Argentina says U.S. contempt sanctions over debt would be illegal

Reuters News
Posted: Sep 29, 2014 12:49 PM

By Joseph Ax and Hugh Bronstein

NEW YORK/BUENOS AIRES (Reuters) - Argentina said on Monday that any sanctions for contempt of court, levelled against it for refusing to pay U.S. hedge funds suing over defaulted debt, would be illegal under international law.

The hedge funds have asked a U.S. judge to order the country to pay $50,000 a day after the government enacted a new law to skirt a court ruling saying it must pay more than $1.3 billion in interest to U.S. investment funds known as "holdouts" after they rejected Argentina's 2005 and 2010 bond restructurings.

"Contempt sanctions are moreover illegal under international law and practice, and undermine the dignity of a foreign state," Argentina argued in a motion filed at the New York District Court ahead of a hearing on the request for sanctions set for 3 p.m. Monday.

It's not clear whether any contempt order would have any practical impact on a populist government that regularly condemns the funds as "vultures" and has shown itself willing to defy Judge Thomas Griesa's rulings.

Argentine Foreign Minister Hector Timerman said on Monday it would be "inconceivable" for Griesa to hold Argentina in contempt, calling the request from the funds "an act of desperation."

Argentina defaulted for the second time in 12 years in July after no settlement was reached with the holdout creditors who acknowledge that the South American country is unlikely to pay any sanctions.

But the plaintiff bondholders, led by Elliott Management Corp's NML Capital Ltd and Aurelius Capital Management, have urged Griesa to consider additional unspecified non-monetary sanctions that could push the country to comply.

"If Argentina ignores a fine, and continues to violate the court’s orders, the court can then impose additional sanctions, including non-monetary sanctions that will further incentivize Argentina to comply with the injunctions," the funds said in a filing last week.

Those sanctions might, for instance, include barring Argentina from doing business with U.S. banks, though such a ruling would likely engender fresh litigation over whether Griesa has the authority to do so.

Holding a foreign country in contempt is an unusual move, though not without precedent. But monetary fines are virtually impossible to enforce, as assets of foreign governments held within the United States are typically protected from seizure under the federal Foreign Sovereign Immunities Act.

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Judge Griesa had previously chastised Argentina for taking steps to evade his orders but had stopped short of holding it in contempt. In August, he decided against holding Argentina in contempt even while declaring the then-proposed legislation "illegal."

NML and Aurelius renewed their request for a contempt finding last week, citing the passage of the law, which allows for a swap of previously exchanged debt for bonds payable in Argentina under its local laws.

The legislation also allowed for the replacement of Bank of New York Mellon Corp as trustee for some of the exchange bonds, after the judge blocked it from processing a $539 million interest payment that Argentina had deposited with the bank in June.

(Reporting by Joseph Ax and Nate Raymond in New York; Hugh Bronstein and Richard Lough in Buenos Aires)