Citi Can’t Bow to Pressure and Flout Court Order

(CN) - Citibank's subsidiary may face penalties in Argentina if it refuses to pay its bondholders, but that's no reason to let the bank flout a U.S. injunction blocking the transfers, a federal judge ruled Thursday.

Argentina has labeled hedge funds NML Capital and Aurelius Capital Management as "vultures" for buying Argentina's distressed debt for pennies on the dollar during an economic crisis in 2001, and then suing the country in Manhattan six years later for its full value.

The country notes that roughly 93 percent of the bondholders have agreed to Argentina's terms, but two hedge funds owned by Republican billionaire Paul Singer have held out on the deal.

Their protests have not moved U.S. District Judge Thomas Griesa, who ruled in July that no other bondholder could get paid until the $1.3 billion owed to Singer's funds get settled.

Citibank has tried to create an exception to that injunction ever since.

Fighting it on appeal, Citibank's lawyer Karen Wagner told the 2nd Circuit that the injunction put a "gun to our head" by subjecting their Buenos Aires subsidiary to possible civil, administrative and even criminal penalties for violations of Argentinean law.

The appellate court rejected that appeal in September, but invited Citibank to seek "further relief from the district court."

Judge Griesa, however, refused to provide any such assistance, in a 16-page opinion on Thursday.

"By observing the injunction, Citibank asserts that it risks sanction in Argentina," he acknowledged. "However, if Citibank processes payments on exchange bonds, it violates the injunction issued by this court. Neither option is appealing."

Throughout the litigation, Argentina has appealed to the ideals of international comity, or respect among nations and their judiciaries, in U.S. courts.

But Griesa wrote that "comity is a two-way street."

"The republic, in a contract of its own signing, irrevocably acceded to the jurisdiction of United States courts for disputes arising under that contract," he wrote.

An NML spokesman said in an email that the ruling "makes clear that any third party that attempts to help Argentina in the payment process is in violation of the court's injunction."

While Citibank denied being a "participant" in the debt dispute, Griesa's ruling defined the term to mean "any entity that participates with or assists the Republic in fulfilling its exchange bond obligations."

"To rule otherwise, this court would have to adopt an overly narrow and technical reading of the term 'participants,' one at odds with the clear language of the Injunction and at odds with the court's intent in fashioning that injunction," the opinion states.

The hedge fund spokeman urged Argentina back to the negotiating table.

"Argentina should discontinue its defiance of courts and negotiate a resolution to this dispute," he said.

Citibank's Karen Wagner did not repond to a request for comment.

Argentina's embassy in Washington did not put out a statement by press time.

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