Current Legal Issues Affecting Central Banks, Volume V
Back Matter

Back Matter

Author(s):
Robert Effros
Published Date:
May 1998
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    Notes

    Introduction (Effros)

    Maastricht Treaty, Article 105.2.

    This paper is based in part on the introduction prepared by the author for Payment Systems of the World, R. Effros (ed.) (Oceana: 1994).

    Chief among these are the Conventions providing for (i) Uniform Law on Bills of Exchange and Promissory Notes, and (ii) Uniform Law for Cheques set forth with annexes and protocol in League of Nations Treaty Series, Vol. 143 (1933-34). These Conventions are hereinafter called the Geneva Conventions.

    E.P. Ellinger, The Giro System and Electronic Transfers of Funds, Lloyd’s Mar. & Com. L.Q. 178 (May 1986). For the most part, these systems have in the past involved the physical movement of paper.

    See Robert C. Effros, A Banker’s Primer on the Law of Electronic Funds Transfers, 105 Banking Law Journal 510 (1988) published by Warren Gorham & Lamont, from which certain portions of the following material are drawn.

    See generally, Sue Ganske Graziano and Selma Fatma Baharoglu, Automated Teller Machines: Boon or Bane, 91 Com. L.J. 45.1 (1986).

    15 U.S.C. § 1601 et seq. (1996).

    12 C.F.R. part 226 (1997).

    15 U.S.C. § 1643 (a)(1) (1996); 12 C.F.R. § 226.12 (b) (1997).

    12 C.F.R. § 226.12 (c)(3)(i) (1997).

    12 C.F.R. § 226.13 (1997).

    15 U.S.C. § 1642 (1996); 12 C.F.R. § 226.12(a) (1997).

    12 C.F.R. § 226.5(b) (1997).

    15 U.S.C. §§ 1693-1693r (1996). The implementing regulation is Regulation E, 12 C.F.R. § 205.1 (1997).

    15 U.S.C. § 1693i(a) (1996); 12 C.F.R. § 205.5(b) (1997).

    15 U.S.C. § 1693c(a); 12 C.F.R. § 205.7(b) (1997).

    15 U.S.C. § 1693d(a) (1996); 12 C.F.R. § 205.9 (1997).

    15 U.S.C. § 1693d(c) (1996).

    12 C.F.R. § 205.10(c) (1997).

    15 U.S.C. § 1693(f) (1996); 12 C.F.R. § 205.11 (1997).

    See 15 U.S.C. § 1693a(6)(b) (1996); 12 C.F.R. § 205.3(b) (1997).

    Commission Recommendation of 8 December 1987 on a European Code relating to Electronic Payment (87/598/EEC), O.J. No. L365/72, 24 December 1987.

    Commission Recommendation of 17 November 1988 concerning payment systems and in particular the relationship between cardholder and card issuer (88/590/EEC), O.J. No. L317/55, 24 November 1988.

    See generally, R. Cranston, 66 Australian Law Journal 225 (April 1992).

    Commission Recommendation of 30 July 1997 concerning transactions by electronic payment instruments and in particular the relationship between issuer and holder (97/489/EC), O.J. No. L208 2/8/1997 P. 0052.

    It should be noted that electronic cash can also be stored on individual personal computers.

    Report to the Congress on the Application of the Electronic Fund Transfer Act to Electronic Stored-Value Products (March 1997).

    See generally, Walter A. Effross, Putting the Cards Before the Purse?: Distinctions, Differences and Dilemmas in the Regulation of Stored Value Card Systems, 65 University of Missouri-Kansas City Law Review 319 (Spring 1997).

    General Counsel’s Opinion No. 8; Stored Value Cards and Other Electronic Payment Systems, 61 Fed. Reg. 40,490 (August 2, 1996).

    Office of the Comptroller of the Currency [OCC] Bulletin 96-48, Stored Value Systems: Information for Bankers and Examiners (September 1996).

    A Commercial Lawyer’s Take on the Electronic Purse; An Analysis of Commercial Law Issues Associated with Stored-Value Cards and Electronic Money, a report of the Task Force on Stored-Value Cards, 52 Business Lawyer 653 (1997).

    12 C.F.R. § 210.25 (1997). Operating circulars of the Federal Reserve banks are also relevant.

    See 12 C.F.R. § 210.25(b)(1) (1997).

    See generally, Carl Felsenfeld, The Compatibility of the UNCITRAL Model Law on International Credit Transfers with Article 4A of the UCC, 60 Fordham Law Review, S53 (1992).

    In practice, the beneficiary bank’s liability to its beneficiary is governed by the Federal Reserve Regulation CC, which sets a time when funds must be made available (12 C.F.R. Subsection 229.10-12). UCC Article 4A also provides for the recovery of consequential damages from a receiving bank to the extent that they are expressly provided for in a written agreement (Section 4A-305(c) and (d)). According to the UNCITRAL Model Law, consequential damages may arise under local law if a bank has improperly executed a payment order or failed to execute it either with the specific intent to cause losses or recklessly with the actual knowledge that losses are likely to result (Article 18).

    However, it would apparently require only minor amendments to Article I to permit the UNCITRAL Model Law to govern national transfers.

    Commission Recommendation of 14 February 1990 on the transparency of banking conditions relating to cross-border financial transactions (90/109/EEC), O.J. No. L067, 15 March 1990 P. 0039.

    Amended Proposal for a European Parliament and Council Directive on EU credit transfers, O.J. No. C360, 17 December 1994 P. 0013.

    Directive of the European Parliament and of the Council of 27 January 1997 on cross-border credit transfers (97/5/EC), O.J. No. L042.

    Id. Art. 1.

    Id. Art. 3.

    Id. Art. 4.

    Id. Art. 6, paragraph 1.

    Id. Art. 6, paragraph 2.

    Id.

    UNCITRAL Model Law On International Credit Transfers, November 25, 1992, 23 UNCITRAL Yearbook 413 (1992), Art. 19(2). The UNCITRAL Model Law is reprinted in 2 Current Legal Issues Affecting Central Banks 312 (Robert C. Effros ed., 1994).

    Id. Art. 14.

    Id. Art. 16.

    Id. Art. 12(5).

    Commission Recommendation, supra note 37, Art. 8, paragraph 1.

    Id.

    Id. Art. 6, paragraph 1.

    Id. Art. 6, paragraph 2.

    UNCITRAL Model Law, supra note 45, Art. 12.

    Federal Deposit Insurance Corporation Improvement Act of 1991, Title IV, Subtitle A, Public Law No. 102-242, 105 Stat. 2236 (1991).

    See, e.g., U.C.C. §§ 1-102(3) and 3-310(b).

    See, e.g., U.C.C. § 4A-501(a).

    Consolidated Payment Cards Act, etc. (Consolidated Act No. 811 of September 12th, 1994).

    See J. Mitchell, Electronic Banking and the Consumer, the European Dimension, pp. 16-17, Policy Studies Institute (1988).

    Arthur Lenhoff, Contracts of Adhesion and Freedom of Contract, 36 Tul. L. R. 481 (1962), cited in Andrew Burgess, Consumer Adhesion Contracts and Unfair Terms: A Critique of Current Theory and a Suggestion, 15 Anglo-American Law Review at p. 257 (1986).

    See generally, Andrew Burgess, Consumer Adhesion Contracts and Unfair Terms: A Critique of Current Theory and a Suggestion, 15 Anglo-American Law Review 255 (1986).

    Chapter 1A, “Special Drawing Rights” (Gianviti)

    See International Monetary Fund, Articles of Agreement (1993).

    International Monetary Fund, By-Laws, Rules and Regulations, Rule O-1 at 48 (51st issue, 1996).

    Articles of Agreement, supra note 1, Art. VIII, § 7 and Art. XXII.

    See International Monetary Fund, Report of the Executive Board to the Board of Governors on the Proposed Fourth Amendment of the Articles of Agreement of the International Monetary Fund (agreed to on September 19, 1997), reprinted herein asAppendix I(1); see also IMF Executive Board Agrees SDR Allocation Proposal, Press Release No. 97/43 (September 20, 1997).

    Articles of Agreement, supra note 1, Art. XXVIII; see International Monetary Fund, IMF Board of Governors Approves SDR Amendment, Press Release No. 97/45 (September 23, 1997).

    Chapter 1B, “On Being a Lawyer in the International Monetary Fund” (Holder)

    International Monetary Fund, Articles of Agreement (April 1993).

    Id. Art. II, § 2.

    Agreement Between the United Nations and the International Monetary Fund, November 15, 1947, reprinted in Selected Decisions and Selected Documents of the International Monetary Fund 641 (22nd issue, 1997).

    Articles of Agreement, supra note 1, Art. VIII, §§ 2 and 3.

    Id. Art. XIV, §§ 1 and 2.

    Id. Art. XV, § 1.

    On September 23, 1997, the Board of Governors of the Fund adopted a resolution approving a proposal of the Executive Board for amending the Fund’s Articles to allow for a special one-time allocation of SDRs so as to equalize members’ ratios of cumulative allocations to their Ninth Review quotas at approximately 29.32 percent. See International Monetary Fund, Report of the Executive Board to the Board of Governors on the Proposed Fourth Amendment of the Articles of Agreement of the International Monetary Fund (agreed to on September 19, 1997), reprinted herein asAppendix I(1); see also International Monetary Fund, IMF Executive Board Agrees SDR Allocation Proposal, Press Release No. 97/43 (September 20, 1997). In order to enter into force, the amendment will require acceptance by three-fifths of the members of the Fund, having 85 percent of the total voting power. See Articles of Agreement, supra note 1, Art. XXVIII; International Monetary Fund, IMF Board of Governors Approves SDR Amendment, Press Release No. 97/45 (September 23, 1997).

    See Articles of Agreement, supra note 1, Art. V, § 2(b).

    Id. Art. XIV, § 1.

    Id. Art. IX.

    United Nations Convention on the Privileges and Immunities of the Specialized Agencies, November 21, 1947, reprinted in Selected Decisions and Selected Documents of the International Monetary Fund, supra note 3, at 606.

    See Selected Decisions and Selected Documents of the International Monetary Fund, supra note 3, at 510 et seq.; International Monetary Fund, By-Laws, Rules and Regulations 1-18 (51st issue, 1996) (setting forth the By-Laws).

    See Selected Decisions and Selected Documents of the International Monetary Fund, supra note 3, at 1 et seq.; By-Laws, Rules and Regulations, supra note 11, at 19 et seq. (setting forth the Rules and Regulations).

    See supra note 10.

    Vienna Convention on the Law of Treaties, done in Vienna on May 23, 1969 and entered into force on January 27, 1980, 1155 United Nations Treaty Series 331.

    Agreement Between the United Nations and the International Monetary Fund, supra note 3, Art. VIII.

    Chapter 2, “The World Bank in the Nineties” (Shihata)

    This paper updates the author’s Introduction of his book, Ibrahim F.I. Shihata, The World Bank in a Changing World (vol. 2, 1995).

    The World Bank Group of institutions consists of the International Bank for Reconstruction and Development (IBRD), the International Finance Corporation (IFC), the International Development Association (IDA), the International Centre for Settlement of Investment Disputes (ICSID), and the Multilateral Investment Guarantee Agency (MIGA). In this chapter, the term World Bank or Bank covers both the IBRD and IDA, unless the context indicates that it covers the IBRD only.

    The World Bank, Global Economic Prospects and the Developing Countries (1995) (quoted material appears on the back cover).

    Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, April 15, 1994, reprinted in The Results of the Uruguay Round of Multilateral Trade Negotiations (1994).

    Marrakesh Agreement Establishing the World Trade Organization, in Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, supra note 4.

    The World Bank, 1 World Debt Tables 1996 at 7 (Table 1.1).

    Id.

    Id.

    Id. Developing countries are defined by the Bank for the purpose of the above statistics to include all low- and middle-income economies with a 1994 per capita gross national product of less than $8,956, a definition that applied to 150 countries. Id. at 52.

    The World Bank, Annual Financial Report FY1995, SecM95-871, at 4, 6.

    Id.; see also The World Bank, Annual Report 1995 at 36.

    See The World Bank, 1 Annual Report on Portfolio Performance-FY1995, R95-207, paragraph 1.10 (1995). Bank portfolio is defined in this context to include “(i) all loans with revised closing dates after July 1, 1994 and a positive undisbursed balance at the beginning of the fiscal year, and (ii) all loans approved during FY1995.” Id. Statistical Appendix.

    See International Bank for Reconstruction and Development, Articles of Agreement, Art. I (as amended effective Feb. 16, 1989).

    Id. Art. III, § 4(ii).

    Id. Art. III, § 4(i).

    For the circumstances surrounding the creation of MIGA, see generally Ibrahim F.I. Shihata, Multilateral Investment Guarantee Agency and Foreign Investment (1988).

    The World Bank, World Development Report 1991 at iii and 1-2.

    The World Bank, Advancing Social Development at x (1995) [hereinafter Advancing Social Development].

    1 World Debt Tables, supra note 6, at 17 (Table 1.4).

    Articles of Agreement, supra note 13, Art. I.

    Advancing Social Development, supra note 18, at xi; Annual Report 1995, supra note 11, at 18.

    Advancing Social Development, supra note 18, at xi.

    Annual Report 1995, supra note 11, at 18.

    See id.

    Advancing Social Development, supra note 18, at xii.

    For details see Shihata, supra note 1, chapter 6 (“The World Bank and Non-Governmental Organizations”); see also Advancing Social Development, supra note 18.

    Lawrence H. Summers, Speech at the Overseas Development Council’s Annual Meeting (October 11, 1994).

    For a more detailed explanation, see Ibrahim F.I. Shihata, 1 The World Bank in a Changing World 53-96 (“The World Bank and ‘Governance’ Issues in Its Borrowing Members”) (1991).

    The World Bank, Sub-Saharan Africa: From Crisis to Sustainable Growth: A Long-Term Perspective Study (1989).

    Memorandum regarding Issues of “Governance” in Borrowing Members: The Extent of their Relevance under the Bank’s Articles of Agreement, SecM91-31 (February 5, 1991).

    For details, see Shihata, supra note 1, at 553-578; Shihata, supra note 28, at 97-134.

    See Shihata, supra note 1, at chapters 1, 5, and 17; Shihata, supra note 28, chapter 4.

    See Andrés Rigo, Developments at the International Bank for Reconstruction and Development: The Restructuring of the Global Environment Facility, in 4 Current Legal Issues Affecting Central Banks 29 (Robert C. Effros ed., 1997).

    John A. Dixon and Andrew Steer, The World Bank and the Environment: A Fourfold Agenda, in Making Development Sustainable: From Concepts to Action 25, 27 (Ismail Sergeldin and Andrew Steer eds., 1994); Shihata, supra note 1, chapter 5.

    1 World Debt Tables 1996, supra note 6, at 30 and 55. Developing countries’ debt stood at $1.5 trillion in 1990. Id. at 31 (Table 2.3). This debt stood at $639 billion in 1980 and $69 billion in 1970. The World Bank, 1 World Debt Tables 1990-91 at 12 (Table 1) (1990); International Bank for Reconstruction and Development, World Debt Tables, Report No. EC-167-72, at 1 (Table 1) (1973). However, the definition of these countries has also changed.

    See 1 World Debt Tables 1996, supra note 6, at 33 (Box 2.2).

    The International Monetary Fund and the World Bank, Multilateral Debt of the Heavily Indebted Poor Countries 5 (Chart 1) (1995).

    Id. at 7. “Heavily indebted poor countries” include 41 countries, of which 32 are defined as “severely indebted low-income countries.” Id. at 1 and 4 (Table 1).

    For example, the United Kingdom presented a proposal for a clear exit strategy for the poorest countries with regard to multilateral debt through more concessional resources or greater concessionality, during the 1994 meeting of the Commonwealth Finance Ministers and the Fall 1994 meeting of the Development Committee.

    See, e.g., The Commission on Global Governance, Our Global Neighbourhood: The Report of the Commission on Global Governance 201-203, 343 (1995).

    See The World Bank, Learning from the Past, Embracing the Future (1994), reprinted in Shihata, supra note 1, Appendix I at 607.

    See Bank Procedure (BP) 17.50: Disclosure of Operational Information (1993), reprinted in Shihata, supra note 1, Appendix IV(B) at 721.

    For details of this initiative, see Ibrahim F.I. Shihata, The World Bank Inspection Panel (1994). The resolution establishing the panel is reprinted as Appendix III(A) of Shihata, supra note 1, at 647.

    See Portfolio Management Task Force, The World Bank, Effective Implementation: Key to Development Impact, R92-195 (November 3, 1992) [hereinafter Wapenhans Report].

    See Operations Policy Department, The World Bank, Portfolio Management: Next Steps, A Program of Action (July 22, 1993), summarized in The World Bank, Getting Results: The World Bank’s Agenda for Improving Development Effectiveness (1993).

    Other important recommendations of the Wapenhans Report, supra note 44, which have since been implemented, include introducing the concept of “country portfolio performance management,” allowing for country portfolio restructuring (including the reallocation of undisbursed loan balances), improving the quality of projects entering the portfolio, enhancing supervision during implementation and evaluation after project completion, making the country portfolio the unit of managerial accountability, strengthening the financial accountability system, and ensuring continuous emphasis on portfolio performance management through various measures. See id.

    See Development Committee, Task Force on Multilateral Development Banks, Serving a Changing World (March 15, 1996).

    This is Abdlatif Al-Hamad, Director-General and Chairman of the Arab Fund for Economic and Social Development. Mr. Al-Hamad was previously Minister of Finance of Kuwait and in his capacity as Bank Governor chaired the Bank’s Board of Governors in 1982/83. For over 20 years, he was Director-General of the Kuwait Fund for Arab Economic Development and IDA Deputy for Kuwait.

    Serving a Changing World, supra note 47, at xii.

    Id. at x.

    Report of the Ad Hoc Committee on Board Procedures, R92-103, approved on June 23, 1992. Mr. Naim was the Executive Director who chaired the Committee.

    Report of the Ad Hoc Committee on Review of Board Committees, R94-66, IDA/R94-66, and IFC/R94-74, approved on May 31, 1994. Mrs. Maelhum was the Executive Director who chaired the Committee.

    Net resource flows (long-term) to developing countries totaled an estimated $231.3 billion in 1995 ($64.2 billion in official development finance and $167.1 billion in private flows). See 1 World Debt Tables 1996, supra note 6, at 3 (Table 1). Total net disbursements of the World Bank totaled $6.102 billion in fiscal year 1995 (consisting of $897 million for the IBRD and $5.205 billion for IDA). Annual Report 1995, supra note 11, at 12. The decline in the IBRD’s net disbursements is due in large part to the borrowers’ repayments of large amounts of quick-disbursing loans and to prepayment of loans made in earlier years. The total gross disbursement of the IBRD in fiscal year 1995 totaled $12.672 billion. Id. at 12 and 37.

    See Learning from the Past, Embracing the Future, supra note 41, Appendix I at 607, 609-610.

    Notably, the draft agreement establishing the Middle East Bank for Economic Cooperation and Development, circulated by the U.S. government on February 24, 1995, wisely combines the varied activities carried out by the IBRD, the IFC, and MIGA in the authorized operations under its provisions.

    See, e.g., George P. Shultz, Economics in Action: Ideas, Institutions, Policies, 85 American Economic Review 1 (1995). In this lecture, Mr. Shultz suggested that “The overlapping activities of the Bank and Fund, the change in the traditional mission of the IMF, and the need to use scarce resources carefully all argue for a merger of these two organizations.” Id. at 5. A more realistic approach may require elimination of “overlapping activities” and ensure that each of these two organizations strictly observes the purposes for which it was created as these are stipulated in their respective Articles of Agreement.

    See supra note 4.

    See International Monetary Fund, IMF Executive Board Approves the Special Data Dissemination Standard, Press Release No. 96/18 (April 16, 1996).

    Bretton Woods Commission, Bretton Woods: Looking to the Future A-8 (1994).

    Chapter 3, “Developments at the International Finance Corporation” (Aizawa)

    The author gratefully acknowledges guidance provided by Ms. Jennifer Sullivan, Deputy General Counsel of the International Finance Corporation (IFC).

    The World Bank Group consists of the International Bank for Reconstruction and Development (known as the World Bank), established in 1945; the International Development Association (since 1960); the Multilateral Investment Guarantee Agency (since 1988); and the IFC (since 1956).

    International Finance Corporation, Annual Report 1995 at 3.

    Id. at 6.

    Id.

    Id. at 9.

    Id. at 7.

    Id. at 12, 67-69.

    Id. at 12.

    Id. at 58.

    Id. at 13, 99.

    Id. at 14.

    Id. at 8.

    Id.

    Id. at 38, 42.

    Id. at 36, 42.

    Id. at 86.

    Id. at 7.

    Id. at 80.

    Id. at 24, 30.

    Id. at 9.

    Id. at 11.

    Id.

    Id. at 25-26.

    Id. at 27.

    Id.

    Id. at 39.

    Id. at 84.

    Id. at 83.

    The Internet address for the operational documents available in the World Bank InfoShop is: www.worldbank.org/html/pic/PIC.html.

    Annual Report 1995, supra note 3, at 85.

    Id.

    Id.

    Id.

    Id. at 86-87.

    Id. at 87.

    Id. at 86.

    See Andrés Rigo, Developments at the International Bank for Reconstruction and Development: The Restructuring of the Global Environment Facility, in 4 Current Legal Issues Affecting Central Banks 29 (Robert C. Effros ed., 1997).

    Annual Report 1995, supra note 3, at 86.

    Chapter 4, “Foreign Exchange Settlement Risk” (Tibbals Davy and Poulos)

    This paper was presented by Elizabeth Tibbals Davy; only her biography appears in the biographical sketches.

    Committee on Payment and Settlement Systems of the Central Banks of the Group of Ten Countries, Bank for International Settlements, Settlement Risk in Foreign Exchange Transactions (March 1996) [hereinafter the Report]. The Report’s executive summary is reprinted herein as Appendix II (5).

    The Group of Ten comprises Belgium, Canada, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Sweden, Switzerland, the United Kingdom, and the United States.

    Group of Experts on Payment Systems of the Central Banks of the Group of Ten Countries, Bank for International Settlements, Report on Netting Schemes (1989).

    Committee on Interbank Netting Schemes of the Central Banks of the Group of Ten Countries, Bank for International Settlements, Report of the Committee on Interbank Netting Schemes of the Central Banks of the Group of Ten Countries (November 1990) [hereinafter Lamfalussy Report]. The Lamfalussy standards, as the minimum standards are commonly known, are reprinted in 4 Current Legal Issues Affecting Central Banks 797 (Robert C. Effros ed., 1997).

    Id.

    Committee on Payment and Settlement Systems of the Central Banks of the Group of Ten Countries, Bank for International Settlements, Central Bank Payment and Settlement Services with Respect to Cross-Border and Multi-Currency Transactions (1993) [hereinafter Noël Report].

    Report, supra note 2, at 33.

    Id.

    Id.

    Id.

    Id.

    Id. at 34.

    Id. at 35.

    See id at 11.

    Id.

    See id.

    Id. at 11-12.

    Id. at 12.

    Id.

    Id.

    Id. at 12-13.

    Id. at 13.

    Id.

    Id. at 14.

    Id.

    Id.

    See id. at 2, 18.

    Id. at 18-20.

    Id. at 20 (footnote omitted).

    See id. at 21.

    See id.

    The New York Foreign Exchange Committee, Reducing Foreign Exchange Settlement Risk (October 1994), reprinted in part as Appendix II (6).

    Id. at 23-32.

    Report, supra note 2, at 21.

    Id.

    Id.

    Id. at 22.

    Id. (quoting the Noël Report, supra note 6).

    Id..

    Id. at 27.

    See id. at 15, note 9 (stating “FXNET is a limited partnership owned by the UK subsidiaries of 12 major banks. It is a decentralised system in which participants use common software provided by Quotron Foreign Exchange.”).

    See id.

    The Foreign Exchange Committee and The British Bankers’ Association, International Foreign Exchange Master Agreement (IFEMA) (November 1993), reprinted in 4 Current Legal Issues Affecting Central Banks, supra note 4, at 683.

    The Report defines “obligation netting” as “the legally binding netting of amounts due in the same currency for settlement on the same day under two or more trades.” Report, supra note 2, at 64.

    Id. at 16 (endnote added).

    The Multinet International Bank did not become operational in 1996; however, it began operations in 1997.

    Report, supra note 2, at 16 (endnote added).

    Id. at 16, note 13.

    Id. at 16-17.

    Id. at 17.

    Id. at 28.

    See id.

    Id. at 29.

    Id.

    Id. at 29-30.

    Id. at 31.

    Id.

    See id. at 8-9.

    UNCITRAL Model Law on International Credit Transfers, November 25, 1992, 23 UNCITRAL Yearbook 413 (1992), reprinted in 2 Current Legal Issues Affecting Central Banks 312 (Robert C. Effros ed., 1994).

    Uniform Commercial Code [U.C.C.] Article 4A (“Funds Transfers”) (1989), reprinted in 1 Current Legal Issues Affecting Central Banks 515 (Robert C. Effros ed., 1992).

    It should be noted however that the EC Directive on Cross-Border Credit Transfers is to be implemented by all EU member states by August 14, 1999. Council Directive 97/5 of 27 January 1997 on Cross-Border Credit Transfers, 1997 Official Journal of the European Communities [O.J.] (L 43) 25, reprinted herein asAppendix IV (1).

    U.C.C. § 4A-507; UNCITRAL Model Law, supra note 59, note * (Art. Y).

    U.C.C. § 4A-507.

    Id. § 4A-507(c).

    Id. § 4A-507(e).

    Id. § 4A-507(a)(1).

    Id. § 4A-105(a)(2).

    Report, supra note 2, at 63.

    It is important to distinguish finality from mere irrevocability. Saying that a transfer is irrevocable means that the originator no longer has the legal right to cancel the payment order. A payment does not become final until the processing that is conducted by the relevant payments system is complete.

    U.C.C. § 4A-104(a).

    Id. § 4A-211(c).

    See In re Koreag, Contrôle et Révision SA, 961 F.2d 341 (2d Cir. 1992), cert. denied, 113 S.Ct. 188 (1992).

    Draft Proposal for a European Parliament and Council Directive on Settlement Finality and Collateral Security (undated); see European Commission, Payment Systems: Commission Proposes Directive on Settlement Finality and Collateral Security, IP/96/467 (June 4, 1996).

    Draft Proposal for a European Parliament and Council Directive on Settlement Finality and Collateral Security, supra note 69, Art. 3.

    See Report, supra note 2, at 24.

    Federal Deposit Insurance Corporation Improvement Act of 1991, Public Law No. 102-242, § 401 et seq., 105 Stat. 2236 (1991).

    Id. §§ 402-404.

    Id. §§ 403(a) and 404(a).

    Id. §402(14).

    Id.

    Id. § 402(9).

    12 C.F.R. §231.3 (1995).

    Id.

    Lamfalussy Report, supra note 4.

    Loi du 22 mars 1993, Art. 157, cited in Legal Opinions on the Enforceability of the Termination and Close-Out Netting Provisions of the 1992 ISDA Master Agreement (May 1994); see also Philip R. Wood, Title Finance, Derivatives, Securitisations, Set-off and Netting 165 et seq. (1995).

