Chapter

8. Recognition of Exchange Controls of Non-Members

Author(s):
International Monetary Fund
Published Date:
January 1966
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The question whether non-members can derive a benefit from the Articles has arisen in the courts in connection with Article VIII, Section 2(b). According to that provision:

  • Exchange contracts which involve the currency of any member and which are contrary to the exchange control regulations of that member maintained or imposed consistently with this Agreement shall be unenforceable in the territories of any member.…

In Stephen v. Zivnostenska Banka National Corporation,38 the plaintiffs sought to have the defendant’s assets placed under permanent receivership on the ground that the plaintiffs were the creditors of a foreign nationalized institution. The case had been remitted to a referee for examination and report. The New York Supreme Court decided to confirm the referee’s report except on two issues, on one of which it said:

  • Regarding the second exception, that relating to the plaintiffs’ standing as creditors, as influenced by the International Monetary Fund Agreement, the referee noted the membership of Czechoslovakia in the International Monetary Fund, and considered particularly … Article VIII, section 2(b).… He therefore concluded that the plaintiffs could not obtain relief in this court.…

  • However, he did state, and with mindful foresight, that this phase could be reopened if Czechoslovakia ever withdrew, voluntarily or otherwise, from the fund organization. Such circumstances actually occurred on January 5, 1955, when the International Monetary Fund issued a release that Czechoslovakia was no longer a member.…

  • No valid reason currently exists to frustrate our public policy, as expressed in the controlling statute, and thereby allow Czechoslovakia to take advantage of one of the privileges of fund membership when it is no longer a member.…

  • Accordingly, the present status of Czechoslovakia in relation to the International Monetary Fund does not bar the plaintiffs in this action.39

The decision is clear. An ex-member is not entitled to the benefit of Article VIII, Section 2(b), even though on the facts before the court the non-member would have been entitled to the protection of the provision if it had remained a member.

In Pan-American Life Insurance Co. v. Lorido, the respondent, who was the beneficiary under an insurance policy issued by the petitioner upon the life of her late husband, brought an action in Florida, where she resided, for the payment of benefits under the policy. The policy had been issued by the petitioner, a Louisiana corporation, in Louisiana in 1943, and was delivered to the insured, a Cuban national, in Havana. It was provided that payments by both parties of all obligations would be made in U.S. dollars in New Orleans. In contesting the widow’s claim, the petitioner argued that its liability under the policy had been extinguished by certain decrees of the Cuban Government. The petitioner argued that Florida courts were required to give effect to the Cuban decrees under the act-of-state doctrine. The petitioner relied on a 1959 law making it unlawful for any Cuban national to receive payment of a debt anywhere except in Cuba, and a 1960 law expropriating the petitioner’s assets in Cuba and substituting the Cuban Government as obligor under the policy. The petitioner also relied on Article VIII, Section 2(b), as a second string to its bow.

The court of first instance held that the petitioner could not rely on the Cuban laws because the place of performance was the United States and not Cuba. Appellate courts affirmed without opinion and denied certiorari on July 13, 1963.40 The petitioner petitioned the Supreme Court of the United States for writs of certiorari to the Florida courts. It argued that one of the three questions presented for review was whether U.S. courts were entitled to enforce a contract between a Cuban national and a U.S. corporation when that would result in the violation of a Cuban exchange control law that was maintained and imposed consistently with Article VIII, Section 2(b). The Florida courts had not dealt expressly with this issue in their judgments, and the petitioner argued that they had not passed on it. The Solicitor General of the United States was invited to express the views of the United States. He stated that he did not believe that the case presented any important question of federal law. On the issue relating to Article VIII, Section 2(b), he wrote:

  • Further review is not warranted with respect to petitioner’s other contention—that granting recovery to the respondent is contrary to Article VIII (2)(b).… In April of this year [1964], Cuba withdrew from the International Monetary Fund. The provisions of Article VIII (2)(b) are for the benefit of member states and not for the benefit of private parties. Since Cuba is no longer a member of the Fund and since the date of proposed relief determines the applicability of Article VIII (2)(b), a decree granting recovery to the petitioner will not violate the provisions of the Agreement. See Stephen v. Zivnostenska Banka, National Corporation, 140 N.Y.S. 2d 323, 326.

The Supreme Court denied certiorari.41

The conclusion that Article VIII, Section 2(b), is for the protection of the economies of members and that non-members are not entitled to its benefits is sound. But another and more difficult issue arises. Has Article VIII, Section 2(b), or the Articles as a whole changed the attitude of members toward non-members because of the sharp distinction which the Articles make between members and non-members? If it used to be not inconsistent with the public policy of country A to recognize the effect of the foreign exchange regulations of country B where the law of B was the applicable law under the private international law of A, has this situation changed as a result of the Articles if A is a member and B a non-member? There is a decision of the Supreme Court of the Federal Republic of Germany which may perhaps be understood in this way,42 but there is not yet sufficient authority on which to base a confident conclusion.43

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