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Enforcement of Foreign Exchange Control Regulations in Domestic Courts

Published online by Cambridge University Press:  27 February 2017

John S. Williams*
Affiliation:
Of the New York Bar

Abstract

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Type
Notes and comments
Copyright
Copyright © by The American Society of International Law 1976

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References

1 36 N.Y.2d 592, 331 N.E.2d 502, 370 N.Y.S.2d 534 (1975), 14 ILM 1440 (1975), cert. denied, 44 U.S.L.W. 3205 (1975).

2 The Brazilian exchange control regulations involved in the case provide that a Brazilian citizen who makes a trip out of the country may exchange cruzeiros up to a maximum of U.S.$1,000 or the equivalent in other foreign currency.

3 Banco Brasileiro moved (I) for disclosure from Bankers Trust and Manfra Tordella & Brookes of the offices at which “John Doe No. 1” and “John Doe No. 2” etc. maintained accounts in fictitious names; and (2) for an order directing defendant John Doe No. 1’s counsel to disclose the names and addresses of the John Doe defendants and counsel’s authority to act; or, in the alternative, to vacate his appearance in the action. John Doe No. 1 also moved to intervene in Banco Brasileiro’s motion for disclosure from Bankers Trust.

4 Special Term granted Banco Brasileiro’s motions for disclosure of the names and addresses of John Doe No. 1, et al. and for disclosure and inspection from Bankers Trust and Manfra Tordella.

5 The Appellate Division also denied all motions for ancillary relief.

6 12 N.Y. 2d 371, 190 N.E. 2d 235, 239 N.Y.S. 2d 872 (1963), cert. denied, 376 U.S. 906 (1964).

7 44 A.D. 2d 353, 355, 355 N.Y.S. 2d 145, 146 (1st Dept. 1974).

8 Subsequent to the commencement of this case the Central Bank of Brazil levied the penalty on Banco Brasileiro which Banco Brasileiro then paid.

Also, the Court of Appeals granted the discovery and inspection of Bankers Trust and Manfra Tordella to the extent permitted by Special Term and concluded that Special Term did not abuse its discretion in ordering the attorney for John Doe No. 1 to disclose the true name and address of his client.

9 36 N.Y.2d at 599, 331 N.E.2d at 507, 370 N.Y.S.2d at 540.

10 36 N.Y.2d at 596, 331 N.E.2d at 505, 370 N.Y.S.2d at 537.

11 Comp. 341, 98 Eng. Rep. 1120, 1121 (K.B. 1775).

12 36 N.Y.2d at 597, 331 N.E.2d at 505, 370 N.Y.S.2d at 538. Also, the court cites Boucher v. Lawson, 95 Eng. Rep. 53 (K.B. 1735) and Planche v. Fletcher, 1 Dougl. 251, 99 Eng. Rep. 164 (K.B. 1779) which also denied “extraterritorial effect to forum defenses” as inapposite.

13 The Antelope, 23 U.S. (10 Wheat.) 66, 122–123 (1825); Wisconsin v. Pelican Ins. Co., 127 U.S. 265 (1888); Huntington v. Attrill, 146 U.S. 657 (1892).

This doctrine seems to have a broader reach in Europe. Bulgaria v. Takvorian (1961), summarized in (1966) J.D.I. (Clunet) 437; Indonesia v. Brummer, 30 Int.L.R. 25 (1959), N.J., 1960, No. 149 (in Dutch); Don Alonso v. Cornero, Hob. 212a, Hobart’s King’s Bench Reps. 372; Banco de Vizcaya v. Don Alfonso de Borbon y Austria [1935] 1 K.B. 140; Attorney-General for Canada v. William Schulze & Co. [1901] 9 Scots L.T. Reps. 4 (Outer House); King of Italy v. DeMedici [1918] 34 T.L.R. 623 (Ch.); Government of India v. Taylor [1955] A.C. 491, [1955] 1 All E.R. 292 (House of Lords); Dicey’s Conflict of Laws, 163 (9th ed. 1973); F. A. Mann, Prerogative Rights of Foreign States and the Conflict of Laws, 40 Trans. of the Grottos Soc. 25 (1955).