    See Wood, supra note 84, at 165 (citing Bankruptcy Act, § 65.1(7)-(9) (as of 1992)).

    Loi no. 93-1444 du 31 décembre 1993, Arts. 4 and 8.

    Insolvenzordnung vom 5. Oktober 1994, § 104, Bundesgesetzblatt I S. 2866; see also Wood, supra note 84, at 165 (citing Bankruptcy Act of 1879, § 18 and Second Financial Markets Promotion Act 1994, § 15(1)).

    See Wood, supra note 84, at 165 (citing Bankruptcy Act, § 38); see also Legal Opinions on the Enforceability of the Termination and Close-Out Netting Provisions of the 1992 ISDA Master Agreement, supra note 81.

    Law of 1995:318 amending the Law of 1991:980 on Trade with Financial Instruments.

    Bundesgesetz über Schuldbetreibung und Konkurs, Art. 211 bis.

    Companies Act, 1989, Chapter 40, Part VII and Schedule 21 (Parts II and III).

    See supra note 75; see also 11 U.S.C. §§ 101, 362, 555, 556 (1994); 12 U.S.C. § 1821(e)(8) (1994).

    A current account is an account in which reciprocal debts and claims are merged and offset or novated either on a continuing basis, that is, as soon as they are entered into, or at agreed periodic intervals.

    Philip R. Wood, Principles of International Insolvency 13-3 at 228 (1995).

    The Convention on Insolvency Proceedings (the Convention) was opened for signatures from November 23, 1995 to May 23, 1996. Convention, Art. 49(2).

    Proposal for a Council Directive on the Coordination of Laws, Regulations, and Administrative Provisions Relating to the Reorganization and the Winding-Up of Credit Institutions and Deposit-Guarantee Schemes, 1985 O.J. (C 365) 55, as amended, 1988 O.J. (C 36) 1 [hereinafter Winding-Up Directive].

    Convention, supra note 95, Art. 49; see UK: Politics This Week—Going Mad, The Economist, May 25, 1996 (noting the United Kingdom refused to sign the EU Bankruptcy Convention).

    Convention, supra note 95, Art. 3(1); Winding-Up Directive, supra note 96, Art. 4.

    Convention, supra note 95, Arts. 3(2) and 27.

    Id. Art. 2(h).

    Id. Art. 3(3).

    Id. Art. 1(1).

    Id. Art. 5.

    Id. Art. 6.

    Id. Art. 7.

    Id. Art. 9.

    Id. Art. 10.

    Id. Art. 14.

    Article 6 provides:

    1. The opening of insolvency proceedings shall not affect the right of creditors to demand the set-off of their claims against the claims of the debtor, where such a set-off is permitted by the law applicable to the insolvent debtor’s claim.

    2. Paragraph 1 shall not preclude the actions for voidness, voidability or unenforceability laid down in Article 4(2)(m).

    Id. Art. 6.

    Winding-Up Directive, supra note 96, Art. 1.

    See letter from Nikolaus Bömcke to Legal Committee and Banking Supervision Committee at 2 (August 23, 1995).

    See, e.g., 11 U.S.C. § 362 (1994) (regarding the automatic stay in the U.S. Bankruptcy Code).

    11 U.S.C. § 362(b)(6), (7), and (17).

    Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Public Law No. 101-73, § 212, 103 Stat. 183, 222 (1989) (amending 12 U.S.C. § 1821).

    12 U.S.C. § 1821(e)(8)(D)(i) (1994).

    Definition of Qualified Financial Contracts, 60 Federal Register 66,863 (1995) (to be codified at 12 Code of Federal Regulations part 360).

    12 U.S.C. § 1821(e)(8)(A) (1994).

    See 11 U.S.C. § 109 (1994).

    Id. § 362.

    Id. § 362(b).

    Id. § 362(b)(6), (7), and (17).

    Id.

    Randall D. Guynn, Modernizing Securities Ownership, Transfer and Pledging Laws 5 (paper presented at the Annual Meeting of the International Bar Association, October 13, 1994).

    Id.

    Id. at 9.

    U.C.C. Revised Article 8: Investment Securities (1995).

    See Guynn, supra note 123, at 43-45.

    See id. at 11-12.

    Report, supra note 2, at 2, 32.

    Id.

    Chapter 4, Comment (Sims and Steigerwald)

    Committee on Payment and Settlement Systems of the Central Banks of the Group of Ten Countries, Bank of International Settlements, Settlement Risk in Foreign Exchange Transactions (March 1996) [hereinafter Report].

    Id. at 64.

    Id. at 63.

    Id. at 64.

    Id. at 63.

    Id. at 18 et seq.

    Id. at 51 (Appendix 2). The recommendations of the Foreign Exchange Committee are reprinted herein as Appendix II (1).

    Id. at 18 et seq.

    Id. at 63 (Appendix 4).

    Id. at 64.

    Id.

    See Basle Committee on Banking Supervision, Report on International Convergence of Capital Measurement and Capital Standards Annex 3 (July 1988), reprinted in 1 Current Legal Issues Affecting Central Banks 487, 512 (Robert C. Effros ed., 1992).

    However, the risk-based capital rules set out in the Basle Capital Accord of 1988 do not take account of payments netting. Basle Committee on Banking Supervision, Basle Capital Accord: Treatment of Potential Exposure for Off-Balance Sheet items Annex at note 6 (April 1995), reprinted in 4 Current Legal Issues Affecting Central Banks 799, 802 note 6 (Robert C. Effros ed., 1997).

    Report, supra note 1, at 64.

    The Exchange Clearing House, Limited, based in London, is for the netting of spot and forward foreign exchange obligations.

    A group of banks based in Canada and the United States propose to establish a foreign exchange clearing house to provide multilateral netting and settlement of spot and forward foreign exchange transactions. The Multinet clearing house would operate as a bank and would be owned by its member banks. The banks in the Multinet project currently net their mutual transactions on a bilateral basis (the VALUNET arrangement). Report, supra note 1, at 16 (note 12).

    Id. at 32 (setting forth the “next steps” that can be taken by individual banks, industry groups, and central banks).

    British Bankers’ Association and The Foreign Exchange Committee, International Foreign Exchange Master Agreement (IFEMA) (November 1993), reprinted in 4 Current Legal Issues Affecting Central Banks, supra note 12, at 683; see Financial Markets Lawyers Group, Legal Opinions on the Enforceability of the Termination and Close-Out Netting Provisions of IFEMA (December 1995).

    The British Bankers’ Association and The Foreign Exchange Committee, International Currency Options Market (ICOM) Master Agreement and Guide (April 1992). The ICOM Master Agreement is reprinted in 4 Current Legal Issues Affecting Central Banks, supra note 12, at 701.

    International Swap Dealers Association, ISDA Master Agreement (1992), reprinted in 4 Current Legal Issues Affecting Central Banks, supra note 12, at 718.

    Report, supra note 1, at 63.

    Financial Markets Lawyers Group, supra note 17.

    Federal Deposit Insurance Corporation Improvement Act of 1991, Public Law No. 102-242, § 404(a), 105 Stat. 2236 (1991) [hereinafter FDICIA].

    “FXNET is a limited partnership owned by the UK subsidiaries of 12 major banks.” Report, supra note 1, at 15 (note 9).

    Report of the Committee on Interbank Netting Schemes of the Central Banks of the Group of Ten Countries 26 et seq. (November 1990). The Lamfalussy standards, as the standards set forth in this report are commonly known, are reprinted in 4 Current Legal Issues Affecting Central Banks, supra note 12, at 797.

    FDICIA, supra note 22, §§ 401 et seq.

    Id. §§ 403(a), 404(a). Some regulators and legal experts disagree that FDICIA supersedes bankruptcy law in all respects. See FDIC Policy Statement, 59 Federal Register 37726, 37730 (1994).

    12 U.S.C. § 1821(e)(8)(A) (1994) (applicable to insured banks); 11 U.S.C. § 362 (1994) (applicable to corporate entities).

    Id.

    12 U.S.C. § 1821(e)(8)(D)(iv) (1994); 11 U.S.C. § 101(25) (1994).

    Report of the Committee on Interbank Netting Schemes of the Central Banks of the Group of Ten Countries, supra note 24, at 26. Standard IV provides “[m]ultilateral netting systems should, at a minimum, be capable of ensuring the timely completion of daily settlements in the event of an inability to settle by the participant with the largest single net-debit position.” Id.

    Uniform Commercial Code § 9-203 (“Attachment and Enforceability of Security Interest; Proceeds; Formal Requisites”) (1990).

    See id. § 9-303 (“When Security Interest Is Perfected; Continuity of Perfection”).

    See 11 U.S.C. § 101(54) (1994) (defining “transfer” as “every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in property, including retention of title as a security interest and foreclosure of the debtor’s equity of redemption”).

    See 11 U.S.C. § 547 (1994); Insolvency Act, 1986, Chapter 45, § 239 (U.K.).

    See 11 U.S.C. § 548(a)(2) (1994); Insolvency Act, 1986, Chapter 45, § 238 (U.K.).

    See 11 U.S.C. § 548(a)(1) (1994).

    See id. § 362.

    See John P. Emert, The Significance of the International Foreign Exchange Master Agreement (IFEMA), in 4 Current Legal Issues Affecting Central Banks, supra note 12, at 441; Raj Bhala, Comment, in 4 Current Legal Issues Affecting Central Banks, supra, at 458.

    FDICIA, supra note 22, §§ 403, 404.

    Report, supra note 1, at 63-64.

    See 11 U.S.C. § 547; Insolvency Act, 1986, Chapter 45, § 239 (U.K.).

    See 11 U.S.C. § 548(a)(2); Insolvency Act, 1986, Chapter 45, § 238 (U.K.).

    See 11 U.S.C. § 362.

    See supra the text accompanying note 40.

    Uniform Commercial Code § 2-201 (1990). A proposed revision of Article 2 of the Uniform Commercial Code would repeal the statute of frauds. However, a motion to repeal the statue of frauds for the sale of goods was defeated at the 1997 annual meeting of the American Law Institute.

    See The Foreign Exchange Committee, Reducing Foreign Exchange Settlement Risk 5 (1994), reprinted in part as Appendix II (6).

    See supra note 24.

    Reducing Foreign Exchange Settlement Risk, supra note 46, at 5.

    IFEMA, supra note 17.

    Financial Markets Lawyers Group, supra note 17.

    Id.

    FDICIA, supra note 22.

    See Financial Markets Lawyers Group, supra note 17, England; see also Companies Act, 1989, Chapter 40, Part VII and Schedule 21 (Parts II and III).

    The Multinet International Bank did begin operations in 1997 as anticipated.

    See supra note 24.

    Chapter 5, “Cross-Border Electronic Banking: Perspectives on Systemic Risk and Sovereignty” (Bhala)

    I would like to thank Mr. Ramsey Taylor, William and Mary Law School, Class of 1996, for his excellent research assistance.

    Of course, these are not the only challenges raised by cross-border electronic banking. For example, has such banking caused commercial banks to become obsolete? In other words, is the traditional commercial bank franchise, whose value was based on its ability to do what no other institution could do—namely, take deposits and make loans, a dinosaur? After all, technology makes further disintermediation away from banks possible. Consider the payments system. Traditionally, a central bank was the core of this system, and the system was the exclusive province of banks. Now, companies that have nothing to do with a central bank, such as Microsoft, can offer customers the ability to make electronic payments.

    See Adam Smith, The Wealth of Nations Book IV, Chapter I (1776).

    The two public policy concerns noted above are by no means exhaustive. For instance, another important matter is protecting the “small person,” that is, the ordinary retail bank customer. He or she needs protection from the risks associated with electronic technology. For example, the customer’s deposits and investments must be protected from the risk of fraud perpetrated by electronic pirates.

    See generally Jeffrey B. Ritter, Defining International Electronic Commerce, 13 Northwestern Journal of International Law & Business 3 (1992) (discussing the uses of electronic technologies in international commerce).

    See Raj Bhala, A Pragmatic Strategy for the Scope of Sales Law, the Statute of Frauds, and the Global Currency Bazaar, 72 Denver University Law Review 1, 16-18 (1994).

    Amelia H. Boss, The Emerging Law of International Electronic Commerce, 6 Temple International and Comparative Law Journal 293, 295, note 5 (1992).

    See Paul Todd, Dematerialisation of International Trade Instruments, in Cross-Border Electronic Banking 105 (Joseph J. Norton, Chris Reed, and Ian Walden eds., 1995).

    Boss, supra note 7, at 294 (using similar language to define electronic data interchange).

    The War of the Wires, The Economist, May 11, 1996, at 59, 60.

    See Ernest T. Patrikis, Thomas C. Baxter, Jr., and Raj Bhala, Wire Transfers 173-177 (1993).

    With respect to turnover volume in the foreign exchange market, see Bank for International Settlements, Central Bank Survey of Foreign Exchange Market Activity in April 1995: Preliminary Global Findings, Press Communiqué (October 24, 1995). After adjusting for double counting, the Bank for International Settlements estimates that the average daily turnover of spot, forward, and swap contracts is $1.230 trillion. This figure excludes currency options. See also Big, The Economist, September 23, 1995, at 63 (discussing the estimates). The Bank for International Settlements’ previous survey of trading volumes in the foreign exchange market yielded similar results, though a comparison of the two sets of results indicates the market has continued to grow in size at an impressive rate. See Monetary and Economic Department, Bank for International Settlements, Central Bank Survey of Foreign Exchange Market Activity in April 1992 at 1, 5, and 6, Table I (March 1993) (noting gross average daily turnover of approximately $1 trillion, including trading in all over-the-counter instruments, namely, spots, forwards, and derivatives (options and currency swaps) as well as exchange-traded derivatives (options and futures), but excluding cross-currency interest rate swaps).

    See Frances Williams, WTO Predicts Robust Trade Growth, Despite Slowdown, Financial Times, March 28, 1996, at 14.

    See Raj Bhala, The Inverted Pyramid of Wire Transfer Law, 82 Kentucky Law Journal 347 (1993); Paying for the Deal: An Analysis of Wire Transfer Law and International Financial Market Interest Groups, 42 University of Kansas Law Review 667 (1994).

    Euroclear is a clearinghouse that was set up to settle eurobond trades, but it has come to handle all types of international securities. See Margaret Morris, Settlement and Clearing: A Tale of Gallant Bond Rivals, Financial Times, June 10, 1996, at 6.

    See Ernest Patrikis, Delivery Against Payment, 4 Current Legal Issues Affecting Central Banks 555 (Robert C. Effros ed., 1997).

    Hazell v. Hammersmith and Fulham London Borough Council, 2 Appeal Cases 1 (House of Lords 1992); see William Blair, Banking Law Developments in the United Kingdom, 4 Current Legal Issues Affecting Central Banks, supra note 16, at 235.

    UNCITRAL Model Law on International Credit Transfers, November 25, 1992, reprinted in 2 Current Legal Issues Affecting Central Banks 312 (Robert C. Effros ed., 1994).

    Uniform Commercial Code, Article 4A (“Funds Transfers”) (1989), reprinted in 1 Current Legal Issues Affecting Central Banks 515 (Robert C. Effros ed., 1992).

    See Patrikis, Baxter, and Bhala, supra note 11.

    Patrikis, supra note 16, at 560-561; see also Robert C. Effros, A Banker’s Primer on the Law of Electronic Funds Transfers, 105 Banking Law Journal 510, 539 (1988).

    Basle Committee on Banking Supervision, Report on International Convergence of Capital Measurement and Capital Standards (July 1988, as amended); Basle Committee on Banking Supervision, Amendment to the Capital Accord to Incorporate Market Risks (January 1996); see Raj Bhala, Equilibrium Theory, the FICAS Model, and International Banking Law, 38 Harvard International Law Journal 1 (1997); Applying Equilibrium Theory in the FICAS Model: A Case Study of Capital Adequacy and Currency Trading, 41 St. Louis University Law Journal 125 (1996).

    Unfortunately, however, the self-regulatory emerging market risk scheme does not extend to securities firms. An agreement between the Basle Supervisors Committee and the International Organization of Securities Commissioners is necessary to cure the disjointed regulatory approach to computer models devised by investment professionals to monitor and reduce market risk. In addition, coordinated enforcement of such an agreement is required. Repeats of the lack of candor among regulators that occurred during the BCCI and Daiwa affairs must not occur.

    Derivatives Policy Group, Framework for Voluntary Oversight 23 et seq. (March 1995).

    Id. at 13 et seq.

    Gregory J. Millman, The Vandals’ Crown (1995).

    Of course, proper structural and fiscal policies, which are outside the purview of a central bank, also are important safeguards against a run.

    Restatement (Third) of the Foreign Relations Law of the United States § 401 (1987) [hereinafter Restatement].

    See Louis Henkin et al., International Law: Cases and Materials chapter 12 (3rd ed., 1993); Ian Brownlie, Principles of Public International Law chapters 6, 13, and 14 (4th ed., 1990); 1 Restatement, supra note 28, part 4.

    Except for the universality principle, each jurisdictional basis is subject to a limitation of “reasonableness.” Restatement, supra, § 403(1). A state may not exercise jurisdiction with respect to a person or activity that has connections with another state when exercise of such jurisdiction is unreasonable. Id. Section 403 of the Restatement also lists criteria to help determine when exercising jurisdiction is unreasonable. Id. § 403(2). These criteria include factual matters and the concerns of the parties and other states.

    In addition to the territory, effects, and nationality principles, a jurisdictional claim may be supported by the protective or universality principles. However, these principles are largely irrelevant to the context of cross-border electronic banking. The protective principle indicates a state has jurisdiction with respect to conduct outside its territory committed by persons that are not its nationals if that conduct is directed against the security of the state or a limited class of its interests. It is unlikely a central bank can make a credible jurisdictional claim on “national security” grounds. The universality principle gives every state jurisdiction to prescribe law and punishment for crimes of universal concerns, namely, piracy, slave trade, hijacking, genocide, war crimes, and—perhaps—terrorism. No other basis of jurisdiction is needed. Unless a central bank could claim that a cross-border electronic banking transaction is the means to facilitate one of these universally condemned crimes, then this basis of jurisdiction is irrelevant.

    Finally, as discussed in the text below, a jurisdictional claim may be supported by the consent principle.

    See, e.g., Restatement, supra note 28, § 402(1)(a), (b).

    See, e.g., id. § 402(1)(c).

    See, e.g., id. § 402(1)(a).

    See Henkin et al., supra note 29, at 1054-1055.

    See Restatement, supra note 28, §§ 414(1) (providing “a state may exercise jurisdiction to prescribe for limited purposes with respect to activities of foreign branches of corporations organized under its laws”) and 414(2) (providing that “[a] state may not ordinarily regulate the activities of corporations organized under the laws of a foreign state on the basis that they are owned or controlled by the nationals of the regulating state.”).

    2 Joseph Gold, The Fund Agreement in the Courts: Volume II 391 et seq. (1982); F.A. Mann, The Legal Aspect of Money 237 et seq. (2d ed. 1953).

    Libyan Arab Foreign Bank v. Bankers Trust, 1 Queen’s Bench 728 (1989); see Blair, supra note 17.

    Gold, supra note 35, at 392.

    Restatement, supra note 28, § 403.

    See Patrikis, Baxter, and Bhala, supra note 11, at 203-209 (discussing the CHIPS settlement account at the Federal Reserve Bank of New York).

    See, e.g., Hal Scott, Where Are the Dollars?—Off-Shore Funds Transfers, 3 Banking and Finance Law Review 243 (June 1989).

    Board of Governors of the Federal Reserve System, Policy Statement on Privately Operated Large-Dollar Multilateral Netting Systems, IV Federal Reserve Regulatory Service 9-1021-1022.3 at 9.360-364.1 (October 1995).

    Id. § 9-1022 at 9.361.

    Basle Committee on Banking Supervision, Report On International Developments in Banking Supervision Chapter III (Report number 8, September 1992) (“Strengthening International Cooperation Between Banking Supervisory Authorities”), reprinted in 3 Current Legal Issues Affecting Central Banks 301 (Robert C. Effros ed., 1995).

    Chapter 5, Comment (Byrne)

    Chapter 5 suggests the definition used by Amelia H. Boss: “the computer to computer exchange of information in predetermined formats,” Amelia H. Boss, The Emerging Law of International Electronic Commerce, 6 Temple Int’l and Comp. L. J. 293, 294 (1992) (citing The Legal Position of the Member States with Respect to Electronic Data Interchange, TEDIS Final Report (Commission of the European Communities, Brussels, Belgium, September 1989) at 27, 28). While this “definition” may serve as a description of wholesale banking uses currently in place, it is not accurate regarding current banking practices in general. See Allen H. Lipis, Thomas R. Marschall, and Jan H. Linker, Electronic Banking (1985) (covering the gamut of consumer and retail banking uses, very few of which are computer-to-computer transactions and some of which are automated (for example, telephone to computer)). Even within the sphere of wholesale funds transfers, the scope of legislation in U.S. Uniform Commercial Code [U.C.C.] Article 4A is sufficiently broad to encompass within the meaning of a “payment order” (and so a “funds transfer,” which is a series of such orders) oral and written orders. U.C.C. §§ 4A-103, 4A-104 (1990). It is also questionable whether future systems will require that the data be formatted. Article 4A is reprinted in 1 Current Legal Issues Affecting Central Banks 515 (Robert C. Effros ed., 1992).

    Chapter 5 points to six components of systemic risk: credit risk, market risk, market liquidity risk, payments or settlement risk, operational risk, and legal risk. Raj Bhala, Cross-Border Electronic Banking: Perspectives on Systemic Risk and Sovereignty, supra, at 107. This classification may include country risk or political risk but, if not, it should be classified in the formula. In addition, there is the issue of illegality/public policy that may or may not fit within the notion of legal risk.

    The United States has accommodated its financial system to its foreign policy. Examples include restrictions imposed under trading with the enemy laws with regimes deemed adverse to the interests of the United States (Libya, Sudan, Iran, Iraq, North Korea, and Cuba, to name a few); antiboycott provisions that are focused on the Arab boycott of Israel; provisions designed to prevent the proliferation of technology related to missile delivery systems and nuclear weapons as well as other selected weapons-related technologies; and provisions on money laundering. Pursuant to statutes and regulations, banks are required to monitor transactions, report them, and otherwise cooperate with a series of regulators. The provisions are enforced with stiff fines. At the present time, most banks have compliance officers who oversee compliance with these regulations as well as counsel specially trained in these provisions.

    See supra note 1.

    UNCITRAL Model Law on Electronic Commerce, in Report of the United Nations Commission on International Trade Law on the Work of Its Twenty-Ninth Session (May 28-June 14, 1996), General Assembly Official Records, 51st Session, Supplement No. 17, UN Doc. A/51/17 (1996). The most useful summary of EFT to date is contained in UNCITRAL Legal Guide on Electronic Funds Transfers, UN Doc. A/CN.9/SER.B/1, UN Sales No. E.87.V.9 (1987).

    Basle Committee on Banking Supervision, International Convergence of Capital Measurement and Capital Standards (July 1988, as amended). See, for example, Capital; Risk-Based Capital Guidelines, 12 Code of Federal Regulations parts 208, 225 (1995) (as adopted by the Board of Governors of the Federal Reserve System).

    There has been no exhaustive study of the reasons for this phenomenon, but the statistics reveal an upward trend that has leveled off at the time of implementation of the capital adequacy guidelines. These figures are published quarterly in Documentary Credit World.

    Bhala, supra note 2, p. 110.

    International Chamber of Commerce, ICC Uniform Customs and Practice for Documentary Credits (January 1, 1994). Rules are being developed that will provide the same framework of practice for standby letters of credit—the International Standby Practices (ISP). The current draft of the ISP is published in the November-December 1997 issues of Documentary Credit World.

    The two most recent statutory efforts in the field are designed to complement the UCP and other rules of practice, such as the nascent ISP (International Standby Practices), see supra note 11; U.C.C. Revised Article 5 (1995); UN Convention on Independent Guarantees and Stand-by Letters of Credit, New York, December 11, 1995, annexed to General Assembly Resolution 50/48, UN GAOR, 50th Session, 87 plenary meeting, 24 UNCITRAL Yearbook 59 (1995). For judicial deference, see Alaska Textile Co., Inc. v. Chase Manhattan Bank, N.A., 982 F.2d 813 (2nd Cir. 1992).

    U.C.C. § 4A-501(b).

    Id.

    Id. at Official Comment 1.

    Id. § 4A-501(b).

    UNCITRAL Model Law on International Credit Transfers, November 25, 1992, reprinted in 2 Current Legal Issues Affecting Central Banks 312 (Robert C. Effros ed., 1994).

    Afterword to Chapters 4 and 5 Baxter

    See, e.g., In re Koreag, Contrôle et Révision SA, 961 F.2d 341 (2d Cir. 1992), cert. denied, 113 S. Ct. 188 (1992); see also Thomas C. Baxter, Jr. and James H. Fries, Jr., Resolving Funds Transfer Disputes Related to Currency Exchange Transactions: What Law Governs?, 1995 Commercial Law Annual 297 (1995).

    Uniform Commercial Code § 2-702(2) (1990).

    UNCITRAL Model Law on International Credit Transfers, November 25, 1992, reprinted in 2 Current Legal Issues Affecting Central Banks 312 (Robert C. Effros ed., 1994).

    Foreword to Chapters 6 and 7 (Ireland)

    See, e.g., Congressional Budget Office, The Congress of the United States, Emerging Electronic Methods for Making Retail Payments (June 1996).

    See id. This study notes that, according to one estimate, “worldwide sales on the Internet total more than $300 million a year and the number is growing.” Id. at 25 (footnote omitted).

    Uniform Commercial Code [U.C.C.], Article 3 (Commercial Paper), § 3-310(b) (1996).

    Id. § 3-310 (a).

    Chapter 6, “Stored Value Products: A New Legal Challenge” (Baxter)

    This chapter was prepared with the assistance of Stephanie Heller, Counsel, and Colleen Westbrook, Attorney, Federal Reserve Bank of New York.

    Many of the views expressed in this chapter were developed in the context of an American Bar Association task force on electronic money.

    The abbreviation IOU stands for “I owe you,” meaning an individual owes a debt to another.

    See Uniform Commercial Code [U.C.C.], Article 3 (Negotiable Instruments), § 3-310(b).

    Id. § 3-310(a).

    Id. Article 2 (Sales), § 2-702(2).

    Id. §§ 2-102, 2-105(1); see Thomas C. Baxter, Jr. and James H. Freis, Jr., Resolving Funds Transfer Disputes Related to Currency Exchange Transactions: What Law Governs?, 1995 Commercial Law Annual 297 (1995).

    U.C.C. § 3-312.

    Id. § 4-403.

    Chapter 6, Comment (Heinrich)

    In early 1996, electronic purse schemes were either running as live pilot projects or were in development in several European countries, including Austria, Belgium, Denmark, Finland, Germany, The Netherlands, Portugal, Russia, Spain, Sweden, and the United Kingdom. Such schemes were also in development or operating in Australia, Brazil, Canada, China, Nigeria, South Africa, and the United States.

