The Practice of International Litigation - 2nd Edition - Looseleaf
The Practice of International Litigation - 2nd Edition - Electronic
Central Bank Property: Protection from Attachment
Lawrence W. Newman and Michael Burrows
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
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
Banque Compafina (“Compafina”), a Swiss banking corporation,
brought an action to recover on six promissory notes (the “Notes”) issued
by defendant Desarrollo de Autopistas y Carreteras de Guatemala, S.A.
Four of the Notes were payable to defendant Estoril Associated, Ltd. and
two were payable to defendant Devco Development Co., Inc. The payees
endorsed the Notes to Compafina. Banco de Guatemala guaranteed
payment of the Notes.
Banco de Guatemala is a bank created under the laws of the Republic of
Guatemala (the “Republic”) and is owned by the Republic. Under its
articles of incorporation, it has the exclusive authority in the Republic to
issue currency, to have custody of and to administer the Republic’s
monetary reserves, to engage in open-market transactions in Guatemalan
government securities so as to regulate the money supply and to act as a
depository for the funds of the Republic and its agencies. Compafina did
not dispute that Banco de Guatemala thus qualified as an agency or
instrumentality of a “foreign state” within the meaning of section 1603 of
the FSIA and as a “foreign central bank” within section 1611(b)(1) of the
On February 3, 1984, Compafina commenced an action in New York
Supreme Court by obtaining an ex parte order of attachment (the “Order”).
The Order directed that the Sheriff of the City of New York or of any New
York county levy upon any property in which Banco de Guatemala had an
interest up to the amount of $1,140,300. The Sheriff of the City of New
York levied on Banco de Guatemala property held by banks in New York,
including the Federal Reserve Bank of New York (the “Federal Reserve”).
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.