China Off the Hook for $2.4B Bond-Holder Debt
(CN) - The People's Republic of China does not owe nearly $2.4 billion to two people holding bonds issued by the Chinese government in 1913, a federal judge in Manhattan ruled.
Gloria Bolanos Pons and Aitor Rodriguez Soria claimed the People's Republic was on the hook for the predecessor government's debt.
U.S. District Judge Richard J. Howell said the plaintiffs are barred from collecting the money by the Foreign Sovereign Immunities Act of 1979, which helped normalize diplomatic relations between the United States and China. The treaty also secured a settlement of all property claims made by U.S. nationals against the communist government "arising from any nationalization, expropriation, intervention, and other taking" following the civil war and regime change.
The bonds were issued in 1913 under the Chinese Government Reorganization Loan Agreement. A group of international banks floated the country 25 million British pounds, and in turn issued bonds for the value of the loan. They were secured by revenue the Chinese government would ostensibly obtain through taxation.
U.S. banks were excluded from the deal after President Woodrow Wilson refused American participation on the grounds that the loan infringed on China's sovereignty.
As a result, the bonds were not payable in U.S. dollars.
Following the revolution in 1949, Mao's government stopped making interest payments on the bonds.
As to how the plaintiffs acquired their 103 bonds, the judge said it's "shrouded in some mystery." They claim to have bought them from Pon's father in 1955, but offer no details beyond that. They do, however, know the precise amount allegedly owed to them: $2,392,194,873.
The 1979 treaty granted foreign governments immunity from prosecution in U.S. courts. Limited exceptions were carved out.
Judge Howell decided the plaintiffs did not meet any of them.
The statute of limitations also precluded the bond holders from collecting the purported debt, Howell added, as did the fact that the bonds could not be cashed for U.S. dollars.
The bonds called for payment in five possible cities, each outside of the United States.
Specifically, the bonds were payable "in London in sterling money of Great Britain," "in Berlin in Marks," "in Paris in Francs," "in St. Petersburg in Roubles" or "in Yokohama in Yen."
Payment on these bonds could not be demanded in the United States, Judge Howell wrote.