    For an overview on existing “e-money” schemes and projects, see World Survey of Cyberpayment Systems, in Exploring the World of CyberpaymentsAppendix III (a colloquium sponsored by the Financial Crimes Enforcement Network, U.S. Department of Treasury) (September 27, 1995).

    Detlef Kröger, Ralf Clasen and Dirk Wallbrecht, Internet für Juristen - Weltweiter Zugriff auf juristische Informationen 12-13 (1996).

    See Bank for International Settlements, Statistics on Payment Systems in the Group of Ten Countries (December 1994); Payment Systems in the Group of Ten Countries (December 1993); Payment Systems in Eleven Developed Countries (April 1989).

    See Congressional Budget Office, Congress of the United States, Emerging Electronic Methods for Making Retail Payments 45 (June 1996) (noting “[s]eigniorage is the government’s profit from the manufacture of coins; the profit is the difference between the face value of the coins and the cost of producing them” and recognizing “[w]idespread use of stored-value cards and on-line scrip could eventually lower the demand for cash, reducing the government’s income if the new payment methods replaced substantial holdings of coin and currency”).

    Central bank liabilities in the form of banknotes are not interest bearing, whereas the corresponding assets are typically held in the form of domestic government securities.

    The CPSS is currently chaired by Mr. William McDonough, President of the Federal Reserve Bank of New York, and the Secretariat is provided by the Bank for International Settlements.

    As of August 1997, there is little legal literature on e-money. But see Bank for International Settlements, Implications for Central Banks of the Development of Electronic Money (October 1996) (availabe at http://www.bis.org); Manfred Borchert, Cyber-Money—eine neue Währung? Sparkasse, January 1996, at 41; Mark E. Budnitz, Stored Value Cards and the Consumer: The Need for Regulation, 46 American University Law Review [Am. U. L. Rev.] 1027 (1997); Shameela Chinoy, Electronic Money in Electronic Purses and Wallets, 12 Banking and Finance Law Review 15 (1996); European Committee for Banking Standards (ECBS), ECBS Technical Report—TR 103—Banking Sector Requirements for an Electronic Purse (December 1995); ECBS, ECBS Technical Report—DTR 401—Secure Banking over the Internet (January 1997); Paul W. Bauer, Making Payments in Cyberspace, Economic Commentary (Federal Reserve Bank of Cleveland) (October 1, 1995); R.E. de Rooy, De chipknip: een (juridische) verkenning, Nederlanse Juristenblad, April 5, 1996, at 509; Walter A. Effross, Piracy, Privacy, and Privatization: Fictional and Legal Approaches to the Electronic Future of Cash, 46 Am. U. L. Rev. 961 (1997); Federal Deposit Insurance Corporation, General Counsel’s Opinion No. 8: Stored Value Cards, 61 Federal Register 40,490 (August 2, 1996); Richard L. Field, 1996: Survey of the Year’s Developments in Electronic Cash Law and the Laws Affecting Electronic Banking in the United States, 46 AM. U. L. Rev. 967 (1997); Group of Ten, Electronic Money - Consumer Protection, Law Enforcement, Supervisory and Cross Border Issues (April 1997) (available at http://www.bis.org); Laurie Law, Susan Sabett, and Jerry Solinas, How to Make a Mint: The Cryptography of Anonymous Electronic Cash, 46 Am. U. L. Rev. 1131 (1997); Peter Ledingham, Pre-paid Cards, 57 Reserve Bank Bulletin (New Zealand) 346 (1994); Simon Lelieveldt, How to Regulate Electronic Cash: An Overview of Regulatory Issues and Strategies, 46 Am. U. L. Rev. 1163 (1997); Steven Levy, E-money (That’s What I Want), Wired 174 (December 1994); Gary W. Lorenz, Electronic Stored Value Payment Systems, Market Position, and Regulatory Issues, 46 Am, U. L. Rev. 1177 (1997); David G. Oedel, Why Regulate Cybermoney?, 46 Am. U. L. Rev. 1075 (1997); Brian W. Smith and Ramsey J. Wilson, How Best to Guide the Evolution of Electronic Currency Law, 46 Am, U. L. Rev. 1105 (1997); John Wenninger and Daniel Orlow, Consumer Payments over Open Computer Networks, Federal Reserve Bank of New York Research Paper No. 9603 (March 1996); Working Group on EU Payment Systems, Report to the Council of the European Monetary Institute on Prepaid Cards (May 1994); John D. Wright, Smart Cards: Legal and Regulatory Challenges, Bankers Magazine, March/April 1996, at 24. A bibliography of articles on electronic purses may be found at http://cfec.vub.ac.be/cfec/purses.htm.

    Chapter 6, Comment (Ballen)

    15 U.S.C. § 1693g (1994).

    These concerns might have to be addressed in other contexts such as the reconstruction of transactions that might be made by an issuing institution to provide a remedy in the event of malfunction of a terminal. See infra the Answer to Hypothetical Number 2: Terminal Malfunction.

    31 U.S.C. § 5103 (1994).

    Chapter 7, “Checks and Check Collection: A Comparison between the Common Law and Geneva Systems” (Guest)

    I wish to acknowledge the very considerable assistance that I have received from Professor E.P. Ellinger, National University of Singapore, in the preparation of this paper.

    Bills of Exchange Act, 1882, 45 and 46 Viet., Chapter 61 [hereinafter B.E.A.].

    Uniform Commercial Code [U.C.C.] (West Publishing, 12th ed. 1991). This chapter refers to Article 3, Negotiable Instruments, which was recently revised and replaced by Article 3, Commercial Paper.

    Id. § 3-104(e).

    Id. § 3-104(g).

    Id. § 3-104(h).

    The Geneva system consists of the following conventions, which were all signed in Geneva: Convention Providing a Uniform Law for Bills of Exchange and Promissory Notes, June 7, 1930; Convention for the Settlement of Certain Conflicts of Laws in Connection with Bills of Exchange and Promissory Notes, June 7, 1930; Convention on the Stamp Laws in Connection with Bills of Exchange and Promissory Notes, June 7, 1930; Convention Providing a Uniform Law for Cheques, March 19, 1931; Convention for the Settlement of Certain Conflicts of Laws in Connection with Cheques, March 19, 1931; and Convention on the Stamp Laws in Connection with Cheques, March 19, 1931. These conventions may be found in 1 Register of Texts of Conventions and Other Instruments Concerning International Trade Law 154 et seq., UN Sales No. E.71.V.3 (1971).

    Uniform Law on Cheques, Annex I to the Convention Providing a Uniform Law for Cheques, March 19, 1931, 143 League of Nations Treaty Series 357 (1933-34), reprinted in 1 Register of Text of Conventions and Other Instruments Concerning International Trade Law, supra note 7, at 192, 195.

    Convention Providing a Uniform Law for Cheques, supra note 8, Annex II.

    See Reservations and Declarations, attached to the Convention Providing a Uniform Law for Cheques, supra note 8.

    United Dominions Trust Ltd. v. Kirkwood [1966] 2 Queen’s Bench [Q.B.] 431.

    B.E.A. § 73; U.C.C. § 3-104(f).

    “Banker” is defined to include “a body of persons whether incorporated or not who carry on the business of banking.” Id. § 2.

    See B.E.A. § 13; U.C.C. § 3-113(a).

    B.E.A. § 53(1).

    Annex II to the Convention Providing a Uniform Law for Cheques, supra note 8, Art. 5.

    Décret-loi du 30 octobre 1935 unifiant le droit en matière de chèques, Art. 3.

    Annex II to the Convention Providing a Uniform Law for Cheques, supra note 8, Art. 19.

    Décret-loi du 30 octobre 1935 unifiant le droit en matière de chèques, Art. 17.

    See Scheckgesetz vom 14. August 1933, Art. 3.

    B.E.A. § 8(1).

    Cheques Act, 1992, Chapter 32, § 1.

    Uniform Law on Cheques, supra note 8, Art. 14.

    [1944] Appeal Cases 176.

    U.C.C. § 3-409(d).

    Id.

    [1993] 3 All England Reports [All E.R.] 789.

    Uniform Law on Cheques, supra note 8, Art. 29.

    Id.

    Barclays Bank plc v. Bank of England, [1985] 1 All E.R. 385.

    Annex II to the Convention Providing a Uniform Law for Cheques, supra note 8, Art. 16.

    Cheques Act, 1992, supra note 22, § 1.

    Bills of Exchange (Amendment) Act, 1992 (enacting Section 81A of the Bills of Exchange Act).

    Cheques Act, 1957, 5 and 6 Eliz., Chapter 36, § 1(2)(b).

    Tai Hing Cotton Mill Ltd. v. Liu Chong Hing Bank Ltd. [1986] A.C. 80.

    Id. at 109-110.

    London Joint Stock Bank Ltd. v. Macmillan and Arthur [1918] A.C. 777.

    Cheques Act, 1957, supra note 34, § 1.

    U.C.C. § 4-401(a).

    But see id. § 4-205 (relating to unindorsed items).

    Cheques Act, 1957, supra note 34, § 4.

    U.C.C. § 3-420(a).

    B.E.A. §§ 74B and 74C (introduced by the Deregulation (Bills of Exchange) Order 1996, 1996 Statutory Instruments No. 2993).

    Cheques Act, 1957, supra note 34, § 2(2).

    Chapter 7, Comment (Kimball)

    See Agreement on Truncated Cheque Collection (BSE Agreement); Agreement Concerning the Truncated Cheque Collection of Equivalents of DM 5,000 and Above (Large-Value Cheques); and the Separate Submission of the Original Cheques Without Settlement (BSE Agreement).

    See Ignacio Lojendio Osborne, Spain, in Payment Systems of the World 279, 289 (Robert C. Effros ed., 1994).

    See Federal Reserve Bank of Boston, Electronic Check Presentment Services, Operating Letter No. 6A (January 1, 1996).

    Chapter 7, Comment (Clark)

    MICR is the acronym for “machine-readable magnetic ink character recognition.”

    Uniform Commercial Code [U.C.C.], Article 3 (Negotiable Instruments), §§ 3-103(a)(7), 3-406(b), 4-406(e) (West Publishing, 12th ed. 1991); see U.C.C, Article 3 (Commercial Paper), §§ 3-406, 4-103(3) (1996).

    12 Code of Federal Regulations [C.F.R.] part 205 (1997) (regarding electronic funds transfers).

    See id. § 205.10 (regarding preauthorized transfers).

    U.C.C. § 3-405 (1990).

    Id.

    12 C.F.R. §§ 229.2(z), 229.33.

    Afterword to Chapters 6 and 7 (Ireland)

    15 U.S.C. §§ 1601 et seq. (1994).

    12 U.S.C. §§ 4301 et seq. (1994).

    Chapter 8, “Comparative Banking Supervision” (Feldberg)

    The Group of Seven countries are Canada, France, Germany, Italy, Japan, the United States, and the United Kingdom.

    Federal Deposit Insurance Corporation Improvement Act of 1991, § 112, 12 U.S.C. § 1831m(c) (1994).

    Reserve Bank of New Zealand, Reserve Bank’s Banking Supervision Policy Conclusions (December 22, 1994), attached to Letter of Governor D.T. Brash to the Basle Committee on Banking Supervision (February 1, 1995); see New Disclosure Regime for Banks (May 22, 1996). The last document may be found at the Reserve Bank of New Zealand’s home page: www.rbnz.govt.nz/.

    See Steven A. Miller, How Daiwa Self-Destructed, Banking Law Journal 560 (June 1996).

    See Board of Banking Supervision, Report of the Board of Banking Supervision Inquiry into the Circumstances of the Collapse of Barings (July 18, 1995).

    Basle Committee on Banking Supervision, Report on International Convergence of Capital Measurement and Capital Standards (July 1988, as amended).

    Basle Committee on Banking Supervision, Principles for the Management of Interest Rate Risk (September 1997).

    Regarding the roles of the various federal agencies, see U.S. Banking Regulation Roundtable, in 4 Current Legal Issues Affecting Central Banks 173 (Robert C. Effros ed., 1997).

    Riegle Community Development and Regulatory Improvement Act of 1994, Public Law No. 103-325, § 305, 108 Stat. 2160, 2216 (1994).

    See The Basic Elements of Bank Supervision (Frederick C. Schadrack and Leon Korobow eds., 1993).

    See Susan F. Moore, The Collection of Banking Statistics, in The Basic Elements of Bank Supervision, supra note 10, at 45 (explaining the processing of call reports, which consist of detailed condition and income statements).

    See Frederick C. Schadrack, Resolving Problem Bank Situations, in The Basic Elements of Bank Supervision, supra note 10, at 85.

    See Capital Adequacy Guidelines, 59 Federal Register 62,987 and 63,241 (1994) (amending 12 Code of Federal Regulations parts 208 and 225).

    See Risk-Based Capital Standards, 59 Federal Register 64,561 (1994) (amending 12 Code of Federal Regulations parts 3, 208, 325, and 567).

    Board of Governors of the Federal Reserve System, Federal Reserve Guidelines for Rating Risk Management at State Member Banks and Bank Holding Companies (SR 95-51) (November 14, 1995); Division of Banking Supervision and Regulation, Board of Governors of the Federal Reserve System, Trading Activities Manual (March 1994) (regarding risk management).

    12 U.S.C. § 84(a)(1) (1994); see Chester B. Feldberg, The Development and Administration of Key Prudential Policies, in The Basic Elements of Bank Supervision, supra note 10, at 29, 42.

    See herein Mats A. Josefsson, Bank Failures in Nordic Countries, Chapter 9B.

    See supra note 6.

    Basle Committee on Banking Supervision, Amendment to the Capital Accord to Incorporate Market Risks (January 1996); see Basle Committee on Banking Supervision, Overview of the Amendment to the Capital Accord to Incorporate Market Risks (January 1996).

    See Basle Committee on Banking Supervision, The Supervisory Treatment of Market Risks (April 1993); see also James Houpt, International Bank Capital Standards for Market Risk: Recent Developments and Possible New Directions, in 4 Current Legal Issues Affecting Central Banks, supra note 8, at 577.

    See Thomas Baxter and Jet Joseph de Saram, BCCI: The Lessons for Banking Supervision, in 4 Current Legal Issues Affecting Central Banks, supra note 8, at 371.

    Basle Committee on Banking Supervision, Minimum Standards for the Supervision of International Banking Groups and Their Cross-Border Establishments (June 1992), reprinted in 3 Current Legal Issues Affecting Central Banks 301 (Robert C. Effros ed., 1995).

    See herein Philip R. Wood, International Law of Bank Secrecy, infra Chapter 17.

    The Supervision of Cross-Border Banking, Report by a Working Group Composed of Members of the Basle Committee on Banking Supervision and the Offshore Group of Banking Supervisors (October 1996), reprinted in part as Appendix III(3).

    Heads of State and Government of Seven Major Industrialized Nations and the President of the European Commission, Halifax Summit Communiqué 5 (June 15-17, 1995).

    Basle Committee on Banking Supervision and the International Organization of Securities Commissions, Response of the Basle Committee on Banking Supervision and of the International Organization of Securities Commissions to the Request of the G-7 Heads of Government at the June 1995 Halifax Summit (May 1996).

    Tripartite Group of Bank, Securities, and Insurance Regulators, The Supervision of Financial Conglomerates (July 1995), reprinted in part as Appendix III(2).

    Id. at 16-17.

    Id.

    Id. at 31.

    Id. at 32.

    Id.

    See supra the text accompanying note 19.

    Chapter 8, Comment (Schiffman)

    Conservatorship is the condition of a bank when it is under the control of a conservator who is charged with attempting to rehabilitate a bank, sell it as a going concern, or sell its assets on a wholesale basis. A receivership is the condition of a bank that is under the control of a receiver who is charged basically with selling the bank’s assets and settling claims against the bank.

    Courts in the United States and Canada have held that when a corporation becomes insolvent, the officers and directors assume fiduciary obligations to protect the corporation’s assets for creditors. See, e.g., In re Reuscher, 169 Bankr. 398 (S.D. Ill. 1994).

    The law should not contain any structural or normative biases, however. The outcome for an insolvent bank will depend upon which solution the supervisory authority determines would best protect creditors.

    This is consistent with the treatment of enterprises under modern bankruptcy laws that provide an opportunity for reorganization and retention by shareholders of all or part of their ownership interest in a going concern if they or others recapitalize the company.

    While a receiver could become involved in option (ii), if the conservator has failed at this, the receiver may not have better prospects. (Note, the conservator and the receiver may also be the same person.)

    Some ailing banks may receive assistance from the central bank or the government to bolster their liquidity. The efficacy of government rescues may be questionable. See Please, Governor, Can You Spare a Billion? The Economist, March 25, 1995, at 79. A bank with prospects for sale or rehabilitation may also be able to borrow to pay its liabilities. High priority in the law for claims of postproceeding creditors in liquidation would facilitate funding.

    Chapter 8, Comment (Guardia)

    Basle Committee on Banking Supervision, Report on International Convergence of Capital Measurement and Capital Standards (July 1988, as amended) [Basle Accord]. The Basle Accord is reprinted in 1 Current Legal Issues Affecting Central Banks 487 (Robert C. Effros ed., 1992) and amendments thereto are reprinted in volumes 3 (1995) and 4 (1997).

    Chapter 9A, “A Central Bank’s Perspective” (Ireland)

    Federal Deposit Insurance Corporation Improvement Act of 1991, Public Law No. 102-242, § 141, 105 Stat. 2236, 2273 (1991).

    Id. §§ 141, 142.

    Id. § 142.

    Id. § 141.

    Omnibus Budget Reconciliation Act of 1993, Public Law No. 103-66, §3001, 107 Stat. 297, 336 (1993).

    Chapter 9B, “Bank Failures in Nordic Countries” (Josefsson)

    Heikki Koskenkylä, The Condition of Nordic Banks and Future Prospects Post-Crisis, Bank of Finland Bulletin No. 8, at 9 (1995).

    Id.

    Id.

    Id.

    Peter Nyberg and Vesa Vihriälä, The Finnish Banking Crisis and Its Handling, Bank of Finland Discussion Papers 8/93, at 26 (1993).

    Id.

    See id. at 28.

    Id. at 38.

    Id.

    Ministry of Finance, Ending the Bank Support, Ds 1995:67, at 12 (1995).

    Id.

    Id. at 13.

    Nyberg and Vihriälä, supra note 5, at 29.

    Id.

    Id.

    See Hans Petter Wilse, Management of the Banking Crisis and State Ownership of Commercial Banks, Economic Bulletin (Bank of Norway) 2/95, at 217, 218 (1995).

    Id.

    Id. at 219.

    Ministry of Finance, supra note 10, at 13.

    Id. at 20.

    Id. at 20-21.

    Koskenkylä, supra note 1, at 13; see Wilse, supra note 16, at 219-223.

    Koskenkylä, supra note 1, at 13; Wilse, supra note 16, at 224-226.

    See Nyberg and Vihriälä, supra note 5, at 31.

    Ministry of Finance, supra note 10, at 20.

    Koskenkylä, supra note 1, at 14.

    Id.

    Ministry of Finance, supra note 10, at 29.

    Id at 55.

    Koskenkylä, supra note 1, at 14.

    Id.

    Id at 14.

    See Basle Committee on Banking Supervision, Report on International Convergence of Capital Measurement and Capital Standards (July 1988, as amended in 1992, 1994, 1995, and 1996).

    Chapter 9C, “Bank Failures in Latin America” (Feldman)

    In this chapter, the concepts of bank failures and banking crises are sometimes used interchangeably, although it is important to distinguish the cases where bank failures did not develop into full-fledged systemic crises in Latin America.

    In the Mexican case, the absence of deposit runs, particularly after the emergence of the crisis in December 1994, can be linked to the large and unexpected peso devaluation. Depositors caught by the devaluation had already incurred an enormous capital loss. Consequently, it was useless to withdraw funds from the system and, in fact, it paid to remain within the banking system if the expectation (later validated by facts) was that the peso devaluation was an overshot and a subsequent appreciation could follow.

    Interestingly enough, the experience showed a few months later that many of the banks perceived as healthy were actually in deep trouble. Consequently, a second wave of runs took place, giving way to a new process of deposit redistribution.

    The loss of confidence that generated the run was related to recent episodes in Argentine financial history. In particular, there was a perceived threat of a deposit freeze. This sentiment led the public to move away from all banks (even from state-owned banks that were normally perceived as enjoying an implicit deposit guarantee) and to seek refuge in currency holdings, both domestic and foreign denominated.

    Chapter 9, Comment (Lindgren)

    See James R. Barth and R. Dan Brumbaugh, Jr., The Role of Deposit Insurance: Financial System Stability and Moral Hazard, 4 Current Legal Issues Affecting Central Banks 393 (Robert C. Effros ed., 1997).

    See Federal Deposit Insurance Corporation Improvement Act of 1991, Public Law No. 102-242, 105 Stat. 2236 (1991).

    See supra Oliver Ireland, A Central Bank’s Perspective (Chapter 9A).

    See supra Ernesto V. Feldman, Bank Failures in Latin America (Chapter 9C).

    Ley de Convertibilidad del Austral [Law on the Convertibility of the Austral], Law No. 23.928 of March 27, 1991, Arts. 4, 6 (published March 28, 1991).

    12 U.S.C. § 347b(b)(3) (1994 & Supp. I 1995).

    Afterword to Chapters 8 and 9 (Guitian)

    Walter Bagehot, Lombard Street (John Murray 1924) (1873).

    John Stuart Mill, Principles of Political Economy (Reprints of Economic Classics, Augustus M. Kelley 1965)(1848).

    Foreword to Chapters 10 and 11 (Blair)

    The author is grateful for the assistance of Christopher D. Olive, Research Fellow at the Centre for Commercial Law Studies, Queen Mary and Westfield College, University of London, in preparing this paper.

    See U.S. General Accounting Office, Mexico’s Financial Crisis: Origins, Awareness, Assistance, and Initial Efforts to Recover, GAO/GGD-96-56 (February 1996).

    See William Dawkins and Gerard Baker, Relief over Japan’s Budget Vote, Financial Times, April 12, 1996, at 3.

    See Peter Lee, A Question of Collateral, Euromoney 46 (November 1995).

    See Henry N. Schiffman, Bankruptcy Law and Bank Insolvency Law in Eastern Europe, in 4 Current Legal Issues Affecting Central Banks 437 (Robert C. Effros ed., 1997).

    See Thomas C. Baxter, Jr. and Jet Joseph de Saram, BCCI: The Lessons for Banking Supervision, in 4 Current Legal Issues Affecting Central Banks, supra note 5, at 371.

    Financial Institutions Reform, Recovery, and Enforcement Act of 1989 § 201 et seq., 12 U.S.C. § 1811 et seq. (1994).

    12 U.S.C. § 1821(k) (1994).

    See, e.g., FDIC v. McSweeny, 976 F.2d 532 (9th Cir. 1992), cert. denied, 133 S.Ct. 2440 (1993); FDIC v. Fay, 779 F. Supp. 66 (S.D. Tex. 1991); Resolution Trust Corp. v. Dean, 854 F. Supp. 626 (D. Ariz. 1994).

    Board of Banking Supervision, Report of the Board of Banking Supervision Inquiry into the Circumstances of the Collapse of Barings (July 18, 1995).

    Baring Futures (Singapore) Ptd Ltd: The Report of the Inspectors Appointed by the Minister of Finance (1995).

    See Steven A. Miller, How Daiwa Self-Destructed, Banking Law Journal 560 (June 1996).

    See The Daiwa Bank Indictment: Full Text of the U.S. Prosecutors’ Case, 23 International Currency Review 3 (1995-96).

    See Miller, supra note 12, at 560-561.

    Commodity Futures Trading Commission, OTC Derivatives Markets and Their Regulation (October 1993).

    U.S. General Accounting Office, Financial Derivatives: Actions Needed to Protect the Financial System, GAO/GGD-94-133 (May 1994).

    It is conventional to distinguish between exchange-traded derivatives and OTC derivatives, created as the result of bilateral negotiation between the parties to a transaction rather than by a trade on a formal exchange.

    Report of the Board of Banking Supervision Inquiry into the Circumstances of the Collapse of Barings, supra note 10, at 250.

    See supra text accompanying note 16.

    See 17 Code of Federal Regulations § 240.17a-5 (1996) (requiring the filing of annual reports that are audited by an independent accountant); Id. § 240.17h-lT and 2T (requiring the keeping of records on risk-management policies); Derivatives Policy Group, Framework for Voluntary Oversight (March 1995).

    Securities and Exchange Commission, OTC Derivatives Oversight Statement of the Securities and Exchange Commission, the Commodity Futures Trading Commission, and the Securities and Investments Board, International Series Release No. 642 (March 15, 1994); see generally Louis Loss and Joel Seligman, Securities Regulation 712-719 (3d ed. Supp. 1996).

    See herein Ernest T. Patrikis and Douglas J. Landy, Derivatives Activities of Banking Insitutions: Initiatives for Supervision and Enhanced Disclosure (Chapter 16).

    Office of the Comptroller of the Currency, OCC 96-25: Fiduciary Risk Management of Derivatives (May 2, 1996); News Release 96-52: National Banks Cautioned on Derivatives in Fiduciary Accounts (May 2, 1996); see herein Douglas E. Harris, Comment (to Chapter 16).

    See herein Jimmy F. Barton, Supervision by Risk (Chapter 10A).

    See, e.g., The Futures and Options Association, Managing Derivatives Risk: Guidelines for End-Users of Derivatives (January 1996).

    Peter Clark, Baring All: Derivatives Markets and Their Integrity in the 1990s ASC Digest, Speech 12 (October 15, 1995) (address to the Asian Securities Analysts Council, 17th Annual Conference, Auckland, New Zealand, October 15-18, 1995).

    Representatives of Regulatory Bodies from 16 Countries Responsible for Supervising the Activities of the World’s Major Futures and Options Markets, Windsor Declaration (May 16-17, 1995).

    See Commodity Futures Trading Commission and Securities and Investment Board, SIB and CFTC Chairmen Welcome Windsor Declaration, Press Release 3845-95 (May 17, 1995).

    See Schapiro Sounds Warning that CFTC Has Begun Policing Internal Controls, BNA Management Briefing (October 20, 1995).

    See generally Commodity Futures Trading Commission, Six Additional Countries Sign Declaration on Cooperation and Supervision Covering International Futures Market, Press Release 4003-97 (March 12, 1997) (listing 14 original signatories of the declaration and those signing on the one-year anniversary of the declaration).

    See id.

    Id.

    See Basle Committee on Banking Supervision, Basle Capital Accord: Treatment of Potential Exposure for Off-Balance-Sheet Items (April 1995). The text of this amendment is reprinted in 4 Current Legal Issues Affecting Central Banks, supra note 5, at 799.

    Basle Committee on Banking Supervision, Amendment to the Capital Accord to Incorporate Market Risks (January 1996); see Overview of the Amendment to the Capital Accord to Incorporate Market Risks (January 1996); Supervisory Framework for the Use of “Backtesting” in Conjunction with the Internal Models Approach to Market Risk Capital Requirements (January 1996).

    See Institute of International Finance, Report of the Working Group on Capital Adequacy (July 1995).

