• ICAR


- Juhi Mathur

Keywords – foreign assets, Central Banks, absolute immunity, execution of awards

When the much publicised Yukos award was rendered, the victorious investors, in execution against Russia, thought to pursue the foreign commercial assets of Russia’s Central Bank (“CB”).[1] Recourse to foreign assets of a State’s central bank (“CBs”) is not unheard of. The temptation to seek execution against a CB’s foreign assets to satisfy the debts of its recusant State, is easy to see. It’s the award debtor State’s cash cow. CBs hold large quantities of foreign-currency (and gold) reserves abroad and regularly invest in interest-bearing transactions with foreign banking institutions.

By maintaining foreign currency reserves in stable currencies, such as the US dollar or Swiss franc, a CB ensures availability of liquidity in the event of lack thereof in its own State (the “CB State”). Unfortunately, it is especially during financial crises when a CB’s foreign reserves are crucial to resuscitate the Home State’s economy that its foreign assets become ripe to attacks from sovereign creditors. The Banco Central de la República Argentina (“BCRA”), Argentina’s CB, is a case in point. In the aftermath of Argentina’s default on its sovereign debt, attempts to execute awards and judgments against BCRA’s assets were exceptionally pursued in the United States of America, Switzerland and the United Kingdom. A schematic representation may provide clarity:

Tab: In blue are the parties to the arbitration. In red is the central bank of the CB State.

In green is the proposed execution.

From a legal nexus standpoint, even though most CBs are autonomous entities; it is widely recognized that the assets of a CB (including its assets in a foreign State) are in fact, the reserves of the CB State, either held beneficially for the CB State, or as a part of the State’s monetary policy, or on account of the banking relationship of debtor (i.e. CB) - creditor (i.e. CB State). It is because of such legal and beneficial ownership of a CB State over the assets of its CB, that CBs, though third parties to an award / judgment, are tempting targets for sovereign creditors.

However, execution against a CB’s foreign assets is not easy given the immunity afforded to foreign CBs by foreign States. Most world renowned financial centers have in common a legal regime that provides execution immunity to the foreign assets of foreign CBs. By way of illustration, the Reserve Bank of India enjoys immunity from execution of its assets held in the Bank of England, for an award rendered against India.

Two widely documented reasons, one economic and the other political, posit themselves for such immunity. The political reason, and one which finds more favour with States, is for States to market themselves as safe destination for deposit of foreign reserves and investments, particularly from foreign CBs. Greater the protection afforded to foreign CBs, more attractive that State becomes as a destination for the CB’s assets.

The economic consideration for affording immunity to CB’s foreign assets rests on CBs playing a critical role during times of financial crisis - they maintain much needed large reserves that can be liquidated to boost the CB State’s currency and economy. For instance, in the aftermath of the Argentinian defaults on sovereign debt, BCRA used its dollar-denominated reserves maintained with the Federal Reserve Bank of New York (“FRBNY”) to buy Argentine pesos to defend (i.e. prop up) the value of its currency - the peso.[2] Similar reasons motivated CBs of a number of developing nations in 2008 to step into international markets to sell their US dollar reserves in a bid to support their own currencies.[3] The economic rationale for providing immunity to a CB’s foreign assets is to maintain global financial stability. This explains the motivation behind the 2004 UN Convention on the Jurisdictional Immunities of States & their Property[4] (‘UN Convention’) - whose Article 21(1) (c) lists property of a foreign central bank as eligible for absolute immunity notwithstanding the use or purpose of the property (i.e. sovereign or commercial). The protection ceases to apply if the CB State has expressly consented in writing or specifically allocated or earmarked such property to satisfy the judgment.[5] The UN Convention though adopted, is not yet in force. [6]

Outside of the UN Convention, there is seemingly no general acceptance in State practice for execution immunity to foreign CBs.[7] There is absolute immunity under UK’s State Immunity Act 1978 (‘UK SIA’), broad immunity under US Foreign Sovereign Immunities Act of 1976 (‘US FSIA’); restrictive immunity established by Switzerland’s Debt Collection and Bankruptcy Act, and reciprocal immunity under China’s 2005 Judicial Immunity from Measures of Constraint for the Property of Foreign Central Banks (‘PRC Legislation’). With some exceptions, States largely model their foreign CB immunity regime on the above degrees.

(I) The US FSIA in section 1611(b)(1) immunizes from execution property of a foreign central bank held for its own account. Held for “its own account” has been judicially interpreted to mean funds that are held in an account in the name of the foreign CB.[8] Because FRBNY’s account was in BCRA’s name and the foreign exchange reserves it held were for the regulation of the Peso (a paradigmatic central banking function), an order of attachment could not be sustained. By contrast, funds in a CB’s account used to finance commercial transactions of private parties have not been held immune from execution.[9] Exception to immunity under Section 1611(b)(1) is an explicit waiver, embracing both the foreign State and its CB.

