Second Circuit determines that Argentine central bank is not alter ego of Argentina
Introduction
In EM Ltd v Banco Cent De La Republica Argentina (800 F 3d 78 (2d Cir 2015)(1), ), the US Court of
Appeals for the Second Circuit refused to allow individual bondholder plaintiffs that had opted out of
a class action to enforce judgments for $2.4 billion against Argentina by collecting against funds held
by Argentina’s central bank, Banco Central de la República Argentina (BCRA), in New York.
Argentina had agreed to waive its sovereign immunity when it issued the bonds in order to secure
the investments.(2) However, the Second Circuit found that Argentina’s express waiver of sovereign
immunity did not extend to the country’s central bank because BCRA, as an instrumentality of a
sovereign state, was immune from suit under the Foreign Sovereign Immunities Act(3) and the ‘alter
ego’ and ‘commercial activity’ exceptions to the Foreign Sovereign Immunities Act did not apply.
Banco Centrale makes clear that the Second Circuit will strictly interpret and apply any waivers of
sovereign immunity. The Second Circuit established a high bar for creditors seeking to prove that
state-owned instrumentalities are the alter egos of their states, and sets clear limits on the types of
activity that will permit application of the commercial activity exception.
Facts
The plaintiffs EM Ltd and NML Capital, Ltd held bonds issued by Argentina under a fiscal agency
agreement (FAA) that included an express waiver of sovereign immunity.(4) The waiver was
included in the FAA at the insistence of investors because of Argentina’s history of defaulting on
sovereign obligations.(5) Argentina began issuing bonds under the FAA in 1994.(6)
A severe financial crisis beset Argentina in 2001 and Argentina suspended payment on the FAA
bonds.(7) Although the majority of the bonds were restructured through “global exchange
offers” (offers to trade the bonds for new securities with substantially reduced value), the plaintiffs’
FAA bonds were not.(8)
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