    Committee on Interbank Netting Schemes of the Central Banks of the Group of Ten Countries, Report of the Committee on Interbank Netting Schemes of the Central Banks of the Group of Ten Countries 26 (November 1990), reprinted in part in 4 Current Legal Issues Affecting Central Banks, supra note 5, at 797.

    Id.; see EC Directive of 21 March 1996 amending Directive 89/647 as Regards Recognition of Contractual Netting by the Competent Authorities.

    Basle Capital Accord: Treatment of Potential Exposure for Off-Balance-Sheet Items, supra note 33.

    Basle Committee on Banking Supervision, Interpretation of the Capital Accord for the Multilateral Netting of Forward Value Foreign Exchange Transactions (April 1996).

    12 U.S.C. § 1821(n) (1994).

    Although Chapter 11 of the U.S. bankruptcy code does not apply to banks, it is the classic example of such rehabilitation procedure. 11 U.S.C. §§ 109(b)(2) and (d), 1101 et seq. (1994).

    Thomas Glaessner and Ignacio Mas, Incentives and the Resolution of Bank Distress, 10 World Bank Research Observer 53, 62 (February 1995).

    See Philip Wood, Principles of International Insolvency paragraph 1-62 at 33 (1995).

    Chapter 10A, “Supervision by Risk” (Barton)

    The following publications of the Office of the Comptroller of the Currency describe the Supervision by Risk program: The Community Bank Risk Assessment (1996); The Bank Supervision Process (1996); Large Bank Supervision (1995); and Community Bank Procedures for Noncomplex Banks (1994).

    See id.

    See Justin Fox, Camel by Some Other Name to Focus More on Risk, American Banker, February 23, 1996, at 1.

    Chapter 10B, “Effective Tools for the Host Country Supervisor” (Hoffman)

    See 12 Code of Federal Regulations part 211 (1997).

    Basle Committee on Banking Supervision, Minimum Standards for the Supervision of International Banking Groups and Their Cross-Border Establishments, in Report on International Developments in Banking Supervision 11 (Report number 8, September 1992), reprinted in 3 Current Legal Issues Affecting Central Banks 301 (Robert C. Effros ed., 1995); see also Basle Committee on Banking Supervision, Principles for the Supervision of Banks’ Foreign Establishments (May 1983) (the Basle Concordat); Supplement to the Concordat (April 1990). Both the Concordat and Supplement are reprinted in 1 Current Legal Issues Affecting Central Banks 475 (Robert C. Effros ed., 1992).

    Chapter 11, “Sharing of Information Between Supervisory Authorities” (Mattingly)

    Basle Committee on Banking Supervision, Minimum Standards for the Supervision of International Banking Groups and Their Cross-Border Establishments (June 1992), reprinted in 3 Current Legal Issues Affecting Central Banks 301 (Robert C. Effros ed., 1995).

    See Thomas Baxter and Jet Joseph de Saram, BCCI: The Lessons for Banking Supervision, 4 Current Legal Issues Affecting Central Banks 371 (Robert C. Effros ed., 1997).

    Public Law No. 102-242, §§ 201-215, 105 Stat. 2236, 2286-2305 (1991) (codified at 12 U.S.C. §§ 3101 et seq. (1994)).

    Id.

    12 C.F.R. § 211.24(c)(2)(iv) (1997).

    For a discussion of the Daiwa case, see M. MacDougall, Daiwa: A Message for Foreign Banks in the United States, 11 Butterworths Journal of International Banking and Financial Law 51 (1996).

    Id.

    See Board of Banking Supervision, Report of the Board of Banking Supervision Inquiry into the Circumstances of the Collapse of Barings (July 18, 1995).

    See Commodities Futures Trading Commission, Six Additional Countries Sign Declaration on Cooperation and Supervision Covering International Futures Markets, Press Release 4003-97 (March 12, 1997).

    Basle Committee on Banking Supervision, Supervision of Banks’ Foreign Establishments (September 1975, revised May 1983, and supplemented April 1990), reprinted in 1 Current Legal Issues Affecting Central Banks 475 (Robert C. Effros ed., 1992). The Basle Committee on Banking Supervision, formerly known as the Committee on Banking Regulations and Supervisory Practices, was inaugurated in 1975 under the auspices of the Bank for International Settlements.

    Id. at Supplement.

    Id.

    Id. at part B, recommendation (ii).

    Id. at part D, recommendation (iii).

    See herein Philip R. Wood, International Law of Bank Secrecy (Chapter 17).

    The Trade Secrets Act, 18 U.S.C. § 1905 (1994, as amended 1996). Section 1905 provides:

    Whoever, being an officer or employee of the United States or of any department or agency thereof, any person acting on behalf of the Office of Federal Housing Enterprise Oversight, or agent of the Department of Justice as defined in the Antitrust Civil Process Act (15 U.S.C. 1311-1314), publishes, divulges, discloses, or makes known in any manner or to any extent not authorized by law any information coming to him in the course of his employment or official duties or by reason of any examination or investigation made by, or return, report or record made to or filed with, such department or agency or officer or employee thereof, which information concerns or relates to the trade secrets, processes, operations, style of work, or apparatus, or to the identity, confidential statistical data, amount or source of any income, profits, losses, or expenditures of any person, firm, partnership, corporation, or association; or permits any income return or copy thereof or any book containing any abstract or particulars thereof to be seen or examined by any person except as provided by law; shall be fined under this title, or imprisoned not more than one year, or both; and shall be removed from office or employment.

    Id.

    See, e.g., Chrysler Corp. v. Brown, 441 U.S. 281 (1979); Jackson v. First Federal Savings of Arkansas, 709 F. Supp. 887 (E.D. Ark. 1989); Shell Oil Co. v. Dept of Energy, 477 F. Supp. 413 (D. Del. 1979); Emerson Elec. Co. v. Schlesinger, 609 F. 2d 898 (8th Cir. 1979).

    See, e.g., Chrysler Corp. v. Brown, 441 U.S. 281 (1979).

    See supra note 16.

    12 U.S.C. §§ 1818(v), 3109 (1994).

    Id. § 3109.

    Id. § 1818(v).

    See, e.g., id. §§ 326, 1442, 1817(a)(2), 1821, 2906; 15 U.S.C. §§ 78(q)(c)(3), 1691e(g) (1994).

    Public Law No. 95-630, 92 Stat. 3641 (1978) (codified as amended at 12 U.S.C. §§ 3401-22 (1994)).

    See supra note 16.

    12 U.S.C. §§ 3401(4) and (5), 3402 (1994).

    Id. § 3402.

    Id. § 3412(a).

    Id. § 3412(b).

    Id. § 3413(b).

    Id. § 3412(e).

    For a discussion of the common law of financial privacy in the United States, see C. Todd Jones, Compulsion Over Comity: The United States’ Assault on Foreign Bank Secrecy, 12 Northwestern Journal of International Law and Business 454 (1992); Peter W. Schroth, Bank Confidentiality and the War on Money Laundering in the United States, 42 American Journal of Comparative Law 369 (1994).

    5 U.S.C. § 552a (1994).

    Id. § 552a(b).

    Id. § 552.

    Id. § 552(a).

    Id. § 552(b).

    Id.

    The disclosure requirement does not apply to “trade secrets and commercial or financial information obtained from a person and privileged or confidential” or to matters that are “contained in or related to examination, operating, or condition reports prepared by, on behalf of, or for the use of an agency responsible for the regulations and supervision of financial institutions. 5 U.S.C. § 552 (b)(4) and (8) (1994).

    Id. § 552(b)(6).

    12 U.S.C. § 3109 (1994). Section 3109 provides:

    (a) Disclosure of supervisory information to foreign supervisors. Notwithstanding any other provision of law, the Board, Comptroller of the Currency, Federal Deposit Insurance Corporation, and Director of the Office of Thrift Supervision may disclose information obtained in the course of exercising supervisory or examination authority to any foreign bank regulatory or supervisory authority if the Board, Comptroller, Corporation, or Director determines that such disclosure is appropriate and will not prejudice the interests of the United States.

    (b) Requirement of confidentiality. Before making any disclosure of any information to a foreign authority, the Board, Comptroller of the Currency, Federal Deposit Insurance Corporation, and Director of the Office of Thrift Supervision shall obtain, to the extent necessary, the agreement of such foreign authority to maintain the confidentiality of such information to the extent possible under applicable law.

    Id. § 3109(a).

    Id. § 3109(b).

    Id. § 3109(a).

    Id.

    Id. § 1818(v). Section 1818(v) provides:

    Foreign investigations

    (1) Requesting assistance from foreign banking authorities. In conducting any investigation, examination, or enforcement action under this chapter, the appropriate Federal banking agency may—

    (A) request the assistance of any foreign banking authority; and

    (B) maintain an office outside the United States.

    (2) Providing assistance to foreign banking authorities.

    (A) In general. Any appropriate Federal banking agency may, at the request of any foreign banking authority, assist such authority if such authority states that the requesting authority is conducting an investigation to determine whether any person has violated, is violating, or is about to violate any law or regulation relating to banking matters or currency transactions administered or enforced by the requesting authority.

    (B) Investigation by Federal banking agency. Any appropriate Federal banking agency may, in such agency’s discretion, investigate and collect information and evidence pertinent to a request for assistance under subparagraph (A). Any such investigation shall comply with the laws of the United States and the policies and procedures of the appropriate Federal banking agency.

    (C) Factors to consider. In deciding whether to provide assistance under this paragraph, the appropriate Federal banking agency shall consider—

    (i) whether the requesting authority has agreed to provide reciprocal assistance with respect to banking matters within the jurisdiction of any appropriate Federal banking agency; and

    (ii) whether compliance with the request would prejudice the public interest of the United States.

    (D) Treatment of foreign banking authority. For purposes of any Federal law or appropriate Federal banking agency regulation relating to the collection or transfer of information by any appropriate Federal banking agency, the foreign banking authority shall be treated as another appropriate Federal banking agency.

    (3) Rule of construction. Paragraphs (1) and (2) shall not be construed to limit the authority of an appropriate Federal banking agency or any other Federal agency to provide or receive assistance or information to or from any foreign authority with respect to any matter

    Id. § 1818(v)(2)(C).

    5 U.S.C. § 552(a) (1994).

    12 U.S.C. § 1831 (1994).

    Id. § 3109.

    Id. § 3109(b).

    Letter from Richard Spillenkothen, Director of the Division of Banking Supervision and Regulation, Board of Governors of the Federal Reserve System, and Susan F. Krause, Senior Deputy Comptroller for Bank Supervision Policy, Office of the Comptroller of the Currency, to Jochen Sanio, Departmental President, Bundesaufsichtsamt für das Kreditwesen (February 17, 1994); Letter from Jochen Sanio, Departmental President, Bundesaufsichtsamt für das Kreditwesen to Richard Spillenkothen, Director of the Division of Banking Supervision and Regulation, Board of Governors of the Federal Reserve System, and Susan F. Krause, Senior Deputy Comptroller for Bank Supervision Policy, Office of the Comptroller of the Currency (February 17, 1994).

    Letter from the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the New York States Banking Department to the Securities and Investments Board (undated) (subsequent correspondence indicates that the letter was received by the Securities and Investments Board on December 19, 1988).

    Chapter 11, Comment (O’Day)

    Nevertheless, the Report of the Board of Banking Supervision Inquiry Into the Circumstances of the Collapse of Barings has noted:

    The Bank [of England] has had frequent formal and informal contacts with the Singaporean and Japanese regulatory authorities in recent years, including visits by Sergeant and Quinn to the MAS in Singapore in March 1994 and January 1995 respectively to discuss supervisory issues. In these contacts Barings was either not mentioned, or only mentioned in passing. The Bank has told us that at no time prior to the collapse were any warnings given to the Bank by Singaporean or Japanese regulatory authorities regarding potential dangers faced by any Barings Group companies or about the systems and controls in those companies.

    Board of Banking Supervision, Report of the Board of Banking Supervision Inquiry Into the Circumstances of the Collapse of Barings paragraph 12.103 at 216-217 (July 18, 1995).

    Foreign Bank Supervision Enhancement Act of 1991 § 202, 12 U.S.C. § 3105(d)(2)(A) (1994).

    Id. § 3105(d)(3)(c).

    Afterword to Chapters 10 and 11 (Blair)

    See, eg., Andrea M. Corcoran, Prudential Regulation of OTC Derivatives: Lessons from the Exchange-Traded Sector, in Prudential Regulation of Banks and Securities Firms Chapter 11 (Guido Ferrarini ed., 1995).

    Basle Committee on Banking Supervision, The Ensuring of Adequate Information Flows between Banking Supervisory Authorities (April 1990).

    CAMEL is an acronym for capital, asset quality, management, earnings, and liquidity.

    Basle Committee on Banking Supervision, Amendment to Capital Accord to Incorporate Market Risks (January 1996); see generally Hal S. Scott, Models-Based Regulation of Bank Capital, in R. Cranston, Making Commercial Law: Essays for Roy Goode (forthcoming).

    For a description of the system, see Edward L. Symons, Jr., The United States Context, in International Banking Regulation and Supervision: Change and Transformation in the 1990s at 1 (Joseph J. Norton et al. eds., 1994).

    First Council Directive 77/780 of 12 December 1977 on the Coordination of Laws, Regulations and Administrative Provisions Relating to the Taking Up and Pursuit of the Business of Credit Institutions, Art. 12, 1977 O.J. (L 322) 30 (amended in 1985, 1986, and 1989), reprinted in 2 Current Legal Issues Affecting Central Banks 251 (Robert C. Effros ed., 1994).

    Id. Art. 12(2).

    Board of Banking Supervision, Bank of England, Report of the Board of Banking Supervision Inquiry into the Circumstances of the Collapse of Barings (July 18, 1995).

    Id. at 119 et seq.

    For an excellent commentary on the Bank, see Christos Hadjiemmanuil, Banking Regulation and the Bank of England (1996).

    If the linkage between an authorised institution and one of its subsidiaries is sufficiently strong, and certain other criteria (in particular, as regards the relative sizes of the institution and the subsidiary in question) are met, the Bank may permit the subsidiary to be treated as effectively a division of the institution and included in the institution’s unconsolidated prudential returns filed with the Bank. This is known as ‘solo consolidation’. Where this occurs the subsidiary is monitored for capital adequacy and large exposure reporting purposes as if it were part of the institution. The requirements for a bank subsidiary to be solo consolidated with the parent bank are set out in a Bank Notice issued in 1993 and include requirements that management of the solo consolidated subsidiary must be under the ‘effective supervision’ of the parent bank and that there should be no obstacle to the payment of surplus capital up to the parent bank. The intention is that the subsidiary should be sufficiently closely linked to the parent bank that it is treated as one with the bank. The intended effect of the requirements is that the linkage between the subsidiary and the bank should be such that it should be possible to wind up the subsidiary rapidly and repatriate the capital to support depositors with the bank.

    Report of the Board of Banking Supervision Inquiry into the Circumstances of the Collapse of Barings, supra note 8, paragraph 12.9 at 193.

    Id. at 257-263.

    Bank of England, The Bank’s Review of Supervision 1 et seq. (July 24, 1996).

    Described by the acronym RATE (risk assessment, tools of supervision, and evaluation).

    See Donald T. Brash, Banking Supervision: New Zealand Adopts a New Approach, 48 [Consumer Finance Law] Quarterly Report 298 (1994).

    Chapter 12, “Resolution of Sovereign Liquidity Crises: Basic Concepts and Issues” (Gianviti)

    11 U.S.C. §§ 109(c)(1), 901 et seq. (1994).

    Id. § 303(a) (1994).

    On the legal and economic definitions and characteristics of a country’s external debt, see F. Gianviti, The International Monetary Fund and External Debt, Recueil des cours de l’Académie de droit international, vol. 215 (1989-III), p. 207, at pp. 232-237.

    Chapter 13, “Legal Framework for Dealing with Sovereign Debt Defaults” (Morais)

    There are a few other subsidiary categories of sovereign debt such as short-term debt (usually having a term of 12 months or less); interbank deposits; trade debt, such as suppliers’ credits and letters of credit; and domestic-currency-denominated debt. Such debts have normally been excluded from sovereign debt reschedulings.

    In most instances, a sovereign creditor would not institute legal process against a sovereign borrower. However, a sovereign creditor may press its claims in other ways, including through diplomatic means, by reducing or freezing bilateral assistance, or by imposing economic sanctions. It may also assign the loan to a third party, who might then take legal action.

    The provision for termination and acceleration usually states that, if any of the enumerated events of default occurs and continues for a specified period of time (for example, 90 days), then the lenders may take action to terminate the lending commitment and accelerate the loan by a decision of lenders holding a specified minimum percentage (typically 50 percent or 66⅔ percent) of the total commitments or advances.

    11 U.S.C. § 945(a) (1994).

    Id. § 945(b).

    Id. § 350(b).

    Chapter 14, “Legal Remedies in the Event of a Sovereign Debt Default” (Gordon and Milenkovich)

    As this paper was presented by Richard K. Gordon, only his biography appears in the biographical sketches.

    The Group of Ten is composed of Belgium, Canada, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Sweden, Switzerland, the United Kingdom, and the United States.

    Since this paper was presented, foreign exchange crises in Thailand, Malaysia, the Phillippines, and Indonesia have underscored these concerns.

    “[G]overnment borrowing… usually implies future taxation to service the debt. It is therefore a device to substitute future taxation for current taxation.” Carl S. Shoup, Public Finance 441 (1969).

    For example, the Federal Savings and Loan Insurance Corporation’s debt was not subject to the legal guarantee of the United States. Nevertheless, the U.S. government felt compelled to ensure that it did not fail, resulting in a huge taxpayer’s bailout following the collapse of many savings and loan financial institutions in the 1980s. What would happen if the Federal National Mortgage Association (Fannie Mae), one of the largest borrowers in the world, were to fail is anyone’s guess.

    It also means that a bankruptcy proceeding cannot be used to enforce an equitable distribution of a sovereign’s attachable assets among its creditors. The unavailability of the enforced sharing of available assets by unsecured creditors found in bankruptcy laws has a profound affect on a sovereign issuer’s ability to negotiate refinancing agreements with its bondholders. It may encourage creditors, especially those with a relatively smaller exposure, to rush to court, sue, receive a judgment, and attach assets before anyone else does. This issue has become increasingly important as securitized debt has replaced syndicated loans, whose agreements generally include contractual sharing clauses.

    This raises the question of debt, such as the Mexican tesobonos, which were denominated in pesos but which included a contractual right to convert the currency into dollars at a fixed rate of exchange. In economic terms, these instruments are nearly the same as foreign-exchange-denominated debt. In addition, a default of the sovereign will give rise to a foreign exchange claim by the creditor and sovereign immunity protection by the borrower. However, these instruments do not typically include clauses providing for consent to the jurisdiction of foreign courts or for waiver of sovereign immunity. Therefore, they are legally distinct from most other foreign-exchange-denominated debt with regard to issues of legal redress in time of default. See Tesobono Offering Circular (1993).

    See, for example, Jeffrey Sachs, Do We Need an International Lender of Last Resort? Lecture at Princeton University (April 20, 1995) (on file with the authors); Jim Leach, Country Going Bankrupt? Call the IMF, Wall Street Journal, April 10, 1995, at A23.

    This would include short-term trade debt, other short-term loans, letters of credit, etc.

    There is a recent exception to this rule. It involved a loan from one central bank to another central bank. After default, the creditor assigned the loan to a private company, which then sought legal redress. See Plenum Financial and Investment Ltd. v. Bank of Zambia, Queen’s Bench 1993, Folio No. 2051 (September 7, 1995).

    There have been a number of instances where so-called rogue creditors have sued to recover on a sovereign default. Frequently, the creditor is not a member of the syndicate, but is the assignee of a member. See, for example, CIBC Bank and Trust Company (Cayman) Ltd. v. Banco Central Do Brasil, 1995 U.S. Dist. LEXIS 6268 (S.D.N.Y. May 9, 1995).

    See Barry Eichengreen and Richard Portes, Crisis, What Crisis: Orderly Workouts for Sovereign Debtors (Center for Economic Policy Research Report, 1995).

    An important component may include the securing of prejudgment attachment of assets to ensure that they do not leave the jurisdiction of the court.

    This has often happened when defaulting governments have decreed legal moratoria. See, e.g., Mayer v. Hungarian Commercial Bank of Pest, 21 F. Supp. 144 (E.D.N.Y. 1937); National Bank of Greece and Athens v. Metliss, 1958 Appeal Cases 509 (U.K.).

    For instance, courts in France will find personal jurisdiction based on the citizenship or residence of the plaintiff. Civil Code, Art. 14; see Andrew L. Strauss, Beyond National Law: The Neglected Role of the International Law of Personal Jurisdiction in Domestic Courts, 36 Harvard International Law Journal 388 (1995). Courts in New York will find jurisdiction based on the presence of a paying agent in the forum country. See, for example, Republic of Argentina and Banco Central de la Republica Argentina v. Weltover, Inc., 504 U.S. 607 (1992).

    Numerous other defenses have been raised by defaulting sovereigns sued by creditors. However, those defenses have rarely, if ever, been successful.

    For example, the Treaty of Friendship, Commerce, and Navigation between the United States and Japan states:

    No enterprise of either Party, including… government agencies and instrumentalities, which is publicly owned or controlled shall, if it engages in commercial… or other business activities within the territories of the other Party, claim or enjoy, either for itself or for its property, immunity therein from taxation, suit, execution of judgment or other liability to which privately owned and controlled enterprises are subject therein.

    Treaty of Friendship, Commerce, and Navigation between the United States and Japan, April 2, 1953, art. 18(2), 4 U.S.T. 2063, 2077.

    See Foreign Sovereign Immunities Act, 28 U.S.C. § 1602 et seq. (1995) (hereinafter FSIA) (enacted in 1976) (U.S.); State Immunity Act, 1978, Chapter 33 (hereinafter SIA) (U.K.).

    SIA § 3(3)(b).

    See FSIA § 1605(a)(2).

    The U.S. and U.K. laws each include provisions concerning waivers of sovereign immunity. The U.S. FSIA states that once a foreign country waives immunity, it “has waived its immunity… notwithstanding any withdrawal of the waiver which the foreign state may purport to effect.” FSIA § 1605(a)(1). The SIA has a similar provision. See SIA § 2(1). For the rule in Japan, see Kazuya Hirobe, Immunity of State Property: Japanese Practice, 10 Netherlands Yearbook of International Law 233, 234 (1979).

    Recognition of Foreign Country Money Judgments, New York Civil Practice Law and Rules §§ 5301-5309 (McKinney’s 1978).

    Id. §§ 5302-5304. The Recognition of Foreign Country Money Judgments Act also applies to judgments that are pending or are subject to appeal. Id. § 5302. A court, however, may stay proceedings until an appeal has been decided if the defendant satisfies the court that the appeal is pending or that he intends to appeal from the judgment. Id. § 5306. A foreign judgment will not be recognized if the foreign proceedings were not fair and impartial and did not comport with due process of the law, or if the foreign court did not have personal jurisdiction over the judgment debtor. Id. § 5304(a). A court, in its discretion, may also not recognize the judgment if the foreign court did not have subject matter jurisdiction, the defendant received insufficient notice of the proceedings, the judgment was obtained by fraud, the underlying cause of action is repugnant to the public policy of New York, the judgment conflicts with another final judgment, the proceeding in the foreign court was contrary to the parties’ agreed upon method of dispute resolution, or the forum was seriously inconvenient. Id. § 5304(b).

    1983 Official Journal of the European Communities (C 97) 1.

    See, for example, Code of Civil Procedure, Art. 200 (Japan), reprinted in Shinichiro Tanaka, Japan, in Enforcement of Money Judgments Abroad JAP-1, Appendix I (Philip R. Weems ed., 1992).

    Such immunities are not typically subject to waiver under domestic law.

    Some debt may be partially securitized; the nature of the security interest would determine its amenability to seizure. One of the most important types of securitized sovereign debt is Brady bonds. In the case of these bonds, the creditor cannot seize the underlying asset, a stripped U.S. treasury bond (which is typically held by a custodial bank in New York), until maturity. However, at maturity the creditor may take possession. Because of this, the present value of the security is assured to the creditor.

    See, e.g., D.C. Code § 16-501(d)(3) (1997). In the United Kingdom, courts do not have the power to order “prejudgment” attachment of assets. However, a similar result is reached with the Mareva injunction, by which the court orders the defendant not to remove assets from the court’s jurisdiction.

    FSIA § 1611(b)(2).

    FSIA § 1610(a)(4)(B); see Vienna Convention on Diplomatic Relations, April 18, 1961, Art. 22(3), 500 U.N.T.S. 95 [hereinafter Vienna Convention] (regarding the property of missions). The United States is a party to the Vienna Convention.

    See SIA § 16(1). The United Kingdom is also a party to the Vienna Convention.

    Section 16(2) of the SIA states: “This Part of this Act does not apply to proceedings relating to anything done by or in relation to the armed forces of a State while present in the United Kingdom ….”

    This would generally include diplomatic missions, military property, etc. See generally James Crawford, Execution of Judgments and Foreign Sovereign Immunity, 75 American Journal International Law 820, 837-843 (1981); Georges R. Delaume, Immunity From Execution of Foreign States and International Organizations, in 2 Transnational Contracts § 12.03 (1990).

    729 F. Supp. 936 (S.D.N.Y. 1989).

    Id. at 944.

    Most commercial loan agreements contain provisions that give a lender the right to cancel the loan or suspend disbursements in the event of changed circumstances.

    See De Letelier v. Republic of Chile, 748 F.2d 790 (2d Cir. 1984); see also Hercaire Int’l, Inc. v. Argentina, 821 F.2d 559 (11th Cir. 1987) (providing that assets of Argentina’s wholly owned national airline were not subject to execution to satisfy a judgment against Argentina where the airline was neither a party to the suit nor was connected with the underlying transaction giving rise to the suit).

    George Weisz et al., Selected Issues in Sovereign Debt Litigation, in Latin American Sovereign Debt Management 230, 267 (Ralph Reisner et al. eds., 1990) (quoting the U.S. Supreme Court in First National City Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611, 629-630 (1983)).

    See First National City Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611 (1983). The plaintiff was a state-owned bank, which sought to collect on a letter of credit issued by an American bank shortly before all of the American bank’s assets in Cuba were nationalized by the Cuban government. When the Cuban bank brought suit in the United States, the American bank counterclaimed, asserting a right to set off the value of its seized Cuban assets. After the suit was brought, but before the petitioner filed its counterclaim, the Cuban bank was dissolved and its capital was split between Banco Nacional, Cuba’s central bank, and certain foreign trade enterprises or houses of the Cuban Ministry of Foreign Trade. Rejecting the Cuban bank’s contention that its separate juridical status shielded it from liability for the acts of the Cuban government, the District Court held that, since the value of the petitioner’s Cuban assets exceeded the respondent’s claim, the setoff could be granted in the petitioner’s favor and, therefore, dismissed the complaint. On appeal, the Supreme Court held that, while duly created instrumentalities of a foreign country are to be accorded a presumption of independent status, this presumption may be overcome where giving effect to the corporate form would permit a foreign country to be the sole beneficiary of a claim pursued in United States courts while escaping liability to the opposing party imposed by international law.

