Lawrence W. Newman has been a partner in the New York office of Baker & McKenzie since 1971, when, together with the late Professor Henry deVries, he founded the litigation department in that office. He is the author/editor of 4 works on international litigation/arbitration.
Michael Burrows, Formerly, Of Counsel, Baker & McKenzie, New York.
The importance of foreign central banks in international trade has increased steadily with the rise in the number of transactions between private commercial companies and enterprises wholly owned or affiliated with foreign governments. This phenomenon is particularly evident in sovereign debt restructurings of less developed countries, where commercial banks insist on the host country central bank’s guarantee of the debtor government's obligations.
There are usually two reasons that creditors have sought such guarantees. First, it is generally thought that the foreign central bank will do its utmost to fulfill its commitments in order to protect its position in the international financial community. Second, because a central bank is likely to maintain accounts outside its own country, creditors would, in the event of a default, have near at hand assets against which to enforce a judgment.
On March 23, 1984, in Banque Compafina v. Banco de Guatemala, the U.S. District Court for the Southern District of New York considered an issue of first impression: the liability of a central bank to prejudgment attachment under the Foreign Sovereign Immunities Act of 1976 (the “FSIA”). The decision raises concerns for central bank creditors, for it may have the effect of denying them the use of an important weapon—prejudgment attachment.