'Griesa can't impose non-monetary fines’. [The RUFO (Rights Upon Future Offers) clause]

The Herald talks to UBA lawyer specialized in international law Stella Maris Biocca

US District Judge Thomas Griesa declared Argentina in contempt of court this week due to the government’s decision to change trustees and try to pay bondholders in Buenos Aires. But many questions remain over what kind of sanctions Griesa could issue against the country in order to give his contempt ruling some teeth.
Buenos Aires University (UBA) lawyer specialized in international law Stella Maris Biocca says Griesa’s contempt order was “inappropriate” and says the judge could issue monetary fines against the country soon.
At the same time, Biocca says Griesa could ease his stance and may end up authorizing new payments to bondholders, limiting his ruling to debt issued under New York law.

• How do you evaluate Griesa’s contempt order against Argentina?

It was an inappropriate decision. A contempt order can only be applied against private legal entities and not against states. A judge can impose a fine against a state if it fails to fulfill a ruling, but he can’t issue a contempt order against a sovereign.

• Could the contempt ruling have any real impact?

It only has an effect in some sectors that saw political gain from the contempt order. But capital flows won’t be affected.

• Griesa didn’t apply any sanctions to Argentina but left the door open to do so further down the line. Why do you think he did that?

He may simply have decided to postpone it for a while in order to make it effective later. It all depends on his criteria. Even though he doesn’t care about the support for Argentina in many international organizations, he is acting carefully to avoid making any mistakes. He has exceeded his jurisdiction and is excessively favouring vulture funds.

• What kind of sanctions could he apply?

He can only apply monetary sanctions, which is what the vulture funds have already requested. But he can’t apply non-monetary fines against a state. These types of sanctions can only be imposed against a private legal entity like a bank. In that case, the leaders of a private entity could be arrested, for example. He is moving slowly and carefully.

• If he were to impose a monetary sanction, could it become effective?

He wouldn’t be able to enforce it. It would remain in a legal limbo.

• If Griesa makes good on the sanction threats, it wouldn't be the first time a US judge applies sanctions against a country after issuing a contempt order. Which other cases do you recall?

A US judge filed a contempt order against Russia and applied a monetary sanction because the country failed to return files to the Jewish community in New York that had been stolen by Russian troops in World War II. Congo was also ruled in contempt of court and was fined because it did not accept to pay the costs of a trial that had been won by a holdout fund.

• Citibank and JP Morgan were authorized in the last few weeks to process a one-off payment to service US dollar-denominated bonds issued under Argentine law. Could other payments also be authorized?

Yes, that is likely to happen. Griesa’s order will end up being limited only to bonds issued under New York law. But it will happen slowly since he isn’t in a rush. In the meantime, he is showing the world that he doesn’t like it when the orders from powerful countries aren’t fulfilled and debts are restructured the way Argentina did.

• Griesa has been harshly accused by the federal government of being partial to the holdouts. Do you agree with that description?

This is something that doesn’t exclusively depend on Griesa. It’s the way US law sees intervening in other states. New York will probably end up being replaced by other financial centres in the future and will lose its slot as the go-to place to issue debt, an issue that specialized US media have already raised.

• Cleary Gottlieb Steen & Hamilton, the firm representing Argentina in the legal saga, was criticized by media outlets for not doing a good job — not just in this case, but also in others. How do you evaluate their performance?

I wouldn’t make value judgments against them. Even the best Argentine lawyer can lose the easiest lawsuit.

• How would you describe the actions of the holdouts?

They make up one of the worst sectors of the international financial system because of the way they acquire and execute debt. I find it horrific that some Argentine political parties agree with them.

• Argentina changed trustee and deposited for the first time this week funds for bondholders in Nación Fideicomisos. Is it technically viable for them to collect the money here?

If they accept being paid here, they only need to fill out some paperwork and can easily switch. Nación Fideicomisos can send the funds to the country where they are located through agencies. The government needs the assistance of these agencies, not to mention that bondholders need to be interested in getting paid through Nación Fideicomisos.

• Do you think a negotiated deal between the holdouts and Argentina is still possible?

Yes, a solution could be reached when the RUFO (Rights Upon Future Offers) clause expires. But I don’t think Argentina will pay them the full amount they are asking for. The government is only willing to pay them the same amount it paid to bondholders who took part of 2005 and 2010 debt swaps. It won’t be a quick negotiation but at some point of 2015 a deal will be sealed.

By Fermín Koop
Herald Staff

5/10/14

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Related:

• US judge Thomas Griesa declares Argentina in contempt of court, monetary fine decision postponed

• "Argentina is under speculative attack" (Cabinet Chief Jorge Capitanich)

• US Judge Griesa schedules new hearing for today after holdouts claim Argentina ignored court orders

• Buenos Aires moves to pay bondholders in Argentina (Cristina Fernández de Kirchner)