    See 2 Philip Wood, Law and Practice of International Finance § 4.06[10] (1990).

    In one case, attachment was not permitted on the ground that the public entity was owned not only by the sovereign, but also by foreign banks. Judgment of July 21, 1987, Cour de cassation, Première chambre civile, 115 Journal du Droit International (Clunet) 108 (1988). In another case, attachment of a foreign state-owned entity’s ship to collect a debt of the foreign country was not upheld on the ground that the foreign country could claim immunity of jurisdiction for the debt. Judgment of February 4, 1986, Cour de cassation, Prèmere chambre civile, 1986 Revue Critique de Droit International Privé 718; see Judgment of November 18, 1986, Cour de cassation, Première chambre civile, 114 Journal du Droit International (Clunet) 120 (1987).

    Judgment of July 6, 1988, Cour de cassation, Première chambre civile, 116 Journal du Droit International (Clunet) 376 (1989).

    The U.S. Foreign Sovereign Immunities Act (FSIA) provides that property of a foreign central bank “held for its own account” is immune from execution and attachment in aid of execution, unless the bank or its parent foreign government explicitly waives such immunity. According to the U.S. Department of Justice and Department of State, funds “‘held’ for the [central] bank’s… ‘own account’” are “funds used or held in connection with central banking activities…” While an authoritative interpretation has yet to be rendered by a court, it has generally been assumed that this would include the country’s general foreign exchange reserves. Only that interpretation would protect New York’s position as a major repository of the foreign exchange assets of foreign central banks. “The idea is to preserve the attractiveness of London and New York as preferred places of investment for foreign central banks.” Christoph H. Schreuer, State Immunity: Some Recent Developments 158 (1988).

    See, e.g., recent notes issued by the Central Banks of Colombia and Venezuela.

    For example, bonds recently issued by the central banks of the Czech Republic, Hungary, Nigeria (issues in exchange for promissory notes), Romania, the Slovak Republic, and Tunisia all include comprehensive waivers.

    FSIA § 1610(d).

    Reasons given for the special protection of central bank assets in the FSIA, aside from their importance to their own nations, are that, without such special treatment, the deposit of foreign funds in the United States might be discouraged, and execution against the reserves of foreign countries could cause foreign relations problems. House Report No. 94-1487, 94th Congress, 2d Session 31 (1976), reprinted in 1976 U.S.C.C.A.N. 6604, 6630.

    Weston Compagnie de Finance et d’Investissement, S.A., 823 F. Supp. 1106, 1110 (S.D.N.Y. 1993); see id. at 1111 (noting that, given the disruptive effect prejudgment attachment may have as well as the possible foreign policy implications, the statute does not provide for waiver of immunity from prejudgment attachment of central bank funds held for its own account); see also Banque Compafina v. Banco de Guatemala, 583 F. Supp. 320 (S.D.N.Y. 1984) (holding section 161 1(b) does not permit waiver from prejudgment attachment).

    Plenum Financial and Investments Ltd. v. Bank of Zambia, 1995 U.S. Dist. LEXIS 14883 (S.D.N.Y. 1995).

    Id. Central bank assets are not immune from setoff under the Foreign Sovereign Immunities Act. In Banco Central de Reserva del Peru v. The Riggs National Bank of Washington, D.C., the court held that section 161 1(b), which provides for immunity from the legal remedies of attachment and execution, does not extend to setoff, a remedy in equity. 919 F. Supp. 13 (D.D.C. 1994).

    SIA §§ 14(4) and 13(2)(a) and (3).

    See Nonresident Petitioner v. Central Bank of Nigeria, 15 International Legal Materials [I.L.M.] 501 (1977) (Germany).

    See Société Eurodif v. République Islamique d’Iran, 23 I.L.M. 1062 (1984); Charles J. Lewis, State and Diplomatic Immunity paragraph 12.24 (3d ed. 1990)(discussing Société Eurodif); Delaume, supra note 33, § 12.03.

    See Eichengreen and Portes, supra note 12.

    Chapter 15, “The Debt-Rescheduling Process: Pitfalls and Hazards” (Buchheit)

    See Edwin M. Truman, The Debt Crisis and Its Resolution, in 3 Current Legal Issues Affecting Central Banks 115 (Robert C. Effros ed., 1995).

    See Lee C. Buchheit and Ralph Reisner, The Effect of the Sovereign Debt Restructuring Process on Inter-Creditor Relationships, 1988 University of Illinois Law Review 493, 508-510 (1988).

    See Lee C. Buchheit, Making Amends for Amendments, 10 International Financial Law Review 11 (February 1991).

    The stranglehold of these clauses was eventually broken (starting in 1987 with the restructuring agreements signed in that year by Mexico and the Philippines) through the inclusion of so-called debt-for-debt exchange provisions. Subject to certain restrictions, these clauses allowed debts to be lifted out of the restructuring agreements and exchanged for new debt instruments. Creditors unwilling to accept the exchange offer remained in the original restructuring agreement and were not entitled to share in any payments made in respect of the new debt instrument. Through this device, the payment terms of restructuring agreements could be effectively amended for those creditors electing to make the exchange without having to obtain the consent of every other creditor to the original restructuring agreement. Debt-for-debt exchange provisions thus established the legal structure for implementation of the Brady Initiative. See Lee C. Buchheit, Exchanging Places, 10 International Financial Law Review 13 (May 1991).

    See, e.g., 11 U.S.C. § 362 (1995).

    See id. § 1129 (1995).

    See, e.g., New York Judiciary Law § 489 (1995).

    See Lee C. Buchheit, Banking on Immunity, 11 International Financial Law Review 11 (February 1992).

    U.S. Const., Art. II, § 2.

    Allied Bank International v. Banco Credito Agricola de Cartago, 757 F.2d 516 (2d Cir. 1985).

    CIBC Bank and Trust Company (Cayman) Ltd. v. Banco Central do Brasil, 886 F. Supp. 1105 (1995); see Mary Jo White, United States Attorney for the Southern District of New York, and Steven M. Haber, Assistant United States Attorney, Statement of Interest of the United States of America in Opposition to the First Amended Complaint, submitted in 94 Civ. 4733 (LAP).

    See Lee C. Buchheit, The Sharing Clause as a Litigation Shield, 9 International Financial Law Review 15 (October 1990).

    Afterword to Chapters 12 to 15 (Gianviti)

    International Monetary Fund, Articles of Agreement, Art. VIII, § 2(b) (1993).

    Id. Art. VI, § 3.

    See id. Art. VIII, § 2(a).

    Id.

    Restatement (Third) of the Foreign Relations Law of the United States § 822 comment c (1987).

    Id.

    Foreword to Chapters 16 and 17 (Wood)

    See Federal Deposit Insurance Corporation Improvement Act of 1991, Public Law No. 102-242, § 401 et seq., 105 Stat. 2236, 2371 (1991).

    Chapter 16, “Derivatives Activities of Banking Institutions: Initiatives for Supervision and Enhanced Disclosure” (Patrikis and Landy)

    The authors extend their appreciation to Christine Cumming, Senior Vice-President, for her assistance in the preparation of this chapter.

    Principles and Practices for Wholesale Financial Market Transactions (undated) (released August 17, 1995), reprinted in 4 Current Legal Issues Affecting Central Banks 786 (Robert C. Effros, ed., 1997).

    Board of Governors of the Federal Reserve System, Examining Risk Management and Internal Controls for Trading Activities of Banking Organizations, SR 93-69 (FIS) (December 20, 1993) [hereinafter Trading Activities Examiner Guidelines].

    Board of Governors of the Federal Reserve System, Trading Activities Manual (looseleaf).

    Board of Governors of the Federal Reserve System, Evaluating the Risk Management and Internal Controls of Securities and Derivatives Contracts Used in Nontrading Activities, SR 95-17 (SUP) (March 28, 1995).

    Board of Governors of the Federal Reserve System, Rating the Adequacy of Risk Management Processes and Internal Controls at State Member Banks and Bank Holding Companies, SR 95-51 (SUP) (November 14, 1995).

    Written agreement by and among Bankers Trust New York Corporation, Bankers Trust Company, BT Securities Corporation, and the Federal Reserve Bank of New York (December 4, 1994 and, as amended, July 18, 1995).

    See infra the text accompanying note 8.

    Trading Activities Examiner Guidelines, supra note 3, at 13.

    Id.

    Committee on Interbank Netting Schemes of the Central Banks of the Group of Ten Countries, Bank for International Settlements, The Report of the Committee on Interbank Netting Schemes of the Central Banks of the Group of Ten Countries (November 1990). An excerpt setting forth the “Minimum standards for the design and operation of cross-border and multi-currency netting and settlement schemes” is reprinted in 4 Current Legal Issues Affecting Central Banks, supra note 2, at 797.

    12 Code of Federal Regulations part 208, Appendix A (1996).

    Id. part 225, Appendix A.

    See Ernest T. Patrikis, First Vice-President of the Federal Reserve Bank of New York, Price Transparency — A quote is a quote is a…, Address at the Financial Markets Conference (February 24, 1996) (providing valuable guidance on the use of valuation techniques in risk management).

    The acronym CAMEL refers to the five elements of the Uniform Financial Institutions Rating System: (i) capital; (ii) asset quality; (iii) management; (iv) earnings; and (v) liquidity.

    Risk-Based Capital Standards: Interest Rate Risk, 60 Federal Register [Fed. Reg.] 39490 (August 2, 1995) (effective September 1, 1995).

    12 Code of Federal Regulations part 208, Appendix A.

    Federal Deposit Insurance Corporation Improvement Act § 305(b), 12 U.S.C. § 1828 note (1994).

    Risk-Based Capital Standards: Interest Rate Risk, supra note 14.

    Risk-Based Capital Standards: Market Risk, 60 Fed. Reg. 38082 (July 25, 1995).

    Id.

    See infra the text accompanying note 73.

    Risk-Based Capital Standards; Market Risk; Internal Models Backtesting, 61 Fed. Reg. 9114 (March 7, 1996).

    Basle Committee on Banking Supervision, Supervisory Framework for the Use of “Backtesting” in Conjunction with the Internal Models Approach to Market Risk Capital Requirements (January 1996); see also Amendment to the Capital Accord to Incorporate Market Risks (January 1996); Overview of the Amendment to the Capital Accord to Incorporate Market Risks (January 1996).

    See Supervisory Framework for the Use of “Backtesting” in Conjunction with the Internal Models Approach to Market Risk Capital Requirements, supra note 24.

    12 Code of Federal Regulations part 208, Appendix A.

    Id. part 225, Appendix A.

    Risk-Based Capital Standards: Derivative Transactions, 60 Fed. Reg. 46169 (September 5, 1995).

    Id. at 46177.

    Id. at 46169 et seq.

    Basle Committee on Banking Supervision, Basle Capital Accord: Treatment of Potential Exposure for Off-Balance-Sheet Items (April 1995). The text of this amendment is reprinted in 4 Current Legal Issues Affecting Central Banks, supra note 2, at 799.

    See Capital; Capital Adequacy, 59 Fed. Reg. 62987 (December 7, 1994) (effective December 31, 1994).

    Basle Committee on Banking Supervision, Basle Capital Accord: The Treatment of the Credit Risk Associated with Certain Off-Balance-Sheet Items (July 1994). This change, which was incorporated into a 1995 amendment of the Basle Capital Accord, is reprinted in 4 Current Legal Issues Affecting Central Banks, supra note 2, at 799.

    12 Code of Federal Regulations part 231 (1996).

    12 U.S.C. §§ 4401-4407 (1994).

    Id. §§ 4402(9), 4403.

    See 12 Code of Federal Regulations § 231.1 et seq. (1996).

    See Netting Eligibility for Financial Institutions, 61 Fed. Reg. 1273, 1274 (January 19, 1996).

    Letter from Oliver Ireland, Associate General Counsel, Board of Governors of the Federal Reserve System (August 22, 1994).

    12 Code of Federal Regulations §§ 217.1(c), 217.3 (1996).

    Id. § 217.2(d).

    Office of the Comptroller of the Currency [OCC], Banking Circular No. 277: Risk Management of Financial Derivatives (October 27, 1993), reprinted in part in 4 Current Legal Issues Affecting Central Banks, supra note 2, at 780.

    See The Report of the Committee on Interbank Netting Schemes of the Central Banks of the Group of Ten Countries, supra note 11.

    OCC, OCC Bulletin 94-31: Questions and Answers RE: BC-277: Risk Management of Financial Derivatives (May 10, 1994).

    OCC, OCC Advisory Letter 95-1: Interest Rate Risk (February 8, 1995).

    Id.

    OCC, OCC 95-28: Questions and Answers for Advisory Letter 95-1: Interest Rate Risk (June 20, 1995).

    OCC, Review of the Sales Practices of the Largest National Bank Derivatives Dealers (June 7, 1995).

    OCC, Risk Management of Capital Derivatives: Comptroller’s Handbook (October 1994).

    OCC, News Release 95-101: OCC Launches Supervision By Risk Program (September 26, 1995); see herein Jimmy F. Barton, Supervision by Risk (Chapter 10A).

    OCC, Community Bank Examination Procedures for Noncomplex Banks: Comptroller’s Handbook (October 1995).

    OCC, Large Bank Supervision: Comptroller’s Handbook (December 1995).

    OCC, Futures Commission Merchant Activities (November 1995); see News Release 95-122: Derivatives Guidance for FCM Activities (November 9, 1995).

    News Release 95-13: Emerging Market Country Products and Trading Activities (December 20, 1995).

    OCC, Emerging Market Country Products and Trading Activities: Comptroller’s Handbook (December 1995).

    Stanley J. Poling, Division of Supervision, Federal Deposit Insurance Corporation, Examination Guidance for Financial Derivatives, FIL-34-94 (May 18, 1994).

    Principles and Practices for Wholesale Financial Market Transactions, supra note 2.

    Derivatives Policy Group, Framework for Voluntary Oversight (March 1995).

    Id. at 37.

    See infra the text accompanying note 82.

    Proposed Amendments to Require Disclosure of Accounting Policies for Derivative Financial Instruments and Derivative Commodity Instruments and Disclosure of Qualitative and Quantitative Information About Market Risk Inherent in Derivative Financial Instruments, Other Financial Instruments, and Derivative Commodity Instruments, 61 Fed. Reg. 578 (January 8, 1996).

    See Disclosure of Off-Balance-Sheet Derivatives, 59 Fed. Reg. 11071 (March 9, 1994).

    The President of the Federal Reserve Bank of New York, William McDonough, has noted that effective risk management also requires increased financial disclosures and market transparency. William McDonough, Remarks at the Philadelphia Stock Exchange’s International Currency Options Symposium (November 2, 1994). The speech also provides valuable insights on market risks posed by new financial products and the effectiveness of traditional safeguards against systemic risk. Id.

    See Agency Forms Under Review; Bank Holding Company Reporting Requirements, 60 Fed. Reg. 16473 (March 30, 1995).

    See Federal Financial Institutions Examination Council, Important Notice: Call Report Changes (undated, released in December 1995) (reviewing Call Report Changes (March 31, 1996) for FFIEC 031-034).

    See 12 Code of Federal Regulations § 325.2(t) and part 325, Appendix A (1997) (defining Tier 1 capital (core capital) and Tier 2 capital (supplementary capital)).

    Basle Committee on Banking Supervision, Risk Management Guidelines for Derivatives (July 1994), reprinted in part in 4 Current Legal Issues Affecting Central Banks, supra note 2, at 772; Technical Committee, International Organization of Securities Commissions, Operational and Financial Risk Management Control Mechanisms for Over-the-Counter Derivatives Activities of Regulated Securities Firms (July 1994).

    Risk Management Guidelines for Derivatives, supra note 66, at 4.

    Working Group of the Eurocurrency Standing Committee of the Central Banks of the Group of Ten Countries, A Discussion Paper on Public Disclosure of Market and Credit Risks by Financial Intermediaries 1 (September 1994).

    Id.

    Id. at 2, 7.

    Federal Reserve Bank of New York, Public Disclosure of Risks Related to Market Activity (November 1994).

    Id. at 1-3, 12 et seq.

    Basle Committee on Banking Supervision, Proposal to Issue a Supplement to the Basle Capital Accord to Cover Market Risks (April 1995); Planned Supplement to the Capital Accord to Incorporate Market Risks (April 1995).

    Planned Supplement to the Capital Accord to Incorporate Market Risks, supra note 73 at 5.

    Basle Committee on Banking Supervision, Amendment to the Capital Accord to Incorporate Market Risks (January 1996); see Overview of the Amendment to the Capital Accord to Incorporate Market Risks (January 1996); see also Supervisory Framework for the Use of “Backtesting” in Conjunction with the Internal Models Approach to Market Risk Capital Requirements, supra note 24.

    Amendment to the Capital Accord to Incorporate Market Risks, supra note 75, at 39-41.

    Id. at 44-45.

    Id. at 44.

    Supervisory Framework for the Use of “Backtesting” in Conjunction with the Internal Models Approach to Market Risk Capital Requirements, supra note 24.

    See Risk-Based Capital Standards; Market Risk; Internal Models Backtesting, supra note 23, and accompanying text.

    Basle Committee on Banking Supervision and the Technical Committee of the International Organization of Securities Commissions, Framework for Supervisory Information About the Derivatives Activities of Banks and Securities Firms (May 1995), reprinted in part in 4 Current Legal Issues Affecting Central Banks, supra note 2, at 760.

    Basle Committee on Banking Supervision and the Technical Committee of the International Organization of Securities Commissions, Public Disclosure of the Trading and Derivatives Activities of Banks and Securities Firms (November 1995).

    Id. at 2.

    See Framework for Supervisory Information About the Derivatives Activities of Banks and Securities Firms, supra note 81.

    U.S. Government Accounting Office, Financial Derivatives: Actions Needed to Protect the Financial System, GAO.GGD-94-133 (May 18, 1994).

    See FDICIA, supra note 18, § 112, 12 U.S.C. § 1831m (1994).

    U.S. Government Accounting Office, supra note 85, at 14.

    Bankruptcy Reform Act of 1994 § 215, 11 U.S.C. § 101(53B)(A) (1994 and Supp. I 1995).

    See House Report No. 103-835, 103d Congress, 2d Session 49 (1994).

    Working Group on Financial Markets, Report of the Secretary of the Treasury, Chair, President’s Working Group on Financial Markets on Financial Market Coordination and Regulatory Activities to Reduce Risks in the Financial System in 1993 and 1994 (October 1994).

    Chapter 16, Comment (Asser)

    The requirement to pay margin implies that the market has moved against the position so much that the position should be closed.

    The nine categories of risk are credit risk, interest rate risk, liquidity risk, price risk, foreign exchange risk, transaction risk, compliance risk, strategic risk, and reputation risk.

    Basle Committee on Banking Supervision, Amendment to the Capital Accord to Incorporate Market Risks (January 1996); see Basle Committee on Banking Supervision, Overview of the Amendment to the Capital Accord to Incorporate Market Risks (January 1996).

    Another difficulty may be that, under the new guidelines adopted by the Basle Committee, the quantitative standards to be used for the measurement of value-at-risk include standard parameters. In general, it must be deemed inappropriate to establish standard risk parameters for different categories of assets, derivatives, and markets that display different price cycles and volatility characteristics, and rates of change therein.

    Chapter 16, Comment (Harris)

    Office of the Comptroller of the Currency [OCC], Banking Circular No. 277: Risk Management of Financial Derivatives (October 27, 1993), reprinted in part in 4 Current Legal Issues Affecting Central Banks 780 (Robert C. Effros ed., 1997).

    OCC, OCC Bulletin 94-31: Questions and Answers Re: BC-277: Risk Management of Financial Derivatives (May 10, 1994).

    OCC, OCC Advisory Letter 94-2: Purchases of Structured Notes (July 21, 1994).

    OCC, Risk Management of Financial Derivatives: Comptroller’s Handbook (October 1994).

    OCC, OCC Advisory Letter 95-1: Interest Rate Risk (February 8, 1995).

    OCC, Futures Commission Merchant Activities (November 1995).

    OCC, Emerging Market Country Products and Trading Activities (December 20, 1995); see also OCC, News Release 95-139: OCC Issues Examiner Guidance on Emerging Market Country Products and Trading Activities (December 20, 1995). The latter document can be found at the OCC’s home page at: www.occ.treas.gov/.

    OCC, OCC 96-25: Fiduciary Risk Management of Derivatives (May 2, 1996); OCC, News Release 96-52: National Banks Cautioned on Derivatives in Fiduciary Accounts (May 2, 1996). Both documents are available at the OCC’s home page. See supra note 7.

    See Daniel Dunaief, BT Settles a Derivatives Case for $67M, American Banker, January 25, 1996.

    Government Securities Sales Practices, 61 Federal Register [Fed. Reg.] 18,469 (1996) (to be codified at 12 Code of Federal Regulations parts 13, 108, 211, and 368) (proposed April 25, 1996); see Government Securities Sales Practices, 62 Fed. Reg. 13,275 (1997) (final rule), as amended 62 Fed. Reg. 15,600 (1997).

    See id.

    Procter & Gamble Co. v. Bankers Trust Co., 925 F. Supp. 1270, 1291 (S.D. Ohio 1996); see Bankers Trust, Bankers Trust and Procter & Gamble Settle Dispute, Press Release (May 9, 1996); see also James C. Allen, Caution Becomes the Rule for Derivatives Users, American Banker, June 4, 1996, at 3A.

    Government Securities Act Amendments of 1993, Public Law No. 103-202, 107 Stat. 2344 (1993) (amending scattered sections of 15 U.S.C. § 78c et seq. and 31 U.S.C. § 3130 (1995)); see Government Securities Sales Practices, supra note 10.

    Principles and Practices for Wholesale Financial Market Transactions (undated), reprinted in 4 Current Legal Issues Affecting Central Banks, supra note 1, at 786.

    Chapter 17, “International Law of Bank Secrecy” (Wood)

    Much of the information in this chapter is derived from two books on international bank secrecy: International Bank Secrecy (Dennis Campbell ed., 1992) (containing surveys of legislation from 36 countries and the European Community); Bank Confidentiality (Francis Neate and Roger McCormick eds., 1990) (containing surveys of legislation from 16 countries). Also of note is the Jack Committee Report in the United Kingdom. Review Committee on Banking Services Law, Banking Services: Law and Practice, Report by the Review Committee, Command Paper 622 (February 1989) [hereinafter Jack Report].

    The literature on money laundering is substantial. See, for example, International Guide to Money Laundering Law and Practice (Richard Parlour ed., 1995) (containing general essays and surveys of legislation from 14 countries); 2 Current Legal Issues Affecting Central Banks (Robert C. Effros ed., 1994) (containing an article and several appendices concerning money laundering); 3 Current Legal Issues Affecting Central Banks (Robert C. Effros ed., 1995) (also containing appendices concerning money laundering).

    There is a significant amount of literature on tax havens, bank supervision, and international civil litigation (apart from domestic works on evidence and judicial procedures). See, e.g., Marc Dassesse, Stuart Isaacs, and Graham Penn, EC Banking Law (2d ed. 1994); Banks: Fraud and Crime (Joseph J. Norton ed., 1994); Obtaining Evidence in Another Jurisdiction in Business Disputes (Charles Platto and Michael Lee eds., 2d ed. 1993) (addressing issues other than bank secrecy); Walter H. Diamond and D.B. Diamond, Tax Havens of the World (MB) (containing some information about bank secrecy).

    See Philip R. Wood, Comparative Financial Law (1995).

    The British Bankers’ Association, The Building Societies Association, and The Association for Payment Clearing Services, Good Banking (2d ed. March 1994), reprinted in 3 Current Legal Issues Affecting Central Banks, supra note 1, at 541; see Bundesverband deutscher Banken, General Business Conditions (1993), reprinted in 3 Current Legal Issues Affecting Central Banks, supra, at 559; Netherlands Bankers’ Association, General Conditions (1988), reprinted in 3 Current Legal Issues Affecting Central Banks, supra, at 573.

    In the United Kingdom, the British Bankers’ Association, prompted by the Jack Report, see supra note 1, prepared such a code of practice. See supra note 3.

    New Zealand Bankers’ Association, Code of Banking Practice (2d ed. 1996).

    Tournier v. National Provincial and Union Bank of England [1924], 1 King’s Bench [K.B.] 461 (C.A. 1923); see infra text accompanying note 7.

    Tournier, supra note 6.

    367 P.2d 284 (Idaho 1961).

    224 So. 2d 759 (Fla. Dist. Ct. App. 1969).

    See Philippe Giroux, France, in Bank Confidentiality, supra note 1, at 116 (quoting Article 378 of the 1810 Penal Code).

    Alex Schmitt and Luc Frieden, Luxembourg, in Bank Confidentiality, supra note 1, at 159, 166.

    Giroux, supra note 10, at 116 (citing Article 57 of the Law of January 24, 1984).

    The Banking Act [Zákon o bankách], No. 21/1992 Coll. of December 20, 1991, § 38, in Banking and the Foreign Exchange Act 57, 69 (1992).

    Id. § 38(2), (3).

    Banking Act, 1971, Chapter 19, § 47.

    Bahamas Bank and Trust Company Regulation Act, 1965, Chapter 64, § 10 (as amended).

    Ley de Instituciones de Crédito [Law of Credit Institutions], Art. 117, Diario Oficial de la Federación el día 18 de julio de 1990 [Official Journal of the Federation of July 18, 1990], reprinted in Leyes y Códigos de México: Legislación Bancaria 1, 39 (36th ed. 1991); see Daniel del Río and José F. Salem, Mexico, in International Bank Secrecy, supra note 1, at 483, 485.

    See Aliya Yusuf, Pakistan, in International Bank Secrecy, supra note 1, at 547, 550 et seq. (analyzing the Protection of Economic Reforms Act 1992).

    Francisco Santana Guapo, Portugal, in International Bank Secrecy, supra note 1, at 567 (citing Decree Law Number 2/78 of January 9, 1978).

    Council Directive 91/308 of 10 June 1991 on the Prevention of the Use of the Financial System for the Purpose of Money Laundering, 1991 Official Journal of the European Communities [O.J.] (L 166) 77, reprinted in 3 Current Legal Issues Affecting Central Banks, supra note 1, at 420.

    Guapo, supra note 19, at 573 (quoting Article 618 of the Code of Civil Proceedings).

    See Young Moo Kim and Soo Man Park, South Korea, in International Bank Secrecy, supra note 1, at 621, 622.

    Loi fédérale sur les banques et les caisses d’épargne du 8 novembre 1934 [Federal Law on Banks and Savings Banks of November 8, 1934], Art. 47 (as amended, March 24, 1995); see Hans Bollmann, Switzerland, in International Bank Secrecy, supra note 1, at 663, 666.

    See id. at 667.

    See Juan Fernández-Armesto and Linda Hiniker, Spain, in Bank Confidentiality, supra note 1, at 187 (quoting Article 18.1 of the Spanish Constitution).

    See Wolfgang Hauser, Germany, in Bank Confidentiality, supra note 1, at 129 (discussing protections under Article 2 of Germany’s Constitution).

