative of the extensive control that concerned the Supreme Court in Bancec.73 Finally, the TAC alleges that Argentina and BCRA coordinated their activities in implementing an “inflationary” monetary policy.74 However, governments and central banks— including the U.S. Government and the U.S. Federal Reserve—often consult and coordinate their actions with respect to monetary policy.75 Whether the resulting policy is considered by some commentators as too “inflationary” or “deflationary” is irrelevant to the question of whether Argentina exercised day‐to‐day control over BCRA. It is not our role to second‐guess monetary policy decisions made by foreign governments. We thus agree with the position of 72 See id. at 3056 (TAC ¶ 75). 73 In Seijas, Banco de la Nación also allegedly made favorable loans to Argentina “in violation of its governing charter” and “to individuals and corporations” at the Republic’s behest, but we held that this was not sufficient to establish that the bank lacked independence. See 502 F. App’x at 21; ante note 55. 74 See J.A. at 3066‐76 (TAC ¶¶ 97‐113). See, e.g., id. at 3593 (U.S. Treasury Department’s Annual Report to 75 Congress, covering Nov. 1, 1996 to Oct. 31, 1998) (describing the coordinated June 1998 intervention in the foreign exchange markets by U.S. monetary authorities); id. at 3610 (handbook published by the Centre for Central Banking Studies) (“[H]owever independent a central bank is, the ultimate decisions on a country’s currency . . . are usually taken by the government[.]”). 32 the United States in BCRA II—“central banks ordinarily have a high degree of interaction with their parent foreign governments,” and as such, “courts should give significant deference to a foreign government’s conduct vis‐à‐vis its central bank.”76 The alleged “coordination” of monetary‐policy actions between Argentina and BCRA is simply not sufficient to establish “extensive control.” Considered cumulatively, these allegations certainly establish that the Republic sought the assistance of BCRA in responding to an extremely severe debt crisis, and that Argentina took steps to ensure that BCRA shared its policies and goals during this time. They do not establish, however, that the Republic so extensively controlled BCRA’s day‐to‐day operations as to transform BCRA into the Republic’s alter ego. Most of the actions allegedly taken by BCRA are governmental functions performed by most central banks—i.e., paying a nation’s creditors, controlling currency flows, and keeping foreign exchange deposits. Plaintiffs have not sufficiently alleged that these actions, or any others, were the result of Argentina’s substantial control over the business decisions or daily functions of BCRA.77 Thus, these actions, standing alone, are not the type of 76 Id. at 3570‐71 n.. See, e.g., McKesson Corp., 52 F.3d at 352 (finding Bancec presumption 77 rebutted where “[r]outine business decisions, such as declaring and paying dividends to shareholders and honoring [the instrumentality’s] contractual commitments” were dictated by the sovereign state); Hester Int’l Corp., 879 F.2d at 178 (giving example of extensive control where “all checks in excess of a certain amount [had to] be signed by a government‐appointed director, a governmental agency was required to approve all invoices for shipments exceeding a certain 33 activities that illustrate a complete takeover of BCRA’s day‐to‐day operations by the Republic.78 Because the facts alleged do not establish that the Republic exercised extensive control over BCRA’s day‐to‐day operations, the first prong of the Bancec test has not been met.