14 Moore v. Mitchell, 30 F.2d 600 (2d Cir. 1929), aff’d on other grounds, 281 U.S. 18 (1930); City of Detroit v. Proctor, 44 Del. 193, 61 A.2d 412 (1948); State of Colorado v. Harbeck, 232 N.Y. 71, 133 N.E. 357 (1921); Minnesota v. Karp, 84 Ohio App. 51, 84 N.E. 2d 76 (1948); State of Ohio v. Flower, 59 D. & C. 14 (Pa. Com. PI. 1947); Administrative assessment of taxes not entitled to enforcement: City of Philadelphia v. Cohen, 11 N.Y. 2d 401, 184 N.E. 2d 167 (1962), cert. denied, 371 U.S. 934 (1962); Hamm v. Berrey, 419 S.W. 2d 401 (Tex. Civ. App. 1967).

15 City of Detroit v. Gould, 12 Ill. 2d 297, 146 N.E. 2d 61 (1957); Ohio ex rel. Duffy v. Arnett, 314 Ky. 403, 234 S.W. 2d 722 (1950); State ex rel. Oklahoma Tax Comm. v. Rogers, 238 Mo. App. 1115, 193 S.W. 2d 919 (1946); Nelson v. Minnesota Income Division, 429 P. 2d 324 (Wyo. 1967). Administrative assessment of taxes entitled to enforcement in sister state: New York v. Shapiro, 129 F. Supp. 149 (D.C. Mass. 1954); State of Ohio v. Kleitch Bros., Inc., 357 Mich. 504, 98 N.W. 2d 636 (1959). See also, Milwaukee County v. E.M. White Co., 296 U.S. 268, 275 (1935).

16 See Ehrenzweig, Conflict of Laws 174 (1962); Leflar, American Conflicts Law 641–43 (1968); McElroy, The Enforcement of Foreign Tax Claims, 38 U. Detroit L. J. 1 (1960). See Restatement (Second) Conflict of Laws, §89, comment (b) and Reporter’s Note: “The enforcement of sister State tax claims is favored by the writers.”

17 Restatement (Second) Conflict of Laws, §89. A much broader view was taken in the first Restatement, §§610, 611. See also, 3 Beale, A Treatise on the Conflict of Laws, §§610.1, 610.2, 611.1, at 1633–38, 1639–41 (1935).

18 In re Theresie Liebl’s Estate, 201 Misc. 1102, 1105, 106 N.Y.S. 2d 715, 718 (Sur. Ct. Kings Co. 1951); Menendez v. Saks & Co., 485 F.2d 1355, 1365 (2d Cir. 1973), cert. granted sub. nom., Alfred Dunhill of London, Inc. v. Republic of Cuba, 416 U.S. 981 (1974). For an early English case, see Boucher v. Lawson, 95 Eng. Rep. 53 (K.B. 1735). Compare, Friedmann, Foreign Exchange Control in American Courts, 26 St. John’s L. Rev. 97, 113–14 (1951); Williams, Extraterritorial Enforcement of Exchange Control Regulations Under the International Monetary Fund Agreement, 15 Va. J. Int’l L. 319 at 373–75 (1975).

19 Zivnostenska Banka v. Frankman [1950] A.C. 57, 72 (Lord Simonds). Friedmann, supra note 18, at 113–14; Williams, supra note 18, at 373–74.

20 F. Mann, The Legal Aspect of Money 444 (3d ed., 1971); Meyer, Recognition of Exchange Controls After the International Monetary Fund Agreement, 62 Yale L. J. 867, 890 (1953); Williams, supra note 18, at 352.

21 36 N.Y.2d at 597, 331 N.E.2d at 506, 370 N.Y.S.2d at 539.

22 Gold, The Fund Agreement in the Courts—VIII, 11 IMF Staff Papers 457, 460–62 (1964); Williams, supra note 18, at 353.

23 Delaume, Legal Aspects of International Lending and Economic Development Financing 294 (1967); F. Mann, supra note 20, at 444. See Brauer & Co. v. James Clark [1952] 2 All E.R. 497 (C.A.) on the factual similarity of trade regulations and exchange controls.

Exchange control regulations should also be distinguished from those rules which prescribe the currency that creditors must accept in discharge of obligations within a particular country (cours légal), and from those rules which declare that certain notes and coins issued by the monetary authority have the quality of legal tender (cours forcé).