    See, for example, United States v. Miller, 425 U.S. 435 (1976); see also Fernández-Armesto and Hiniker, supra note 25, at 643-644 (discussing cases involving Spain’s constitutional law).

    See supra the text accompanying note 6.

    See supra the text accompanying note 6.

    Loi fédérale sur les banques et les caisses d’épargne, supra note 23, Art. 2(1); see Bollmann, supra note 23, at 670.

    See id. at 671-672 (quoting Article 47 of the Bank and Savings Bank Federal Act of June 8, 1934 and noting the term “mandatories” means “any person to whom the bank has given a bank-related task, regardless of its extent. By analogy, in cases where the mandatory (or agent) is a legal person, all persons who have any kind of relationship with the mandatory legal person (once again, managers, employees, officers) are subjected to the duty of confidentiality owed by the legal person…”).

    Bank of Tokyo Ltd. v. Karoon [1987], Appeal Cases [App. Cas.] 45 (1984).

    See Guy Harles, Luxembourg, in International Bank Secrecy, supra note 1, at 471, 478.

    See Angeline Yap, Singapore, in International Bank Secrecy, supra note 1, at 577, 593-594.

    Harris v. United States, 413 F.2d 316, 319 (9th Cir. 1969).

    Pollock v. United States, 202 F.2d 281 (5th Cir. 1953), cert. denied, 345 U.S. 993 (1953).

    See Odile Lajoix and Marc Billiau, France, in International Bank Secrecy, supra note 1, at 187, 189 (discussing and quoting the opinion of the Court of First Instance of Paris in Banque 1991 at 985 (Judgment of March 21, 1991)).

    Stelios N. Deverakis, Greece, in International Bank Secrecy, supra note 1, at 273, 276 (referring to exception to duty of secrecy contained in Law Decree 1325 of 1972).

    31 Code of Federal Regulations part 103 (1996).

    Kabwand Pty. Ltd. v. National Australia Bank Ltd. [1989], A.T.P.R. 40-950; see Jon Broadley, Australia, in International Bank Secrecy, supra note 1, at 3, 4-5 (discussing this case).

    See Broadley, supra note 40, at 7 (discussing Smith v. Commonwealth Bank of Australia, unreported decision of Judge Von Doussa, Federal Court, March 11, 1991).

    [1992] 3 Weekly Law Reports [W.L.R.] 936 (on appeal from Bermuda).

    (1985) 52 Ontario Reports 2d 473.

    American Medicorp Inc. v. Continental Illinois National Bank & Trust Co. of Chicago, 475 F. Supp. 5 (N.D. Ill. 1977) (confidential information cannot be used). But see Washington Steel Corp. v. TW Corp., 602 F.2d 594 (3d Cir. 1979) (no absolute duty not to use confidential information because a bank should not make loans blindly).

    See Gill Goodwin and Simon Fraser, New Zealand, in International Bank Secrecy, supra note 1, at 531-532 (discussing this point and citing National Mortgage & Agency Co. of New Zealand Ltd. v. Stalker [1933], New Zealand Law Reports 1182; Goodwin v. National Bank of Australasia Ltd. [1968], 42 A.L.J.R. 110).

    Broadley, supra note 40, at 23-24 (discussing Ross v. Bank of New South Wales, (1928) (New South Wales) S.R. 539 and Goodwin v. National Bank of Australasia, supra note 45).

    Michael Kutschera, Austria, in International Bank Secrecy, supra note 1, at 39, 48.

    Chris Sunt and Jacques Richelle, Belgium, in International Bank Secrecy, supra note 1, at 79, 80-81 (discussing the tort remedy for breach of secrecy contained in Article 1382).

    Id. at 80.

    Article 134 of Japan’s Criminal Code, which imposes criminal sanctions on doctors and similar professionals who breach confidentiality, does not apply to bankers.

    Sebastiaan A. Boele, The Netherlands, in International Bank Secrecy, supra note 1, at 491, 492.

    Banking Act of 1993, § 38.

    See Michael Paton and Lennox Paton, The Bahamas, in International Bank Secrecy, supra note 1, at 61, 63-65 (quoting section 10 of the Banks and Trust Companies Regulation Act).

    W.S. Walker, The Cayman Islands, in International Bank Secrecy, supra note 1, at 147, 148-150 (discussing the Confidential Relationships (Preservation) Order, 1976).

    Peter Anthoni and Katariina Kivenheimo, Finland, in International Bank Secrecy, supra note 1, at 171, 184.

    Lajoix and Billiau, supra note 37, at 197-198 (discussing criminal sanctions under the Banking Law).

    Deverakis, supra note 38, at 295-297 (quoting Code of Criminal Law, Law 1492 of 1950, Article 371 and Law Decree 1059 of 1971, as amended). Prosecution under the 1950 law is only upon a complaint by a person prejudiced and is not automatic by the country. Id. at 295. Prosecution under the 1971 law does not require initiation by the person prejudiced. Id. at 296.

    See Schmitt and Frieden, supra note 11, at 159-160 (discussing Article 458 of the Penal Code and Article 31 of the Law of November 27, 1984).

    Professional Secrecy Act, 1994.

    See del Río and Salem, supra note 17, at 487-488.

    See Yap, supra note 34, at 595.

    See Kim and Park, supra note 22, at 628 (discussing criminal sanctions under Article 6 of the Real Name Financial Transaction Law).

    See Bollmann, supra note 23, at 666-668 (describing penalties for violation of bank secrecy under section 47 of the Bank and Savings Bank Federal Act of 1934).

    Convention on the Law Applicable to Contractual Obligations, June 19, 1980, reprinted in Richard Plender, The European Contracts Convention 199 (1991).

    See Jack Report, supra note 1, paragraph 5.26, at 34.

    See Restatement (Third) of the Law of Foreign Relations § 442 (1987); Société Internationale pour Participations Industrielles et Commerciales, S.A. v. Rogers, 357 U.S. 197 (1958) (good faith defense recognized by Supreme Court); Ings v. Ferguson, 282 F.2d 149 (2d Cir. 1960) (New York offices of Canadian banks not required to produce Canadian documents); United States v. First National City Bank, 396 F.2d 897, 902 (2d Cir. 1968) (enumerating factors involved in good faith determination). But see United States v. Bank of Nova Scotia II (In re Grand Jury Proceedings the Bank of Nova Scotia), 740 F.2d 817 (11th Cir. 1984), cert. denied, 469 U.S. 1106 (1985) (Circuit court holding that bank failed to act in good faith by not producing more than one document relating to grand jury subpoena).

    Kutschera, supra note 47, at 50.

    Federal Rules of Civil Procedure, Rule 26(b)(1), 28 U.S.C. Rule 26(b)(1) (1994).

    Yap, supra note 34, at 590 (citing Section 47 of the Banking Act, as amended).

    Harles, supra note 33, at 475-476.

    Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964], App. Cas. 465 (1963) (England); First Virginia Bankshares v. Benson, 559 F.2d 1307 (5th Cir. 1977) (U.S.).

    Broadley, supra note 40, at 25-26.

    Jane Bogaty et al., Canada, in International Bank Secrecy, supra note 1, at 115, 123.

    Id.

    Kutschera, supra note 47, at 46-47.

    See Finn Martensen and Anders Tolborg, Denmark, in International Bank Secrecy, supra note 1, at 157, 159 (discussing the Rules and Instructions for the Financial Institutions’ Release of Credit Reports, 1988).

    See supra note 3.

    Code of Banking Practice, supra note 5, paragraph 2.4 at 4.

    See Finn Arnesen, Norway, in International Bank Secrecy, supra note 1, at 537, 538.

    See Yusuf, supra note 18, at 553-554 (quoting section 93C of the Banking Companies Ordinance, 1962).

    Yap, supra note 34, at 590-591 (noting the exceptions to Section 47).

    See Kim and Park, supra note 22, at 623.

    Lee Gleeson Pty. Ltd. v. Sterling Estates Pty. Ltd. (1991), 23 New South Wales Law Reports 571.

    Sunderland v. Barclays Bank Ltd., 5 Legal Decisions Affecting Bankers 163 (Maurice Megrah ed., 1955).

    Kutschera, supra note 47, at 47-48.

    Graney Development Corp. v. Taksen, 400 N.Y.S.2d 717 (1978), affirmed, 411 N.Y.S. 2d 756 (1978); Sharma v. Skaarup Ship Management Corp., 699 F. Supp. 440 (S.D.N.Y. 1988).

    Tournier, supra note 6.

    Canadian Imperial Bank of Commerce v. Sayani, 83 British Columbia Law Reports 2d 167 (1991); see Bogaty et al., supra note 73, at 130.

    R v. Curtis, Court of Appeals 346/93 (December 3, 1993) (unreported) (alleged forgery).

    Basle Committee on Banking Supervision, Statement on the Prevention of Criminal Use of the Banking System for the Purpose of Money Laundering (December 1988), reprinted in 2 Current Legal Issues Affecting Central Banks, supra note 1, at 327.

    UN Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, U.N. Docs. E/Conf. 82/15 and E/Conf. 82/14 (December 19, 1988) [hereinafter Vienna Convention], reprinted in 2 Current Legal Issues Affecting Central Banks, supra note 1, at 375.

    Vienna Convention, supra note 90, Art. 3.

    Id. Art. 7.

    Id. Art. 5(3).

    Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime, Eur. Consult. Ass., Doc. No. 141 (November 8, 1990), reprinted in 2 Current Legal Issues Affecting Central Banks, supra note 1, at 331.

    Scheme Relating to Mutual Assistance in Criminal Matters Within the Commonwealth (as amended, 1990), reprinted in David McClean, International Judicial Assistance 331 (1992).

    Money-Laundering Directive, supra note 20. The recitals to the Council Directive record the following considerations (in summary):

    • If financial institutions “are used to launder proceeds from criminal activities,… the soundness and stability of the institution concerned and the confidence in the financial system as a whole could be seriously jeopardized, thereby losing the trust of the public.”

    • Coordination is required to ensure that launderers do not take advantage of the freedom of finance in the European Union by seeking out the least restrictive regime.

    • The growth of organized crime in general, and drug trafficking in particular, is a threat to the societies of member states, and combating money laundering is one of the most effective means of opposing these crimes.

    • The financial system can play a highly effective role in combating money laundering.

    • Since money laundering is international, it needs to be combated at the international level.

    • It is necessary to lift bank secrecy.

    Article 1 provides that, in general, the Directive applies to credit institutions, certain other financial institutions (such as securities firms), insurance companies, and branches within the Community of institutions that have their head offices outside of the Community. In addition, it contains a detailed definition of money laundering, which includes (i) the conversion or transfer of property, with the knowledge that it is derived from criminal activities, for the purpose of concealing or disguising its illicit origin; (ii) the concealment or disguise of proceeds, with the knowledge that they are derived from criminal activities; (iii) the acquisition or possession of property, with the knowledge that it is derived from criminal activities; and (iv) participation in, facilitating, or aiding and abetting the above activities. In contrast to the normal criminal law, subjective intent is not required because knowledge may be inferred from the objective factual circumstances. Moreover, it is immaterial that the crime that generated the property was perpetrated in another member state or in a third country. Crimes are not only the Vienna Convention drug crimes, see supra note 90, but all criminal activity designated as such for the purposes of the Directive by each member state.

    Article 2 provides that member states shall ensure that money laundering is prohibited.

    Pursuant to Article 3, member states are to ensure that credit and financial institutions require identification of their customers. This identification requirement also applies to others who carry out transactions involving a sum of ECU 15,000 or more (aggregating linked transactions). There are detailed provisions for insurance policy premiums and pension schemes. If there is doubt as to whether customers are acting on their own behalf, institutions must take reasonable measures to obtain information as to the real identity of the beneficial owners—so as to see through nominees, agents, and trusts. Identification is required, even where the amount of the transaction is lower than the threshold, whenever there is a suspicion of money laundering. Identification does not apply to customers that are credit or financial institutions covered by the directive. Article 4 provides for the maintenance of identification and transaction records for five years.

    Article 6 sets forth the compulsory disclosure provision. Institutions and their employees must cooperate fully with the authorities responsible for combating money laundering by informing those authorities, on their own initiative, of any fact that might be an indication of money laundering and by furnishing those authorities, at their request, with all necessary information. Information supplied to the authorities may be used only in connection with the combating of money laundering. However, member states may provide that the information may also be used for other purposes; it is open to member states to allow a transmittal of the information to other regulatory authorities and the fiscal authorities.

    Article 7 provides that institutions must not carry out transactions that they know or suspect to be related to money laundering until they have informed the authorities, who may direct nonexecution. However, if this is likely to frustrate efforts to pursue the beneficiaries of money laundering, for example, by tipping them off, the institution must inform the authorities immediately after the transaction. Pursuant to Article 8, institutions must not inform the customer or third parties that the information has been transmitted to the authorities in order to prevent tipping off. The disclosure “in good faith” to the authorities by an employee is not to constitute a breach of any secrecy duty. Id. Art. 9.

    Pursuant to Article 10, member states are to ensure that if, in the course of inspections carried out on institutions by the competent authorities or in any other way, those authorities discover facts that could constitute evidence of money laundering, they must inform the money laundering authority. Article 11 provides that institutions must establish adequate control and communication procedures and carry out training programs.

    Finally, the Directive’s money-laundering provisions are to be extended in whole or in part to other professions and undertakings that engage in activities that are particularly likely to be used for money-laundering purposes. Id. Art. 12.

    See Paolo Clarotti, Banking Law Developments in the European Union: Deposit Insurance and Money Laundering Initiatives, 4 Current Legal Issues Affecting Central Banks 105 (Robert C. Effros ed., 1997).

    Organization of American States, Model Regulations Concerning Laundering Offenses Connected to Illicit Drug Trafficking and Related Offenses, AG/RES. 1198 (XXII-0192), eighth plenary session (May 23, 1992), reprinted in 3 Current Legal Issues Affecting Central Banks, supra note 1, at 308.

    Financial Action Task Force, Report of the Financial Action Task Force on Money Laundering (February 6, 1990), reprinted in 2 Current Legal Issues Affecting Central Banks, supra note 1, at 350.

    31 Code of Federal Regulations §§ 103.22, 103.28 (1995).

    See. Peter Willis et al., Australia, in International Guide to Money Laundering Law and Practice, supra note 1, at 33 (discussing the requirement under the Cash Transactions Reports Act, 1988, to report any transactions over $10,000).

    Code of Conduct for Members of the Association of International Banks and Trust Companies in the Bahamas (undated), reprinted in International Bank Secrecy, supra note 1, at 73.

    See. Wendy Fowler, Great Britain, in International Bank Secrecy, supra note 1, at 243, 262 (discussing the Guidance Notes on money laundering).

    See id. at 259-260.

    See R v. Serious Fraud Office [1992], 3 All England Law Reports [All Eng. Rep.] 456.

    Williams v. Summerfield [1972], 2 Queen’s Bench 512.

    Bankers Trust Co. v. Shapira [1980], 3 All Eng. Rep. 353.

    Office of the Superintendent of Financial Institutions, Best Practices for Deterring and Detecting Money Laundering (effective January 1, 1990); see Bogaty et al., supra note 73, at 134 et seq.

    Loi No. 84-46 du 24 janvier 1984 relative à l’activité et au contrôle des établissements de crédit, Art. 57, Journal Officiel 390, 396 (January 25, 1984).

    Harald Jung, Germany, in International Bank Secrecy, supra note 1, at 213, 219 (citing paragraphs 94 et seq. of the Code of Criminal Procedure).

    See Deverakis, supra note 38, at 273, 285 (describing the case and citing Athens Appeal Court Decree 1465 of 1988, reported in Nomico Vima (1988), Volume 36, at pp. 1274-1276 and Athens Appeal Court Decree 2432 of 1988, reported in Elliniki Dikaeosyni (1990), Volume 31, at pp. 918-921).

    Law 1868 of October 10, 1989.

    See Deverakis, supra note 38, at 290-291.

    Joe Varley and James Dudley, Ireland, in International Bank Secrecy, supra note 1, at 331, 351-352 (summarizing Alan Clancy and David McCartney v. Ireland and the Attorney General, Barrington J., unreported, High Court, May 4, 1988).

    See Cesare Vento and Raffaella Betti Berutto, Italy, in International Bank Secrecy, supra note 1, at 387, 394 et seq.

    Harles, supra note 33, at 475-476.

    See John Koh and Yeoh Lian Chuan, Singapore, in International Guide to Money Laundering Law and Practice, supra note 1, at 141, 143-144; Statement of Principles, supra note 89.

    Kim and Park, supra note 22, at 627.

    Agreement on the Swiss Banks’ Code of Conduct with Regard to the Exercise of Due Diligence between the Swiss Bankers Association and the Signatory Banks (July 1, 1992).

    Public Law No. 91-508, 84 Stat. 1114 (1970) (codified as amended at scattered sections in 12 and 31 U.S.C.), reprinted in part in 2 Current Legal Issues Affecting Central Banks, supra note 1, at 421.

    Public Law No. 95-630, 92 Stat. 3641 (1978) (codified as amended at scattered sections in 12 U.S.C.).

    Public Law No. 99-570, 100 Stat. 3207 (1986) (codified as amended at scattered sections in 12, 18, and 31 U.S.C.).

    See supra note 121.

    See supra note 120.

    18 U.S.C. § 1956 (1994).

    See Council Directive 91/308, supra note 20, Art. 1; see also supra note 97.

    12 U.S.C. § 3403(c) (1994).

    See United States v. Bank of New England, N.A., 821 F.2d 844 (1st Cir. 1987), cert. denied, 484 U.S. 943 (1987).

    European Convention on Extradition, done at Paris on December 13, 1957, and entered into force on April 18, 1960, 359 United Nations Treaty Series 274.

    European Convention on Mutual Assistance in Criminal Matters, done at Strasbourg, April 20, 1959, and entered into force on June 12, 1962.

    Inter-American Convention on Mutual Assistance in Criminal Matters, signed on May 23, 1992.

    See supra note 91.

    See supra note 20.

    Model Treaty on Mutual Assistance in Criminal Matters, December 14, 1990, 68th plenary meeting, A/RES/45/117 (1990).

    See Paton and Paton, supra note 53, at 61, 70, note 10 (citing United States v. LeMire (Cayman Islands Court of Appeal 1983), The Wall Street Journal, January 11, 1983).

    See id. at 71, note 11 (citing Royal Bank of Canada v. Apollo Development Ltd. (1985) (unreported)).

    Re Bank of America, No. 923 of 1993 (unreported).

    United States v. Bank of Nova Scotia, 740 F.2d 817 (11th Cir. 1984), cert, denied, 469 U.S. 1106 (1985); see also United States v. Bank of Nova Scotia, 691 F.2d 1384 (11th Cir. 1982), cert. denied, 462 U.S. 1119 (1983).

    SEC v. Banca Delia Svizzeria Italiana, 92 F.R.D. 111 (1981).

    Criminal Justice (International Co-operation) Act, 1990, Chapter 5, § 4.

    Bonalumi v. Home Department [1985], 1 All Eng. Rep. 797.

    Spencer v. The Queen, 21 Dominion Law Reports 4th 756 (Supreme Court of Canada 1985).

    Harles, supra note 33, at 477 (describing the Court of Appeal of Luxembourg’s reluctance in Banco Ambrosiano, July 1, 1988, Number 71/88 ChdC, to give information to foreign authorities that could not be obtained through letter rogatory).

    Id.

    Id. (citing the Benelux Treaty on Judicial Co-operation in Criminal Matters, Brussels, June 27, 1962).

    See supra note 130.

    Bollmann, supra note 23, at 688.

    See U.S. General Accounting Office, Money Laundering: A Framework for Understanding U.S. Efforts Overseas, GAO/GGD-96-105, Appendix 1, at 26 (May 1996) (listing countries that have signed bilateral agreements with the United States to share information on criminal, currency, and customs matters).

    Council Directive 89/592 of 13 November 1989 Coordinating Regulations on Insider Dealing, 1989 O.J. (L 334) 30 [hereinafter Insider Dealing Directive].

    See Barrie Meerkin, Hong Kong, in International Bank Secrecy, supra note 1, at 327 (discussing Chapter 333 of the Laws of Hong Kong).

    Financial Services Act, 1986, Chapter 60, § 177.

    Insider Dealing Directive, supra note 149.

    Id. Art. 9.

    Id. Art. 10.

    Id. Art. 10(3).

    Id. Art. 10(2)(a).

    86 Civ. 3726 (1986).

    Bollmann, supra note 23, at 697-698.

    See Switzerland: Swiss Supreme Court Opinion Concerning Judicial Assistance in the Santa Fe Case, 22 International Legal Materials [I.L.M.] 785 (1983); see also United Kingdom: High Court of Justice (Queen’s Bench Division) Judgment Concerning Judicial Assistance in the Santa Fe Case, 23 I.L.M. 511 (1984).

    Bank Act, 1987, Chapter 22, § 39.

    Id. § 82(2).

    Id. § 83(1).

    Id. § 84.

    Id. § 85.

    Yap, supra note 34, at 599-600 (discussing the decision reported in The Times, October 30, 1991).

    [1992] 1 All Eng. Rep. 769.

    [1992] 1 All Eng. Rep. 778.

    Melton Medes Ltd. v. Securities and Investment Board (1994), The Times, July 27, 1994 (alleged wrongful disclosure by the Securities and Investments Board in relation to pension funds being investigated by the regulatory authority).

    Kaufman v. Crédit Lyonnais (December 20, 1994) (unreported) (Judge Arden).

    See supra note 109.

    See Lajoix and Billiau, supra note 37, at 205-206 (discussing Article 5B of the Law of September 28, 1967, as modified by Law Number 89-531 of August 2, 1989).

    Hauser, supra note 26, at 132.

    Deverakis, supra note 38, at 290; see id. at 285-286 (discussing the Bank of Crete case).

    The risk of damages liability if an authority discloses information wrongfully is demonstrated by litigation on tax treaties. Thus, in 1980 a Brussels court held that a Belgian company was entitled to damages where the Belgian tax authorities, without authorization, had informed the Italian tax authorities about Italian residents to whom the company had paid “secret” commissions. The Italians had subsequently refused to do business with the Belgian company.

    In the European Union, the First and Second Banking Directives and the Post-BCCI Banking Directives contain provisions on secrecy. First Council Directive 77/780 of 12 December 1977, 1977 O.J. (L 322) 30; Second Council Directive 89/646 of 15 December 1989, 1989 O.J. (L 386) 1; Council Directive 95/26, 1995 O.J. (L 168) 7. The secrecy provisions are contained in Article 12 of the First Banking Directive, which was replaced by Article 16 of the Second Banking Directive, which was amended by the Post-BCCI Directive. These secrecy duties apply, in general, to information under the other banking directives, for example, on capital adequacy and solvency. For example, the Consolidated Supervision Directive of 1992 provides for the consolidated supervision of banks and other institutions and, accordingly, breaks down the veil of incorporation to enable exchanges of information about all members of a banking group. Council Directive 92/30 of 6 April 1992 on the Supervision of Credit Institutions on a Consolidated Basis, 1992 O.J. (L 280) 54. The First and Second Banking Directive and the Directive on the Supervision of Credit Institutions are reprinted in Volumes 1 and 2 of Current Legal Issues Affecting Central Banks, supra note 1.

    First Banking Directive, supra note 175, Art. 12(1).

    Id. Art. 12(4) (as set forth in the Second Banking Directive, supra note 175, Art. 16).

    This is potentially a very wide exception, having regard to the ambit of criminal law where many minor delinquencies are criminalized, for example, minor corporate offences. It may also permit disclosure to the fiscal authorities in the case of tax fraud and to the authorities in charge of economic law, for example, antitrust activities.

    See Marc Dassesse et al, EC Banking Law 210-212 (2d ed. 1994).

    See supra note 20.

    [1989] 3 All Eng. Rep. 252 (1987).

    [1991] 2 All Eng. Rep. 865 (1991).

    [1993] 1 All Eng. Rep. 748 (1992).

    See Harles, supra note 33, at 474.

    Loi fédérate sur les banques et les caisses d’epargne, supra note 23, Art. 23 sexies.

    Financial Services Act, 1986, Chapter 60, § 177.

    See Meerkin, supra note 150, at 325.

    See W.G. Horton, Canada, in Obtaining Evidence in Another Jurisdiction in Business Disputes, supra note 1, at 145.

    British Companies Act, 1985, Chapter 6, § 212. Banking legislation generally requires complete identification of controllers and major shareholdings above a certain threshold.

    Id. § 721. These provisions are mirrored by more draconian provisions for the investigation of banks.

    Id.§§ 431-453. These inspections could be initiated by the Department of Trade and Industry, for example.

    See Varley and Dudley, supra note 114, at 352.

    See id. at 353.

    See Broadley, supra note 40, at 16.

    See id. at 17 (discussing Australian Securities Commission v. Zarro, 10 A.C.L.C. 11 (1992), in which a bank had to produce customer documents even though the Commission did not assert a connection between the documents and the alleged matters being investigated).

    See, e.g., Cash Transactions Reports Act, 1988, No. 64, §§ 3, 7 (Australia).

    See Broadley, supra note 40, at 12-13 (summarizing the holdings in Allen, Allen and Hemsley v. Deputy Federal Commission of Taxation, and Clarke v. Deputy Federal Commission of Taxation).

    See id. at 13 (discussing Citibank Ltd. v. Commission of Taxation in which tax authorities were enjoined from entering the Citibank premises after they conducted an unannounced raid to inspect customer records without firm evidence that the records were relevant).

    See Fowler, supra note 103, at 258.

    Income and Corporation Taxes Act, 1988, Chapter 1, § 745.

    Clinch v. Inland Revenue Commissioners, 1 All Eng. Rep. 977 (1973).

    See David W. Drinkwater and James E. Fordyce, Canada, in Bank Confidentiality, supra note 1, at 67.

    See Lajoix and Billiau, supra note 37, at 200-201.

    See Jung, supra note 110, at 220 (discussing the scope of a bank’s duty to reveal information in criminal tax proceedings and tax investigation proceedings).

    See id. at 224.

    See Deverakis, supra note 38, at 287.

    See id. at 288.

    See Vento and Berutto, supra note 115, at 391-394.

    See Harles, supra note 33, at 473.

    See Goodwin and Fraser, supra note 45, at 523.

    See id.

    See Fernández-Armesto and Hiniker, supra note 25, at 188-189.

    See Bollmann, supra note 23, at 678.

    United States v. Miller, 425 U.S. 435 (1976).

    Holman v. Johnson, 98 Eng. Rep. 1120, 1121 (1975).

    [1983] 2 All Eng. Rep. 464.

    See Meerkin, supra note 150, at 317-319.

    See Fowler, supra note 103, at 251-252.

    See Hauser, supra note 26, at 136-137.

    Organization for Economic Cooperation and Development, Model Convention for the Avoidance of Double Taxation with Respect to Taxes on Income and on Capital, April 11, 1977.

    Council Directive 77/799 of 19 December 1977 concerning Mutual Assistance by the Competent Authorities of the Member States in the Field of Direct Taxation, 1977 O.J. (L 336) 15.

    See First Council Directive 67/277, 1971 O.J. (L 71) 1301; Sixth Council Directive 77/388, 1977 O.J. (L 145) 1.

