US Government Debt Different - Finance Department - University of ...

Charles W. Mooney, JrIf the U.S. conceivably might undertake a default and restructuringprocess, it would do well also to undertake well in advance someplanning for asset protection and judgment proofing. It could maximizeprotection by utilizing separate, independent agencies and instrumentalitiesfor as much of its commercial activity as is possible.Asset transfers to such entities on the eve of a default might invitecourts to disregard their separateness. 167 The U.S. also should notRussian Fed’n v. Noga, 127 I.L.R. 156, 160-61 (Fr. Paris Court of Appeal 2000).The United States itself has flip-flopped on mixed bank accounts. In 1980, the D.C.District Court held that an analysis of the purposes of an embassy bank accountwas feasible and that the account was not immune from attachment. Birch ShippingCorp. v. Embassy of the United Arab Republic of Tanz., 507 F.Supp. 311, 313 (D.D.C.1980). The court also noted that if immunity were to be granted to a mixed account,it “would create a loophole, for any property could be made immune by using it,at one time or another, for some minor public purpose.” Id. However, in 1987, thecourt refused to attach a mixed embassy bank account because the account was usedfor the functioning of a foreign State embassy and execution would undermine theVienna Convention on Diplomatic Relations. Liberian Eastern Timber Co. v. Gov’tof the Republic of Liberia, 659 F.Supp. 606, 610-11 (D.D.C. 1987) (“The Court,however, declines to order that if any portion of a bank account is used for a commercialactivity then the entire account loses its immunity.”).167 In general, courts have noted multiple situations in which the presumption ofseparateness for juridical entities could be overcome. For instance, the U.S. SupremeCourt held that the presumption of independent, separate juridical status had beenovercome on “internationally recognized equitable principles.” First Nat’l City Bankv. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611, 621 (1983). In an actionbrought by a foreign state-owned bank against a private party, the court noted thatCuba was the real beneficiary because, without the bank, Cuba would be unable toobtain relief in the U.S. courts without waiving its sovereign immunity and answeringfor its liabilities from expropriation. Id. at 632. The court held that, under bothinternational and national law, “Cuba cannot escape liability for acts in violationof international law simply by retransferring the assets to separate juridical entities”and the court “decline[d] to adhere blindly to the corporate form where doing sowould cause such an injustice.” Id. While not applied in the case, the Court alsonoted other areas in which the separateness of juridical bodies may be quashed, suchas instances in which the relationship is that of principal and agent, or if equitableprinciples required it to prevent fraud and injustice. Id. at 629. See also De Letelierv. Republic of Chile, 748 F.2d 790, 794 (2d Cir. 1984) (While ultimately upholdingthe presumption of independent status, the court noted: “The broader message isthat foreign states cannot avoid their obligations by engaging in abuses of corporateform. The Bancec Court held that a foreign state instrumentality is answerablejust as its sovereign parent would be if the foreign state has abused the corporateform, or where recognizing the instrumentality’s separate status works a fraud or aninjustice.”); Kalamazoo Spice Extraction Co. v. Provisional Military Gov’t of SocialistEth., 616 F.Supp. 660, (W.D. Mich. 1985) (refused to uphold the presumption231