24 36 N.Y.2d at 597–98, 331 N.E.2d at 506, 370 N.Y.S.2d at 539. Restatement (Second) Conflict of Laws, §7; Robertson, Characterization in the Conflict of Laws (1940).

25 12 N.Y.2d at 377, 190 N.E.2d at 237, 239 N.Y.S.2d at 875.

26 36 N.Y.2d at 598, 331 N.E.2d at 506, 370 N.Y.S.2d at 539.

27 Ibid. Thus the court in large measure adopted the position set forth by then Chief Judge Desmond in his dissent in the Banco do Brasil case, 12 N.Y.2d at 377–79, 190 N.E.2d at 237–38, 239 N.Y.S.2d at 876–77 and implemented the first purpose of the Fund Agreement “to promote international monetary cooperation.” Fund Agreement, Art. I, “Purposes”.

28 36 N.Y.2d at 599, 331 N.E.2d at 507, 370 N.Y.S.2d at 540.

29 See, Kraus v. Zivnostenska Banka, 187 Misc. 681, 64 N.Y.S.2d 208 (Sup. Ct. N.Y. Co. 1946); Cermak v. Bata Akciova Spolecnost, 80 N.Y.S.2d 782 (Sup. Ct. N.Y. Co. 1948), aff’d mem., 275 App. Div. 1030, 91 N.Y.S.2d 835 (1st Dept. 1949); In re Maria Liebl’s Estate, 201 Misc. 1092, 106 N.Y.S.2d 705 (Sur. Ct. Kings Co. 1951); In re Theresie Liebl’s Estate, 201 Misc. 1102, 106 N.Y.S. 715 (Sur. Ct. Kings Co. 1951); Perutz v. Bohemian Discount Bank in Liquidation, 304 N.Y. 533, 110 N.E.2d 6 (1953); de Sayve v. de la Valdene, 124 N.Y.S.2d 143 (Sup. Ct. N.Y. Co. 1953); In re Sik’s Estate, 205 Misc. 715, 129 N.Y.S.2d 134 (Sur. Ct. N.Y. Co. 1954); Stephen v. Zivnostenska Banka National Corporation, 140 N.Y.S.2d 323 (Sup. Ct. N.Y. Co. 1955), aff’d mem., 286 App. Div. 999, 145 N.Y.S.2d 310 (1st Dept. 1955); Southwestern Shipping Corporation v. National City Bank of New York, 6 N.Y.2d 454, 160 N.E.2d 836, 190 N.Y.S.2d 352 (1959), cert. denied, sub nom., First National City Bank of New York v. Southwestern Shipping Corporation, 361 U.S. 895 (1959); Brill v. Chase Manhattan Bank, 14 A.D.2d 852, 220 N.Y.S.2d 903 (1st Dept. 1961); Banco do Brasil v. Israel Co. supra note 6; French v. Banco Nacional de Cuba, 23 N.Y.2d 46, 242 N.E.2d 704, 295 N.Y.S.2d 433 (1968).

30 37 N.Y.2d 220 (1975), cert. denied, 44 U.S.L.W. 3204 (1975); 14 ILM 1446 (1975).

31 In the Zeevi case, the Court ruled, without analysis and without citing or discussing Banco Brasileiro, that an irrevocable letter of credit issued in Uganda and reimbursable in New York was not an exchange contract within the purview of Article VIII, Section 2(b), of the Fund Agreement. The Court said that “even when read in its broadest sense” that provision “fails to bring the letter of credit within its scope, since said letter of credit is not an exchange contract,” and, further, the Court, quoting Banco do Brasil, concluded “this court [has] frowned on an interpretation of said provision . . . which ‘sweeps in all contracts affecting any members’ exchange resources as doing considerable violence to the text of the section’.” 37 N.Y.2d at 229. With deference, this ruling appears erroneous. For even the narrowest construction of “exchange contracts,” a construction which was favored by the Court in Banco do Brazil, 12 N.Y.2d at 375, 190 N.E.2d at 236, 239 N.Y.S.2d at 873, includes contracts which have, as here, as their immediate object the exchange of international media of payment.

