MANHATTAN (CN) - A federal judge declined to conclude that Banco de la Nacion de Argentina is an alter ego of the Republic of Argentina, as requested by plaintiffs seeking to collect on a $2.2 billion debt against the country.
If U.S. District Judge Thomas Griesa had confirmed the alter-ego relationship, the state-run bank could have been liable for the country's vast bond defaults in 2001, which, the judge conceded, constituted "serious wrongdoing."
As Argentina had not paid on the $2.2 billion in judgments awarded to plaintiffs in eight class actions, representing tens of thousands of investors, they filed another suit against the country and the state-run bank in May 2010.
In the same month, the 2nd Circuit vacated the $2.2 billion in judgments and remanded for recalculation, which is still ongoing.
The plaintiffs claimed that Argentina wielded "a dominating hand" over the bank's major policy decisions, and that they were entitled to recover from the bank's U.S. holdings.
"The nominal distinction between Argentina and BNA is illusory and only serves to aid Argentina in improperly shielding its assets from creditors like plaintiffs," according to their complaint.
But the judge found otherwise Monday. "There is no indication that the republic is directing the details of this business, even if the court draws all justifiable inferences in favor of plaintiffs," Griesa wrote. "To be sure, there are certain government policies which the republic requires BNA to carry out through various banking transactions, particularly loans. But instrumentalities of states regularly carry out the states' policies without becoming an alter ego of the state."
Plaintiffs had claimed the Argentine government maintains "day-to-day dominance" over the bank's operations, while the bank's managerial staff plays only a passive, administrative role.
According to the complaint, the Argentine Republic forced the bank to make loans on terms that were unduly favorable to their recipients, but had political importance to the government. The plaintiffs noted that the relationship resulted in the forced subsidization of financing for shipbuilders, Buenos Aires bus operators, wheat farmers and "economic integration projects between Argentina and Brazil."
Griesa noted that the mere fact that a government instrumentality is wholly government owned and has a government-appointed board does not create an alter-ego relationship.
"As to loans to the republic, the record indicates that there was sufficient regularity in the procedures, all under the laws referred to earlier in this opinion, so that BNA was indeed a lender to the Republic, but this does not turn BNA into an alter ego of the Republic," Griesa wrote. "The court also rejects the allegation that the level of financial transparency creates such extensive control as to turn BNA into an alter ego of the republic."
According to the plaintiffs' complaint, the bank provided the public with only the "barest of bones" in financial information, "publishing no quarterly or even annual reports, and revealing nothing about the nature and extent of their relationship" with the Argentine government. They also claimed that the bank's "loans" to the country were "not on commercial terms," with interest rates that were significantly lower than market rates.
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