The Extraterritorial Reach of Sovereign Debt Enforcement

Abstract

A significant barrier to enforcing sovereign debt obligations in U.S. court has been finding and attaching non-immune assets of the foreign sovereign debtor. In June 2014, the U.S. Supreme Court issued decisions in litigation between Argentina and hedge fund NML Capital that will significantly benefit creditors in the enforcement process. In one decision, the Court affirmed an order to compel banks to provide information as to how Argentina moves its monetary assets around the world, finding that the U.S. Foreign Sovereign Immunities Act (FSIA) does not limit a court’s power to order post-judgment discovery. In the other decision, the Court denied certiorari to review an injunction prohibiting Argentina from making payments to holders of its restructured debt unless and until it pays NML Capital, and threatening to hold liable third parties that aid and abet Argentina in processing such payments. The NML decisions follow protracted, previously unsuccessful efforts by hedge funds holding defaulted Argentine debt to enforce New York judgments against Argentina.

This paper argues that the discovery and injunction orders at issue in NML contravene the FSIA due to their extraterritorial reach. The FSIA should be read to prohibit these orders for several reasons. The Court has interpreted the FSIA to be the exclusive basis for jurisdiction against a foreign state in U.S. court. Additionally, the historical context in which the statute was adopted supports a narrow reading of exceptions to execution immunity under the FSIA. Finally, the presumption against extraterritoriality calls for a restrained interpretive approach. The Supreme Court’s interpretation of the FSIA in NML Capital adopts an acontextual reading of the FSIA’s language to reach an unreasonable result.

Keywords: foreign sovereign immunity, FSIA, sovereign debt, extraterritoriality, Argentina, NML Capital