Nevertheless, the Court might have reached the same result on other grounds. The case arose because Ugandan authorities had directed defendant, Grindlays Bank, not to honor the letter of credit since it was a payment to an Israeli company, apparently in furtherance of Uganda’s strident and discriminatory anti-Israeli policy. But under these circumstances it may be persuasively argued that Article VIII, Section 2(b), does not apply because Uganda was not imposing its exchange control regulations “consistently” with the Fund Agreement. See, Gold, The Fund Agreement in the Courts 65–66 (1962); Williams, supra note 18, at 356–60, 377–79 and authorities there cited. In view of the apparent strong sympathy of the Court for plaintiffs, Israeli nationals, the case should, perhaps, be limited to its facts. Whether it will be remains to be seen.

32 Supra note 6.

33 None of the judges who participated in the Banco do Brasil decision is on the Court of Appeals today.

34 12 N.Y.2d at 377, 190 N.E.2d at 237, 239 N.Y.S.2d at 875.

35 1 F. Oppenheim, International Law 327–30 (8th ed., Lauterpacht, 1955).

36 36 N.Y.2d at 598–99, 331 N.E.2d at 506–07, 370 N.Y.S.2d at 539–40.

37 12 N.Y.2d at 376–77, 190 N.E.2d at 237, 239 N.Y.S.2d at 874–75.

38 224 N.Y. 99, 102–03, 120 N.E. 198, 198–99 (1918).

39 36 N.Y.2d at 598, 331 N.E.2d at 506, 370 N.Y.S.2d at 539.

40 Ibid.

41 Fund Agreement, Article I, “Purposes.”

42 It might be argued that the real basis of the Court’s decision was application of the doctrine of comity among friendly nations as it suggests later in its opinion (36 N.Y.2d at 599, 331 N.E.2d at 507, 370 N.Y.S.2d at 540). But the Court itself points out Perutz v. Bohemian Discount Bank in Liquidation, supra note 29, was consistent with an “expansive application” of the Fund Agreement even though “political relations [with Czechoslovakia, home of defendant bank] at the time were not conducive to comity.” Thus comity does not seem to have been the doctrinal basis of the Banco Brasileiro decision.

43 National Bank & Loan Co. v. Petrie, 189 U.S. 423, 425 (1903); Ettlinger v. National Surety Co., 221 N.Y. 467, 469–70, 117 N.E., 945, 946 (1917).

44 Weintraub v. Weintraub, 302 N.Y. 104, 96 N.E.2d 724 (1951); Williston on Contracts, §1523, at 606–11 (3d ed., Jaeger, 1970).

45 The court in Banco do Brasil asserted that New York law determined in that case whether a tort had been committed. 12 N.Y.2d at 376, 190 N.E.2d at 237, 239 N.Y.S.2d at 875. However, the alleged damage, monetary loss, was suffered in Brazil, not New York, thus Brazilian law should have determined whether a compensable wrong had been committed. Babcock v. Jackson, 12 N.Y.2d 473, 191 N.E.2d 279, 240 N.Y.S.2d 743 (1963); Restatement (Second) Conflict of Laws, §145. In any event the Banco Brasileiro case where the alleged wrong clearly occurred in Brazil should not be distinguishable from the Banco do Brasil case on the ground that the conduct involved in the latter was not subject to the same legal standards as the conduct in the former.

46 See Williams, supra note 18, at 332–44. But cf. Zeevi v. Grindlays Bank, 37 N.Y.2d 220, 228–29 (1975) where the Court held that an irrevocable international letter of credit was not an exchange contract.

47 This inquiry does not address the issue whether the Fund Agreement creates a tort remedy, for Banco do Brasil decided this point in the negative. “An obligation to withhold judicial assistance to secure the benefits of such contracts does not imply an obligation to impose tort penalties on those who have fully executed them.” 12 N.Y.2d at 376, 190 N.E.2d at 237, 239 N.Y.S.2d at 874. Banco Brasileiro provided a forum in which plaintiff could seek damages for an alleged tort committed in Brazil.

48 36 N.Y.2d at 598, 599, 331 N.E.2d at 506, 507, 370 N.Y.S.2d at 539, 540. Compare Zeevi v. Grindlays Bank, 37 N.Y.2d 220 (1975), cert. denied, 44 U.S.L.W. 3204 (1975).

49 See Williams, supra note 18, at 373–79.

50 See Restatement (Second) Foreign Relations Law of the United States, §150.

51 22 U.S.C. §286h, 59 Stat. 516.

52 Restatement (Second) Torts, §286.