    Model Convention, supra note 220, Art. 26(2)(c).

    Id.

    See Bollmann, supra note 23, at 691-692 (describing circumstances when the lifting of secrecy is permitted).

    Transfer pricing is the practice of selling goods to a tax haven company that then on-sells at a large profit.

    See supra note 6.

    See Danci Penn, British Virgin Islands, in International Bank Secrecy, supra note 1, at 101, 107.

    See id. at 107-108.

    See infra note 281.

    See id. at 110.

    See id. at 109-110.

    See supra note 6.

    See Walker, supra note 54, at 148-149.

    See id. at 149 (listing the exceptions, which include criminal offenses inside or outside the Cayman Islands).

    See id. at 152; see also the Mutual Legal Assistance (United States of America) Law, 1986.

    B.J. Marrache and G.V. Davis, Gibraltar, in International Bank Secrecy, supra note 1, at 233.

    See supra note 6.

    M. Linda Grant and Rita L. Joseph, Grenada, in International Bank Secrecy, supra note 1, at 303-304, 306.

    Id. at 306-307.

    Id. at 308.

    Id. at 308-309.

    See supra note 6.

    Paul R. Beckett, Isle of Man, in International Bank Secrecy, supra note 1, at 370-372.

    See supra note 6.

    See David Lyons, Jersey, in International Bank Secrecy, supra note 1, at 399-426; see also Statement of Principles, supra note 90.

    Federal Rules of Civil Procedure, Rules 26-37, 28 U.S.C. Rules 26-37 (1994). The compulsion procedures for nonparties are in Federal Rules of Civil Procedure Rule 45. 28 U.S.C. Rule 45 (1994).

    [1956] 1 Queen’s Bench 618 (1955).

    482 U.S. 522 (1987).

    Id. at 542.

    See infra the discussion under the heading “Tracing Assets.”

    Bankers’ Books Evidence Act, 1879, 42 and 43 Vict., Chapter 11, § 3.

    Penn, supra note 228, at 102-103.

    Yap, supra note 34, at 601.

    See DB Deniz Nakliyati TAS v. Yugopetrol [1992], 1 All Eng. Rep. 205 (1991) (a case on a postjudgment order); see also Goodwin and Fraser, supra note 45, at 522-523 (summarizing James v. Mabin (No. 3)).

    See Rex v. Daye [1908], 2 K.B. 333 (1908); Senior v. Holdsworth [1975], 2 All Eng. Rep. 1009 (1975); Varley and Dudley, supra note 114, at 350-360 (summarizing Cully v. Northern Bank Finance Corp. Ltd., in which the bank was not required to produce documents whose existence was speculative).

    Varley and Dudley, supra note 114, at 336-338.

    Id. at 337.

    Commissioner for Railways v. Small [1938], 38 (New South Wales) S.R. 564.

    [1994] 1 W.L.R. 1493 (on appeal from the Eastern Caribbean Court of Appeal (St. Vincent and the Grenadines)).

    Goodwin and Fraser, supra note 45, at 522-523.

    Martensen and Tolborg, supra note 76, at 163.

    See supra note 109.

    Harles, supra note 33, at 475-476.

    See Code of Civil Proceedings, Art. 618.

    Yap, supra note 34, at 593.

    Felix López Antón, Spain, in International Bank Secrecy, supra note 1, at 645-646.

    [1973] 1 All Eng. Rep. 609 (1972).

    Varley and Dudley, supra note 114, at 357.

    Lajoix and Billiau, supra note 37, at 206-207.

    Deverakis, supra note 38, at 278.

    Id. at 278-279.

    Id. at 279-280.

    Id. at 294.

    Norwich Pharmacal Co. v. Commissioners of Customs and Excise [1973], 2 All Eng. Rep. 943 (1973). (Customs authorities, who had cleared goods allegedly imported in breach of a patent, were obliged to disclose the identity of the importers to the owner of the patent.)

    [1980] 3 All Eng. Rep. 353.

    See Mediterranea Raffineria Siciliana Petroli Spa v. Mabariaft GmbH, Court of Appeals (Civil Division) Transcript 816 (1978) (unreported) (where the court allowed a discovery order for lost proceeds of sale).

    Chief Constable of Kent v. F[1982], 3 All Eng. Rep. 36.

    The Times, December 27, 1994.

    Peter J. Perry, Australia, in Obtaining Evidence in Another Jurisdiction in Business Disputes, supra note 1, at 3, 4-5 (discussing National Mutual v. Sentry Corp.).

    The Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters, March 18, 1970, is the most notable example of multilateral convention involving letters of request. The text of the 1970 Hague Convention is reprinted in Obtaining Evidence in Another Jurisdiction in Business Disputes, supra note 1, at 191-199.

    These are often on Hague Convention lines. Belgium has treaties with at least 14 countries. Peter Vandeghinste and Jeroen Dossche, Belgium, in Obtaining Evidence in Another Jurisdiction in Business Disputes, supra note 1, at 69, 74-76 (listing and explaining Belgium’s bilateral conventions). Canada has at least 20 treaties.

    Japan has treaties with the United Kingdom (1964) and the United States (1963). Takanobu Takehara and Takashi Yoneda, Japan, in Obtaining Evidence in Another Jurisdiction in Business Disputes, supra note 1, at 27, 29-30 (discussing procedures under these consular conventions).

    Requests are both inward and outward. Invariably, the evidence must comply with local rules and must not conflict with local public policy or national security. It is almost always the case that these exchanges apply only to judicial proceedings in the courts, not to regulatory authorities, such as the Securities and Exchange Commission.

    See supra note 281.

    Evidence (Proceedings in Other Jurisdictions) Act 1975, Chapter 34, §§ 1-4.

    See, e.g., Rio Tinto Zinc Corp. v. Westinghouse Corp. [1978], 1 All Eng. Rep. 434 (1977); Re Asbestos Insurance Coverage Cases [1985], 1 All Eng. Rep. 716; Re Country of Norway’s Applications [1989], 1 All Eng. Rep. 745 (the court must weigh the wish to help foreign court against upholding foreign bank secrecy); SEC v. Stockholders of Santa Fe International Corp., 23 I.L.M. 511 (1984).

    [1986] 1 All Eng. Rep. 653 (1985).

    Richard Grandison, England, in Bank Confidentiality, supra note 1, at 92-93.

    [1993] Butterworth’s Company Law Cases [B.C.L.C] 396.

    See supra note 6.

    Varley and Dudley, supra note 114, at 338-340 (summarizing case).

    See generally, W.G. Horton, Canada, in Obtaining Evidence in Another Jurisdiction in Business Disputes, supra note 1, at 142-152 (comparing Canada Evidence Act and Ontario Evidence Act).

    Bogaty et al., supra note 73, at 140.

    Id. at 140-141.

    Takehara and Yoneda, supra note 283, at 28.

    28 U.S.C. § 1782 (1994).

    See supra note 281.

    Inter-American Convention on Letters Rogatory, done on January 30, 1975, reprinted in 14 I.L.M. 329 (1975).

    The following countries are parties to the 1970 Hague Convention: Argentina, Australia, Barbados, Cyprus, the Czech Republic, Denmark, Finland, France, Germany, Israel, Italy, Luxembourg, Mexico, Monaco, the Netherlands, Norway, Portugal, Singapore, the Slovak Republic, Spain, Sweden, the United Kingdom (including Gibraltar and Hong Kong), and the United States. Many have made reservations to the Convention.

    Inter-American Convention on Letters Rogatory, supra note 299, Art. 2. The parties to the Convention include Argentina, Chile, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Hungary, Mexico, Panama, Paraguay, Peru, Spain, the United States, and Venezuela.

    Id. Art.3.

    Id. Art.10.

    Id. Art.17.

    Insolvency Act, 1986, Chapter 45, § 236.

    See Cloverbay Ltd. v. BCCI SA [1991], 1 All Eng. Rep. 894 (1990); Re Barlow Clowes Gilt Managers Ltd. [1991], B.C.C. 608. But see British and Commonwealth Holdings plc v. Spicer and Oppenheim [1993], App. Cas. 426 (1992) (compelling auditors to disclose documents even though this might incriminate them for negligence).

    (1991) 5 Western Weekly Reports 281 (Saskatchewan).

    See Bogaty et al., supra note 73, at 128 (summarizing this case).

    See id. (summarizing this case).

    Giroux, supra note 10, at 126 (discussing Article 49 of the Law of January 1984).

    Lajoix and Billiau, supra note 37, at 208.

    Giroux, supra note 10, at 127.

    Deverakis, supra note 38, at 284.

    Bollmann, supra note 23, at 676.

    See, e.g., 11 U.S.C. § 304 (1994); the Swiss Private International Law Act of 1987, Arts. 166-175.

    Re Gee, 53 B.R. 891 (Bankruptcy Court, S.D.N.Y. 1985).

    Re International Power Industries N. V. [1985], B.C.L.C. 128 (refusing to allow an examination of an Antilles’ company’s English director and solicitors).

    Re Seagull Manufacturing Co. [1991], B.C.C. 550.

    Uniform Commercial Code § 9-302 (1990).

    Not Quebec nor the Maritime provinces.

    Lajoix and Billiau, supra note 37, at 190.

    Id. at 191-192 (discussing the decision of the Appeals Court of Paris, March 20, 1990).

    Deverakis, supra note 38, at 292 (discussing Law 1738 of 1987 and Law 1868 of 1989).

    Chapter 17, Comment (Ross)

    The Financial Action Task Force (FATF) was established at the Group of Seven Economic Summit in 1989. Its membership currently includes the 24 member countries of the Organization for Economic Cooperation and Development, the European Union, the Gulf Cooperation Council, Hong Kong, and Singapore. See Financial Action Task Force, Report of the Financial Action Task Force on Money Laundering (February 6, 1990), reprinted in part in 2 Current Legal Issues Affecting Central Banks 350 (Robert C. Effros ed., 1994).

    AG/RES. 1198 (XXII-0192), 8th plenary session (May 23, 1992), reprinted in 3 Current Legal Issues Affecting Central Banks 308 (Robert C. Effros ed., 1995).

    Caribbean Financial Action Task Force, 19 Aruba Recommendations (June 1990); Caribbean Financial Action Task Force, Kingston Declaration on Money Laundering (November 5-6, 1992). Both documents are reprinted in Financial Crimes Enforcement Network, U.S. Department of the Treasury, Compendium of International Anti-Money Laundering Conventions and Agreements (2d ed., January 1996).

    Basle Committee on Banking Supervision, Statement of Principles Concerning Prevention of Criminal Use of the Banking System for the Purpose of Money-Laundering (December 1988), reprinted in 2 Current Legal Issues Affecting Central Banks, supra note 1, at 327.

    United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, U.N. Docs. E/Conf. 82/15 and E/Conf. 82/14 (December 19, 1988), reprinted in 2 Current Legal Issues Affecting Central Banks, supra note 1, at 375.

    Council Directive 91/308 of 10 June 1991 on the Prevention of the Use of the Financial System for the Purpose of Money Laundering, 1991 Official Journal of the European Communities (L 166) 77, reprinted in 3 Current Legal Issues Affecting Central Banks, supra note 2, at 420.

    Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime, Eur. Consult. Ass., Doc. No. 141 (November 8, 1990), reprinted in 2 Current Legal Issues Affecting Central Banks, supra note 1, at 331. The Convention was adopted on September 8, 1990 and entered into force in September 1993, following its ratification by Bulgaria, Switzerland, the Netherlands, and the United Kingdom. The Council of Europe is an intergovernmental organization with approximately 26 members.

    Ministerial Conference Concerning the Laundering of Proceeds and Instrumentalities of Crime, Ministerial Communiqué (December 2, 1995), reprinted in Compendium of International Anti-Money Laundering Conventions and Agreements, supra note 3, at 131.

    United States v. Miller, 425 U.S. 435 (1976).

    Bank Records and Foreign Transactions Act (commonly referred to as the “Bank Secrecy Act”), Public Law No. 91-508, Titles I and II, 84 Stat. 1114, 1124 (1970) (codified primarily at 12 U.S.C, §§ 1730d, 1829b, and 1951-59 (1994)) [hereinafter Bank Secrecy Act].

    California Bankers Association v. Shultz, 416 U.S. 21 (1974).

    United States v. Miller, supra note 9.

    Right to Financial Privacy Act, Public Law. No. 95-630, 92 Stat. 3697 (1978) (codified and amended at 12 U.S.C. §§ 3401-3422 (1994)).

    31 Code of Federal Regulations [C.F.R.] § 103.22 (1997); see 31 U.S.C. §§ 321, 5311-5326 (1994), reprinted in 2 Current Legal Issues Affecting Central Banks, supra note 1, at 421.

    31 C.F.R. § 103.21 (1997).

    Id. § 103.33.

    18 U.S.C. §§ 981, 982, 1956, 1957 (1994), reprinted in 2 Current Legal Issues Affecting Central Banks, supra note 1, at 408; see United States General Accounting Office, Money Laundering: A Framework for Understanding U.S. Efforts Overseas, GAO/GGD-91-105 (May 1996).

    Bank Secrecy Act, supra note 10.

    31 C.F.R. § 103.22.

    Id. § 103.23.

    Amendment to the Bank Secrecy Act Regulations—Exemptions from the Requirement to Report Transactions in Currency, 61 Federal Register 18,203 (1996) (Interim rule amending 31 Code of Federal Regulations part 103).

    Minimum Security Devices and Procedures, Report of Suspicious Activities, and Bank Secrecy Act Compliance Program, 61 Federal Register 4332 (1996) (amending 12 Code of Federal Regulations part 21).

    Since the 1996 IMF Conference, FinCEN, in May 1997, published draft regulations that require money transmitters, and money order and traveler’s check issuers and redeemers to file suspicious-activities reports as well. FinCEN likewise is drafting suspicious-reporting regulations for casinos.

    31 U.S.C. § 5318(g) (1994).

    18 U.S.C. §§ 1956, 1957 (1994).

    Id. §§ 981, 982; 21 U.S.C. § 881 (1994).

    See supra note 2.

    See supra note 8.

    See Money Laundering: A Framework for Understanding U.S. Efforts Overseas, supra note 17, at 26-27.

    Id.

    Chapter 18, “Financial Services in the General Agreement on Trade in Services: Framework and the 1995 Negotiations” (Kono and Low)

    This chapter was presented by Patrick Low. The biography of his co-author, Masamichi Kono, also appears in the biographical sketches.

    General Agreement on Trade in Services, Annex on Financial Services, ¶ 5(a), in The Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, April 15, 1994. The GATS is reprinted in 4 Current Legal Issues Affecting Central Banks 597 (Robert C. Effros ed., 1997).

    The following resources were used by the authors in preparing this chapter: Jagdish N. Bhagwati, Splintering and Disembodiment of Services and Developing Nations, 7 The World Economy 133 (1984); Richard Cooper, Survey of Issues and Review in Leslie V. Castle and Christopher Findlay, Pacific Trade in Services 247 (1988); Roger Kampf, A Step in the Right Direction: The Interim Deal on Financial Services in the GATS, in 5 International Trade Law and Regulation 157 (1995); Fariborz Moshirian, Trade in Financial Services, 17 The World Economy 347 (1994); James Bedore, Financial Services: An Overview of the World Trade Organization’s Negotiations, Industry, Trade, and Technology Review 1 (December 1995); James Bedore, Financial Services: The Negotiation’s Goal, Industry, Trade, and Technology Review 2 (December 1995); The World Bank, Global Economic Prospects and the Developing Countries (1995).

    Banking and other financial services are widely defined under the GATS. GATS, supra note 2, Annex on Financial Services, 5(a). They include acceptance of deposits; lending; financial leasing; payment and money transmission services; guarantees and commitments; trading (in money market instruments, foreign exchange, derivative products, exchange rate and interest rate instruments, transferable securities, and other negotiable instruments and financial assets); participation in issues of securities; money brokering; asset management; settlement and clearing services; provision and transfer of financial information (including financial data processing); and advisory and intermediation services. Id. Insurance services encompass direct insurance (life and nonlife), reinsurance and retrocession, insurance intermediation, and auxiliary insurance services (including consultancy, actuarial, risk assessment, and claim settlement services). Id.

    Bedore, supra note 2, at 1 note 2 (citing Journal of Commerce, July 27, 1994, at 1 and The Financial Times, July 27, 1995, at 5).

    See Kathleen M. O’Day, GATT and Its Effect on Banking Services, in 4 Current Legal Issues Affecting Central Banks, supra note 2, at 131.

    Moshirian, supra note 2, at 347.

    Information technology is a general term covering computer and communications technology used to generate, process, analyze, and transmit information. World Bank, supra note 2, at 44 and 45.

    The perceived need for effective supervision by host country authorities might be reflected in the entry of relatively liberal commitments under Mode 3 (commercial presence) for financial services compared to Mode 1 (cross-border supply), particularly when active marketing by financial service suppliers is involved. However, increasingly, international cooperation between supervisory authorities and enhanced supervision techniques have started to question such differentiation.

    Cooper, supra note 2, at 252.

    World Bank, supra note 2, at 47, Box 3-2.

    The implied allocation of locally generated output as domestic sales or foreign trade on the basis of the ownership of the equity responsible for production appears to have limited economic relevance. Yet under the GATS, governments have assumed obligations in respect of production attributable to foreign equity.

    Bhagwati, supra note 2, at 136.

    GATS, supra note 2, Art. I(2)(a).

    Id. Art. I(2)(b). Both a service supplier and a service consumer could, of course, move to a third jurisdiction. Under the GATS, this would be treated as two separate transactions from the point of view of the host country.

    Id. Art. I(2)(c).

    Id. Art. I(2)(d).

    Gary P. Sampson and Richard H. Snape, Identifying the Issues in Trade in Services, 8 The World Economy 171, 172-173 (1985).

    GATS, supra note 2, Art. I(3)(c).

    Id.

    Id. Art. II(1).

    Id. Art. II(2).

    Id. Annex on Article II Exemptions.

    Id. Art. VI(2).

    Id. Art. V.

    Id. Art. VII.

    Id. Art. VIII.

    Id. Art. IX.

    Among the more significant of the commitment-specific provisions are those relating to domestic regulation in paragraphs 5 and 6 of Article VI on domestic regulation. Restrictions to safeguard the balance of payments (Article XII) are also relevant only when a member has scheduled specific commitments to liberalize trade in services. General and security exceptions (Articles XIV and XIV bis) are applicable to all sectors, but their practical significance lies in sectors for which commitments have been undertaken. No provisions have been established for emergency safeguard action, for procurement disciplines, or on specific rules to cover subsidies. Negotiations are, however, mandated in each of these subject areas. Work is also being done to develop disciplines relating to domestic regulation (Article VI(4)), which would apply to all measures relating to qualifications, technical standards, and licensing, although the work has initially started in the area of professional services, with priority in the accountancy sector.

    See General Agreement on Tariffs and Trade 1994, Art. III.

    Exceptions to national treatment under the GATT exist in respect of subsidies and government procurement. Id. Art. III(8).

    GATS, supra note 2, Annex on Financial Services, ¶ 2(b).

    Id. ¶ 3.

    Id. ¶ 4.

    Id. ¶ 5.

    Twenty-seven countries, counting the member states of the European Community individually and Aruba, had done so. Most countries in the OECD adopted this “formula approach” or “top-down approach” as an alternative to the general “bottom-up” approach.

    Understanding on Commitments in Financial Services, in The Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations (December 15, 1993), reprinted in 4 Current Legal Issues Affecting Central Banks, supra note 2, at 627.

    GATS, supra note 2, Art. XI(1).

    Id. Art. XVI, note 8.

    Id.

    These conditions are that the restrictions shall not discriminate among members, shall be consistent with the Articles of Agreement of the IMF, shall be proportionate to the circumstances sought to be dealt with, shall avoid unnecessary damage to the interests of other members, and shall be temporary and be phased out progressively as the situation improves. Id. Art. XII(2).

    Id. Art. XII(5)(e).

    Marrakesh Agreement Establishing the World Trade Organization, April 15, 1994, in The Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, April 15, 1994.

    GATS, supra note 2, Second Annex on Financial Services ¶ 2.

    Decision on Financial Services, § 1, reprinted in The Results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts 459 (1994).

    GATS, supra note 2, Second Annex on Financial Services §1

    Council for Trade in Services, World Trade Organization, Decision on the Application of the Second Annex on Financial Services, W.T.O. Doc. S/L/6 (95-1841) (July 4, 1995) (adopted June 30, 1995).

    Decision on Financial Services, supra note 44, ¶ 2.

    World Trade Organization, Second Protocol to the General Agreement on Trade in Services, W.T.O. Doc. S/L/11 (95-2165) (July 24, 1995) [hereinafter Protocol], reprinted in 35 International Legal Materials [I.L.M.] 203 (1996).

    Committee on Trade in Financial Services, World Trade Organization, Decision Adopting the Second Protocol to the General Agreement on Trade in Services, W.T.O. Doc. S/L/13 (95-2167) (July 24, 1995) (adopted July 21, 1995), reprinted in 35 I.L.M. 206 (1996).

    Council for Trade in Services, World Trade Organization, Decision on Commitments in Financial Services, W.T.O. Doc. S/L/8 (95-2162) (July 24, 1995) (adopted July 21, 1995), reprinted in 35 I.L.M. 204 (1996).

    Council for Trade in Services, World Trade Organization, Second Decision on Financial Services, W.T.O. Doc. S/L/9 (95-2163) (July 24, 1995) (adopted July 21, 995), reprinted in 35 I.L.M. 205 (1996).

    These countries are Australia, Brazil, Canada, Chile, Colombia, Czech Republic, Dominican Republic, Egypt, the European Union, Hong Kong, Hungary, India, Indonesia, Japan, Korea, Kuwait, Malaysia, Mauritius, Mexico, Morocco, Norway, Pakistan, the Philippines, Poland, Singapore, Slovak Republic, South Africa, Switzerland, Thailand, Turkey, the United States, and Venezuela. The Schedules of Specific Commitments and Lists of Article II (MFN) Exemptions are contained in W.T.O. document series GATS/SC and GATS/EL, country by country, as supplements (Suppl. 1).

    Protocal, supra note 48.

    Second Decision on Financial Services, supra note 51, ¶ 1, 2.

    Chapter 18, Comment (Siegel)

    General Agreement on Trade in Services, in The Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, December 15, 1993 [hereinafter GATS], reprinted in 4 Current Legal Issues Affecting Central Banks 597 (Robert C. Effros ed., 1997).

    The North American Free Trade Agreement, December 8, 11, 14, and 17, 1992, Canada-Mexico-United States [hereinafter NAFTA], reprinted in part in 4 Current Legal Issues Affecting Central Banks, supra note 1, at 632.

    In addition to the annexes applicable to certain specific chapters, the NAFTA contains the following annexes: Annex I: Reservations for Existing Measures and Liberalization Commitments; Annex II: Reservations for Future Measures; Annex III: Activities Reserved to the State; Annex IV: Exceptions from Most-Favored-Nation Treatment; Annex V: Quantitative Restrictions; Annex VI: Miscellaneous Commitments; and Annex VII: Reservations, Specific Commitments, and Other Items.

    2 The GATT Uruguay Round: A Negotiating History (1986-1992) 2354-2358 (Terence P. Stewart ed., 1993).

    NAFTA, supra note 2, Art. 1405(1) (emphasis added). There are two additional national treatment provisions in this article of NAFTA—one concerning financial institutions of another party and investments of investors of another party in financial institutions (paragraph 2) and another concerning cross-border trade by financial service providers (paragraph 3). The provisions have essentially equal effect and were separated primarily to avoid awkward drafting.

    GATS, supra note 1, Art. XVII(l) (emphasis added).

    In the General Agreement on Tariffs and Trade, which served as a model for the GATS, the national treatment obligation is a general, and indeed a fundamental, obligation. General Agreement on Tariffs and Trade 1994, December 15, 1993, Art. II [hereinafter GATT], reprinted in The Results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts 21-23, 185 (1994). The GATS is thus less ambitious on this point.

    Certain commitments in the financial services area that otherwise required scheduling were “standardized” in the Understanding on Commitments in Financial Services, which applies to those countries that have endorsed it. Understanding on Commitment in Financial Services, in The Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, December 15, 1993, reprinted in 4 Current Legal Issues Affecting Central Banks, supra note 1, at 627.

    NAFTA, supra note 2, Art. 1403.

    Id. Art 1403(5). Other limitations of this obligation are that the party may impose certain terms and conditions consistent with national treatment, or the party may require the entity to incorporate. Id. Art. 1403(4).

    Id. Art. 1404(1).

    Mexico took the following noteworthy reservation to the obligation on cross-border trade:

    In order to avoid impairment of the conduct of Mexico’s monetary and exchange rate policies, cross-border financial service providers of another Party shall not be permitted to provide financial services into the territory of Mexico or to residents of Mexico, and residents of Mexico may not purchase financial services from cross-border financial service providers of another Party, if such transactions are denominated in Mexican pesos.

    Id. Annex VII, Schedule of Mexico, Section B, paragraph 16.

    Id. Art. 1404(2).

    Id.

    Id. Art. 1408.

    GATS, supra note 1, Art. XVI(1) (emphasis added and footnote omitted).

    Id. Annex on Article II Exemptions.

    Id. Art. XVI(2) (emphasis added).

    GATS, supra note 1, Art. XVI(1), note 8. This rule is in a footnote to the market access provision, which is somewhat unusual in international agreements. Nonetheless, it has no less force under the GATS.

    NAFTA, supra note 2, Art. 1406(1) (emphasis added).

    GATS, supra note 1, Art. II(1) (emphasis added).

    Id. Art. II(2).

    Id. Annex on Article II Exemptions.

    NAFTA, supra note 2, Art. 1410(2).

    GATS, supra note 1, Art. I(3)(b).

    Id., Annex on Financial Services, paragraph 1(b) and (c). Paragraph 1(b) and (c) state:

    • (b) For the purposes of subparagraph 3(b) of Article I of the Agreement/services supplied in the exercise of government authority’ means the following:

      • (i) activities conducted by a central bank or monetary authority or by any other public entity in pursuit of monetary or exchange rate policies;

      • (ii) activities forming part of a statutory system of social security or public retirement plans; and

      • (iii) other activities conducted by a public entity for the account or with the guarantee or using the financial resources of the Government.

    • (c) For the purposes of subparagraph 3(b) of Article I of the Agreement, if a Member allows any of the activities referred to in subparagraphs (b)(ii) or

    • (b) (iii) of this paragraph to be conducted by its financial service suppliers in competition with a public entity or financial services supplier, ‘services’ shall include such activities.

    See, for example, Japan—Trade in Semi-Conductors, in GATT, Basic Instruments and Selected Documents 116 (Supp. No. 35, 1987-88).

    NAFTA, supra note 2, Art. 1410(1).

    GATS, supra note 1, Annex on Financial Services, paragraph 2(a).

    Keith Palzer, The Implications of NAFTA for Central Banks, in 4 Current Legal Issues Affecting Central Banks, supra note 1, at 143.

    See herein Masamichi Kono and Patrick Low, Financial Services in the GATS: A Continuing Negotiation, at 493 (emphasis added).

    As the GATT did not cover financial services, there is no precedent of providing an exception for “prudential” reasons, but see the analysis on an analogous issue of an exception for measures “necessary” to protect human, animal, or plant life or health. U.S. Restrictions on Imports of Tuna, in GATT, Basic Instruments and Selected Documents 155, paragraph 5.27, at 199 (Supp. No. 39, 1991-1992). The GATS employs another method to control overuse of the exception, which is to state that the prudential measures exception shall not be used as a means of avoiding the member’s commitments or obligations under the Agreement. GATS, supra note 1, Annex on Financial Services, paragraph 2(a).

    Chapter 18, Comment (Muench)

    General Agreement on Trade in Services [GATS], in The Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, December 15, 1993. The GATS is reprinted in 4 Current Legal Issues Affecting Central Banks 597 (Robert C. Effros ed., 1997).

    GATS, supra note 1, Annex on Financial Services.

    Id. paragraph 2(a).

    Id. paragraph 5.

    Id. paragraph 1(b).

    Trade Act of 1974, Public Law No. 93-618, 88 Stat. 1978 (1975) (codified primarily at 19 U.S.C. § 2101 et seq. (1994)).

    19 U.S.C. § 2191 (1994).

    Id. § 2191(d).

    Id. §§ 2112(c)-(e), 2155.

    Id. § 2155.

    Id. § 2902(a).

    Id. § 2902(e).

    Uruguay Round Agreements Act, Public Law No. 103-465, 108 Stat. 4809 (1994) (codified at 19 U.S.C. § 3501 et seq. (1994)); see The Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, December 15, 1993.

    19 U.S.C. § 3555 (1994).

    Id. § 3555(a).

    North American Free Trade Agreement, December 8, 11, 14, and 17, 1992, Canada-Mexico-United States, Chapter 14. Selected provisions of NAFTA are reprinted in 4 Current Legal Issues Affecting Central Banks, supra note 1.

    See supra Deborah Siegel, Comment (to Chapter 18) (addressing the differences between the financial services provisions of the NAFTA and GATT).

    The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, Public Law No. 103-328, 108 Stat. 2338 (1994).

    Biographical Sketches

    EDITOR

    Robert C. Effros received his undergraduate degree from Harvard College, his law degree from Harvard Law School, and a master of laws (taxation) degree from Georgetown University. He served in the Legal Department of the Federal Reserve Bank of New York before joining the Legal Department of the International Monetary Fund in 1963. Mr. Effros, who currently serves as Assistant General Counsel (Legislation) of the IMF, has participated in many staff missions involving legislative drafting and advice on general banking and central banking laws of member countries of the IMF. He is an Adjunct Professor of banking law at the American University College of Law. He is also the author of a number of articles on banking and financial matters that have appeared in legal and other journals, and the editor of Emerging Financial Centers: Legal and Institutional Framework (International Monetary Fund, 1982), Current Legal Issues Affecting Central Banks (International Monetary Fund, Vol. 1 (1992), Vol. 2 (1994), Vol. 3 (1995), Vol. 4 (1997)), and Payment Systems of the World (Oceana, 1994).

    AUTHORS OF CHAPTERS, FOREWORDS, AND AFTERWORDS

    Motoko Aizawa received her law degree from Loyola University of Chicago and a master of laws degree from the University of London. She focused on international mergers and acquisitions while practicing at the law firm of Baker & McKenzie, before joining the International Finance Corporation (IFC) in 1991. Ms. Aizawa is currently Principal Counsel in the Legal Department of the IFC. Specializing in the power sector, she handles the IFC’s investments in power projects around the world.

    Jimmy F. Barton graduated from Texas Tech University and the Stonier Graduate School of Banking. Mr. Barton joined the Office of the Comptroller of the Currency (OCC) in 1970 and held many positions in the OCC’s Washington, D.C. office, as well as in its office in London, which is responsible for examining overseas operations of large national banks. He was Deputy Director for Multinational and Regional Bank Supervision and Deputy Comptroller, before being appointed Chief National Bank Examiner of the OCC on May 2, 1994. In that position, he was responsible for the development of bank supervision policy. Mr. Barton retired on May 2, 1997.

    Thomas C. Baxter, Jr. received his B.A. from the University of Rochester in 1976 and his J.D. from the Georgetown University Law Center in 1979. He joined the Federal Reserve Bank of New York as an attorney in 1980, following an appointment as a law assistant to the Appellate Division of the New York Supreme Court. Currently, he is General Counsel and Executive Vice President of the Bank. Previously, he served as Deputy General Counsel and Senior Vice President, and was responsible for matters of civil litigation, enforcement, aspects of the payment system, and supervisory functions of the Legal Department staff. Mr. Baxter is a coauthor of Wire Transfers: A Guide to U.S. and International Laws Governing Funds Transfers (Provus, 1993) and has published several articles concerning the legal aspects of check collection, securities transfers, and electronic transfers of funds. He has also served as a lecturer on such subjects.

    Raj Bhala received his undergraduate degree from Duke University, a master of science in economics from the London School of Economics, a master of science in industrial relations from Oxford University, and a J.D. from Harvard Law School. He began his legal career in 1989 as an attorney in the Legal Department of the Federal Reserve Bank of New York. In 1993, he became an Assistant Professor of Law at the College of William and Mary, and an Associate Professor in 1996, where he lectures and conducts research on international trade law and international banking.

    William Blair graduated from Oxford University and was called to the English Bar in 1972. His practice focuses on banking and financial law. He is a Senior Visiting Fellow at the Centre for Commercial Law Studies, Queen Mary and Westfield College, University of London. He became a Queen’s Counsel in 1994. He is an editor of The Encyclopedia of Banking Law (Butterworths, 1982) and an author of Banking and the Financial Services Act (Butterworths, 1993). He sits as an Assistant Recorder (part-time judge).

    Lee C. Buchheit graduated from Middlebury College in 1972. He received his J.D. from the University of Pennsylvania in 1975 and a diploma in international law from Cambridge University in 1976. Before becoming a partner in the New York office of Cleary, Gottlieb, Steen & Hamilton, Mr. Buchheit served in the Washington, D.C., London, and Hong Kong offices of the law firm. Mr. Buchheit’s practice focuses principally on international financial matters (including sovereign debt-management issues), privatizations, and project finance. He is the author of two books in the field of international law and serves as an Adjunct Professor at Columbia University’s School of International and Public Affairs.

    Elizabeth Tibbals Davy received her undergraduate degree from Kenyon College and her law degree from American University’s Washington College of Law. Before joining the Federal Reserve Bank of New York, Ms. Davy served as Deputy Superintendent and Counsel to the New York State Banking Department and practiced law at Howard, Darby & Levin and Skadden, Arps, Slate, Meagher & Flom, both in New York City. Ms. Davy was appointed Counsel and Vice President of the Federal Reserve Bank of New York in May of 1994 to September 1996. She then spent a short time as General Counsel of the International Swaps and Derivatives Association, Inc. before returning to the Federal Reserve Bank of New York in the Bank Supervision Group, where she is responsible for the Bank Analysis and Fiduciary Services functions.

    Chester B. Feldberg graduated from Union College in Schenectady, New York, and received his law degree from Harvard Law School. Since joining the Federal Reserve Bank of New York’s Legal Department in 1964, he has held various positions. Since January 1991, he has been the Executive Vice President in charge of the bank supervision group at the Federal Reserve Bank of New York. Under his supervision, the bank supervision group is responsible for supervising all state member banks, bank holding companies, and foreign bank offices in the Second Federal Reserve District. Mr. Feldberg was named a member of the Basle Committee on Banking Supervision in November 1993.

    Ernesto V. Feldman (deceased) received a degree in economics from the University of Buenos Aires, Argentina, and a doctorate in economics from the Nuffield College at the University of Oxford, England. From 1971 to 1985, he worked at the Central Bank of Argentina and, from 1983 to 1986, he was a Member of the Board of Directors of the Central Bank of Argentina. He joined the International Monetary Fund in 1987 and served as Alternate Executive Director and Executive Director for Argentina and five other South American countries from 1987 to 1990. From 1991 through 1996, he served as a consultant with the IMF, most recently in the Monetary and Exchange Affairs Department.

    François P. Gianviti studied at the Sorbonne, the Paris School of Law, and New York University. He obtained a licence ès lettres from the Sorbonne in 1959, a licence en droit from the Paris School of Law in 1960, a diplôme d’études supérieures de droit pénal et science criminelle in 1961, a diplôme d’études supérieures de droit privé in 1962, and a doctorat d’Etat en droit in 1967. From 1967 to 1969, he was a Lecturer in Law, first at the Nancy School of Law and subsequently at the Caen School of Law. In 1969, Mr. Gianviti obtained the agrégation de droit privé et science criminelle of French universities and was appointed Professor of Law at the University of Besançon. From 1970 through 1974, he was seconded to the Legal Department of the International Monetary Fund, where he served as Counsellor and, subsequently, as Senior Counsellor. In 1974, he became Professor of Law at the University of Paris XII, where he taught civil and commercial law, banking and monetary law, and private international law. He served as Dean of its School of Law from 1979 through 1985. In 1986, Mr. Gianviti became Director of the Legal Department and, in 1987, General Counsel of the International Monetary Fund. He is a member of the Committee on International Monetary Law of the International Law Association and has published books on property and many articles on aspects of French and international law.

    Richard K. Gordon graduated from Yale College and Harvard Law School, after which he practiced in the Washington, D.C. office of the New York law firm of Dewey Ballentine. In 1990, he became Deputy Director of the Harvard International Tax Program and an associate at the Harvard Institute for International Development, and, in 1991, he joined the Harvard Law School faculty. Mr. Gordon joined the International Monetary Fund in 1995, where he is now a Senior Counsel in the Legal Department. He has participated in law reform projects in developing countries and is the author of a number of articles on taxation and on law and development.

    Anthony G. Guest is Professor of English Law at the University of London and Bencher of Gray’s Inn. Previously, he was a U.K. Delegate to the United Nations Commission on International Trade Law (UNCITRAL) from 1968 to 1988 and a member of its working group on negotiable instruments. Professor Guest is the editor of Chitty on Contracts (Sweet & Maxwell, 27th ed., 1994), Benjamin’s Sale of Goods (Sweet & Maxwell, 5th ed., 1997), and Chalmers and Guest on Bills of Exchange, Cheques and Promissory Notes (Sweet & Maxwell, 14th ed., 1991).

    Manuel Guitián received a degree in law from the University of Santiago de Compostela and a degree in economics from the Complutense University of Madrid. He also obtained a doctorate degree in economics from the University of Chicago. Mr. Guitián is currently Director of the Monetary and Exchange Affairs Department of the International Monetary Fund. He has participated actively in assisting countries in transition from central planning to market-based economic regimes. He has led missions to the European members of the Group of Seven countries, as well as to countries in transition and in the process of structural reform. Mr. Guitián is the author of numerous articles on international monetary matters and on balance of payments, exchange rate, and external debt issues.

    Stephen M. Hoffman, Jr. graduated from LaSalle University in Philadelphia and from the Bank Administration Institute School of Banking at the University of Wisconsin. He has also done graduate work in business administration at Drexel University and Widener University in Pennsylvania. Mr. Hoffman first joined the Federal Reserve Bank of Philadelphia in 1977 and was appointed Assistant Director of the Federal Reserve Board in 1993. He is responsible for directing and administering the supervision of foreign banks operating in the United States and the other international supervisory functions of the System. Previously, Mr. Hoffman was Vice President for International Examination, Financial Institution Surveillance, and Banking Supervision and Regulation Automation and Support Services at the Federal Reserve Bank.

    William E. Holder received his LL.B. and his B.A. from the University of Melbourne. He subsequently earned an LL.M. from Yale University and a Diploma from the Hague Academy of International Law. He has served as a Tutor in Law at the University of Melbourne, a Professor of Law at the University of Mississippi, a Reader in Law at the Australian National University, and an advisor on international law for the Australian Department of Foreign Affairs. Mr. Holder joined the International Monetary Fund in 1976 and has served as Deputy General Counsel since 1986. He is coeditor of The International Legal System and is the author of many articles on international law subjects.

    Oliver Ireland graduated from Yale University and received his law degree from the University of Texas. Currently, he is the Associate General Counsel in charge of monetary and reserve bank affairs at the Board of Governors of the Federal Reserve System. Previously, he was Vice President and Associate General Counsel of the Federal Reserve Bank of Chicago, following service as an attorney at the Federal Reserve Bank of Boston.

    Mats A. Josefsson received a degree in economics from the University of Uppsala, Sweden. Currently, he is a consultant in banking supervision in the Monetary and Exchange Affairs Department of the International Monetary Fund. Formerly, Mr. Josefsson was Deputy Director General for the Swedish Financial Supervisory Authority, responsible for banking supervision. Previous to that, he was Deputy Director at the Swedish Central Bank. He has also been a member of the Basle Committee on Banking Supervision.

    Masamichi Kono graduated from the Faculty of Law at Tokyo University in 1978. He has worked in the Tax Bureau of the Ministry of Finance of Japan, the Department of Economics and Statistics of the OECD, the Nobeoka Tax Office, the Banking Bureau of the Ministry of Finance, and the Economic Planning Agency. From 1989 to 1994, he held successive positions in the Securities Bureau, the Insurance Department, and the Banking Bureau of the Ministry of Finance. He was Director of the Office of International Research and Cooperation of the Institute of Fiscal and Monetary Policy from 1994 to 1995. Currently, Mr. Kono is serving as Counsellor responsible for financial services negotiations in the Trade in Services Division, and Secretary of the Committee on Trade in Financial Services of the World Trade Organization.

    Patrick Low received his Ph.D. in economics from the University of Sussex in the United Kingdom. From 1980 to 1988, he was a Counsellor at the GATT Secretariat in Geneva and, afterward, became a visiting professor at El Colegio de Mexico in Mexico City. During his career, Mr. Low has been a consultant to several governments and international organizations on trade matters, most recently in 1994 to 1995, when he served as a consultant to governments in the former Soviet Union and to the OECD. In 1990, Mr. Low joined the World Bank as a Senior Economist. In 1995, he became a Counsellor in the Trade in Services Division at the World Trade Organization, and, since May 1997, he has been the Director of the Economic Research and Analysis Division. Mr. Low has published many articles and two books on international trade issues.

    J. Virgil Mattingly, Jr. received his undergraduate and law degrees from George Washington University. After four years of service as an attorney for the U.S. Army Judge Advocate General Corps, he joined the Board of Governors of the Federal Reserve System in 1974. He currently serves as General Counsel. Under his direction, the Legal Division is responsible for providing legal counsel to the Board on supervisory, regulatory, monetary, legislative, litigation, and other matters arising under the Board’s jurisdiction, as well as issues relating to the Board’s internal operations.

    Herbert V. Morais received his bachelor of laws degree from the University of Singapore and his master of laws and doctor of juridical science degrees in international law from Harvard Law School, where he was a Fulbright and Harvard Scholar. From 1968 to 1970, he was Sub-Dean and Lecturer in Law at the University of Singapore. During 1970 to 1973, he was in private practice, first with the law firm of Donaldson & Burkinshaw in Kuala Lumpur and Singapore, and then with Sullivan & Cromwell in New York. For the past 25 years, Mr. Morais has been a practicing international lawyer, holding senior legal positions with three major international financial institutions—the Asian Development Bank, the World Bank, and the International Monetary Fund, where he has served as Assistant General Counsel since March 1994. As Chief Counsel in the World Bank, Mr. Morais was the principal lawyer responsible for negotiating World Bank participation in several major sovereign debt rescheduling transactions (particularly under the Brady initiative) and in several project finance and cofinancing transactions. As Assistant General Counsel in the IMF, Mr. Morais works primarily on general policy issues and new initiatives in the areas of international monetary and financial law.

    Ernest T. Patrikis received his law degree from Cornell University. He joined the Federal Reserve Bank of New York in 1968, serving in several positions, including Assistant Secretary of the Bank and Executive Vice President and General Counsel. He has served as the Deputy General Counsel of the Federal Open Market Committee. In June 1995, Mr. Patrikis was appointed First Vice President of the Bank. He has served as a U.S. delegate to the Working Group on International Payments for UNCITRAL. He is also an advisor to the (U.S.) National Conference of Commissioners on Uniform State Laws and served as the first Chairman of the New York State Bar Association’s Committee on International Banking, Securities, and Financial Transactions. Mr. Patrikis has lectured and written on the supervision and regulation of U.S. and non-U.S. banks, reserve requirements, payments laws, and sovereign immunity.

    Ibrahim F.I. Shihata received three law degrees from Cairo University and a doctorate in juridical science from Harvard Law School. Before becoming Senior Vice President and General Counsel of the World Bank and the Secretary-General of the International Centre for Settlement of Investment Disputes (ICSID), Mr. Shihata was a member of the Faculty of Law of Ain-Shams University (Cairo) and of the Egyptian Conseil d’Etat, Legal Adviser of the Kuwait Fund for Arab Economic Development, Executive Director of the International Fund for Agricultural Development, and the first Director-General of the OPEC Fund for International Development. He was in charge of the initiative that established the Multilateral Investment Guarantee Agency (MIGA), a World Bank affiliate, which was successfully launched in 1988. Mr. Shihata is the author of many books on different aspects of international law and international finance, including The World Bank in a Changing World (Dordrecht/Nijhoff, 2 volumes, 1991 and 1995), The World Bank Inspection Panel (Oxford University, 1994), Legal Framework for the Treatment of Foreign Investment—The World Bank Guidelines (Dordrecht/Nijhoff, 1993), The European Bank for Reconstruction and Development (Graham & Trotman/Nijhoff, 1990), and MIGA and Foreign Investment (Dordrecht/Nijhoff, 1988).

    Philip R. Wood received a B.A. from the University of Cape Town and an M.A. in English Literature from the University of Oxford. Currently, Mr. Wood is the head of the banking department of Allen & Overy in London, where he advises on all kinds of banking and financial transactions. In addition, he is a Visiting Professor of Queen Mary and Westfield College, University of London. He is the author of several books on financial subjects, including six books in the series Law & Practice of International Finance (Sweet & Maxwell, 1995).

    COMMENTATORS

    Tobias M.C. Asser received his law degree from Leyden University, the Netherlands, and his Ph.D. in private international law from Cambridge University, England. Before he joined the Legal Department of the International Bank for Reconstruction and Development (IBRD) in 1968, he was a practicing attorney in Amsterdam. Among the positions in which he served at the IBRD were those of Assistant General Counsel, Operations, and Assistant General Counsel, Finance. In 1987, Mr. Asser transferred from the IBRD to the Legal Department of the International Monetary Fund, where he serves as Assistant General Counsel. Mr. Asser is also an Adjunct Professor at Georgetown University Law Center in Washington, D.C., where he teaches international financial law and private international law.

    Robert G. Ballen received his undergraduate degree from Princeton University and law degree from Harvard Law School. He is a founding partner of the law firm of Schwartz & Ballen. Previously, he was a partner of Morrison & Foerster in Washington, D.C. He joined that law firm in 1985 after serving four years in the General Counsel’s office of the Board of Governors of the Federal Reserve System. Mr. Ballen is an expert on payments law matters and represents multibank organizations and companies that provide payments services to, or in conjunction with, the banking industry. He has lectured and written extensively on banking, payments, and securities law matters, and is the author of two books addressing these subjects.

    James E. Byrne received an undergraduate degree from the University of Notre Dame, a law degree from Stetson University College of Law, and a masters of law degree from the University of Pennsylvania. He currently teaches commercial law at George Mason University School of Law, where he specializes in letter-of-credit and bank guarantee law and the international sale of goods. He is the Director of the Institute of International Banking Law and Practice, Inc., the editor of Documentary Credit World, and has written and spoken extensively on letter-of-credit law and practice. He chaired the American Bar Association/U.S. Council on International Banking Task Force Study of Uniform Commercial Code (UCC) Article 5, served as head of the U.S. delegation to UNCITRAL on drafting the 1994 United Nations Convention on Bank Guarantees and Stand-by Letters of Credit, was an Advisor in the 1995 revision of UCC Article 5, and is Reporter of the project to create rules for standby letters of credit, the International Standby Practices.

    Barkley Clark received an undergraduate degree from Amherst College and a law degree from Harvard Law School. He is a partner and the head of the commercial law and banking practice group at Shook, Hardy & Bacon LLP in Kansas City, Missouri. Prior to joining that law firm in 1989, Mr. Clark was a law school professor for 20 years at the University of Kansas School of Law and the George Washington University Law School. He also has served as Visiting Professor at the University of Michigan. Mr. Clark has written several articles and nine books, including The Law of Bank Deposits, Collections and Credit Cards (Warren, Gorham, & Lamont, 1995).

    Jorge Q. Guardia graduated with degrees in law and economics from the University of Costa Rica and received an LL.M. from Harvard Law School. From 1972 to 1980, he worked in the Legal Department of the International Monetary Fund. In 1980, Mr. Guardia returned to Costa Rica to join the law firm Bufete Daremblum. From 1990 to 1993, he was the Governor of the Central Bank of Costa Rica. In October 1993, he returned to the IMF as a consultant, and, in June 1996, he once again returned to private practice in Costa Rica.

    Douglas E. Harris graduated with an A.B. in economics from Harvard College and a J.D. from Harvard Law School. He was Senior Deputy Comptroller for Capital Markets at the Office of the Comptroller of the Currency (OCC), which he joined in July 1993. In this post, he was responsible for the supervision and regulation of derivatives, emerging markets, and other capital markets and trading activities of national banks. Prior to joining the OCC, Mr. Harris served as Managing Director and Assistant General Counsel at J.P. Morgan & Co., Inc. and General Counsel of J.P. Morgan Futures, Inc. Before his tenure at J.P. Morgan, Mr. Harris was an associate with the law firm of Baer, Marks & Upham. He is currently a partner at Arthur Andersen in the Derivatives and Treasury Risk Management Group.

    Gregor C. Heinrich studied law and romance languages in Bonn, Lausanne, and Hamburg and received a law degree from the University of Hamburg, as well as a Second State Degree in Law from the State of Hamburg. He is presently Head of Section in the Legal Service of the Bank for International Settlements (BIS) in Basle, Switzerland. From 1982 to 1984, when he joined the BIS, he held a research position at the Max Planck Institute for Foreign and Private International Law in Hamburg and worked as an attorney for the law offices of Franke & Jacob in Hamburg. Mr. Heinrich has published several articles on various aspects of comparative law. He is currently Secretary of the Group of Ten central banks’ Working Group of Legal Experts on E-money.

    John R.H. Kimball graduated from Harvard College and Boston University Law School. Mr. Kimball joined the Federal Reserve Bank of Boston in 1969 and currently serves as the Bank’s Vice President and Associate General Counsel. He was Advisor to the Drafting Committee for Uniform Commercial Code Articles 3 and 4 and Article 4A of the National Conference of Commissioners on Uniform State Laws from 1985 to 1990. From 1987 to 1990, he was a member of the Drafting Committee for Regulation CC of the Board of Governors of the Federal Reserve System.

    Carl-Johan Lindgren received his undergraduate and graduate degrees in economics from the Swedish School of Economics in Helsinki. He joined the International Monetary Fund in 1970 and was a country economist, resident representative, and country team leader in the Western Hemisphere region before becoming the Division Chief of the Banking Supervision and Regulation Division in the Monetary and Exchange Affairs Department. In his present and other senior positions in that department, Mr. Lindgren has worked with countries worldwide on financial sector reform, banking supervision, regulation and legislation, bank restructuring, monetary management, and money market development.

    Marilyn L. Muench received a B.A. in political science from Whitman College, an M.A. from Duke University, and a J.D. from Harvard Law School. Before attending law school, she was a Foreign Service Officer with the U.S. Department of State. Upon graduation from law school, she entered into private practice at the Washington, D.C. law firm of Sutherland, Asbill & Brennan. She then worked at the U.S. Department of the Treasury in the Office of Foreign Assets Control, where she served as Chief of Licensing and then Chief Counsel. She is currently Deputy Assistant General Counsel for International Affairs at the Department of the Treasury.

    Kathleen M. O’Day graduated from Assumption College in Worcester, Massachusetts and received her J.D. from Boston College Law School. Ms. O’Day currently serves as Associate General Counsel in the Legal Division of the Board of Governors of the Federal Reserve System. Her areas of responsibility include legislative and regulatory matters relating to foreign banks operating in the United States and U.S. banks operating abroad, and issues arising in connection with international trade agreements.

    Lee J. Ross, Jr. is a graduate of Vanderbilt University and the University of Georgia School of Law. Mr. Ross came to the Criminal Division of the Department of Justice in 1983 as a managing attorney in the Office of Enforcement Operations. In 1991, he became the Deputy Chief, and then the Acting Chief of the Criminal Division’s Money Laundering Section. Currently, Mr. Ross is a Special Assistant in the Office of the Assistant Attorney General, Criminal Division, where he assists in developing domestic and international anti-money-laundering policy.

    Henry N. Schiffman received a B.A. from Cornell University and a J.D. from New York University. He was a Fulbright Fellow at the Faculty of Law and Economics of the University of Paris. His legal career involved work at the Board of Governors of the Federal Reserve System in Washington, D.C. and the Organization for Economic Cooperation and Development Secretariat in Paris. He is currently a consultant at the International Monetary Fund, where he provides technical assistance on central bank, commercial bank, and bankruptcy law.

    Deborah E. Siegel graduated from Tufts University and received a J.D. from the George Washington University Law School and an M.A. in international affairs from New York University. She became a Counsel in the Legal Department of the International Monetary Fund in June 1993. Previously, Ms. Siegel worked for the Washington, D.C. office of the law firm Weil, Gotshal and Manges, focusing on international trade issues covering litigation and policy matters. Before joining that firm, she worked for the Washington office of Cleary, Gottlieb, Steen & Hamilton, where her work involved a range of international and financial matters.

    Garland D. Sims received a B.A. from Lehigh University, an M.A. from the University of Chicago, and a J.D. from the University of Virginia. He is presently Senior Counsel and head of the foreign exchange and derivatives practice group of the Legal Department of the Bank of New York. Before joining the Bank of New York in 1996, Mr. Sims was Vice President and Senior Associate Counsel in the Legal Department of the Chase Manhattan Bank and was a Director of Multinet International Bank. Before going to Chase Manhattan, he practiced law at the firm of Morgan, Lewis & Bockius. He is a member of the Financial Markets Lawyers Group, a group of legal experts from the dealer community with particular expertise in foreign exchange.

    Robert S. Steigerwald graduated from the State University of New York, Stony Brook, and the University of San Francisco School of Law. He is presently Vice President, Legal Counsel, and Secretary of Multinet International Bank, a newly formed clearinghouse for foreign exchange and foreign exchange-related transactions. Before joining Multinet in 1996, Mr. Steigerwald was Vice President/Legal and Secretary of International Clearing Systems, Inc., a subsidiary of The Options Clearing Corporation. Mr. Steigerwald also has practiced law at Kirkland & Ellis in Chicago, where his practice included the representation of financial institutions. Mr. Steigerwald has been an Adjunct Professor at the Graduate Program in Financial Services Law, IIT/Chicago-Kent College of Law since 1993.

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