(II) The UK SIA in Section 14(4) provides absolute protection. According to Section 14(4) the property of a CB is absolutely immune from execution as a matter of law regardless of whether it is in fact used for commercial purposes.[10] In the case of execution of an ICSID award against the Republic of Kazakhstan, the question was whether the use of investment or commercial trading in securities to maintain or enhance the value of the reserves of the CB should also be treated as immune. The Court found that if the foreign CB has an interest in the property, different from the interest of the foreign State in the same property, the effect of Section 14(4) is that the property is nevertheless immune from execution.[11] Short of written consent by the foreign central bank or its parent State, the property of the foreign CB is absolutely immune from execution in UK.[12]

(III) Switzerland is a very important destination where CBs maintain their foreign reserves. There is however a dichotomy between the legal regime in Switzerland and the exceptional arrangement afforded to the Bank of International Settlements (“BIS”). Seated in Basel, BIS is a popular avenue for foreign CB deposits. Being an international organisation, under the terms of is arrangement with the Swiss Federal Government[13] the BIS enjoys absolute immunity of its property and assets and all deposits and other funds entrusted to it by whomsoever. Deposits of foreign CBs with BIS therefore benefit from execution immunity regardless of the nature of activity. As a result, it came as no surprise that vulture funds were unsuccessful in their attempts to target BCRA’s deposits with BIS.[14] In comparison, the treatment to deposits of foreign CBs with regular commercial banks in Switzerland, is regulated by Article 92(1) of the Debt Collection and Bankruptcy Act; according to which ‘assets belonging to a foreign state or a central bank and assigned to tasks which are part of their duty as public authorities’ cannot be subjected to execution measures by Swiss courts. It distinguishes between assets of CBs clearly earmarked for the CB State’s sovereign or ‘public interest’ activities,[15] i.e. de iure imperii, and assets used towards commercial or ‘private’ purposes, i.e. de iure gestionis; immunity made available only to the former.[16] Other important requirement borne out from jurisprudence, which on the contrary extends the net of immunity, is that even if the central bank activity is de iure gestionis, immunity will only be lifted provided the matter has an ‘appropriate’ connection with Switzerland.[17] A connection is deemed appropriate where the legal obligation arose or was, or had to be, performed in Switzerland. Location of the debtor’s assets in Switzerland, the claimant’s domicile in Switzerland or even the existence of an award rendered by an arbitral tribunal seated in Switzerland cannot create such a connection.[18]

(IV) Lastly, there is the PRC. To ensure Hong Kong retains its status as an international financial centre after it reunited with China (and protection under UK SIA ceased to apply), in 2005 China enacted a specialised legislation expressly establishing the immunity from execution of property of foreign CBs. Absolute immunity is accorded to property of foreign CBs by Article 1, with no distinction made as to the nature of property nor use of the property for commercial or non-commercial purposes.[19] The exceptions are identical to those provided in Articles 19(a) and (b) of UN Convention.[20] A peculiar limitation to immunity is a reciprocity requirement under Article 3 of PRC Legislation. If the People’s Bank of China (China’s CB or the financial administration institutions of the special administrative regions) enjoys lesser immunity or no immunity comparable to that provided under the PRC Legislation, courts in China will apply the same lesser degree of immunity to the foreign CB regardless of PRC Legislation. The reciprocity requirement is not problematic for States with the same level of protection, such as the UK; but it may give rise to disputes with the States taking the restrictive immunity stance (such as Switzerland).[21]

On a conspectus, except for the UK SIA and to some extent the PRC Legislation, none of the other regimes follow the absolute immunity offered by Article 21(1)(c) of the UN Convention.[22] Absolute immunity is justified if the CB State’s financial woes are like those of Argentina. The BCRA was constrained, in order to salvage its currency, to move its substantial reserves from FBNY to BIS, because the latter provided absolute immunity; and pleaded (legally and literally) before the Second Circuit Appeal Court, that:

an attachment of any significant portion of BCRA’s international reserves . . . would quite literally have caused the collapse of the Argentine peso with incalculable effects on the Republic’s economy, social order and political stability”.[23]

But CBs which are in international markets for wealth enhancement (and not for sovereign purposes) and acting commercially, may not (and should not) be able to avail the benefit of immunity from execution.[24] A successful sovereign creditor should strategize its enforcement and execution action looking to the legal regimes where commercial properties of CBs can be attached and liquidated in satisfaction of arbitral awards against the CB State.

Juhi Mathur is currently pursuing her master through the prestigious MIDS LLM Program, Geneva. Earlier, she was a senior associate with one of India’s top law firms, Shardul Amarchand Mangaldas.

Preferred Method of Citation – Juhi Mathur, ‘Immunity of Central Bank Assets from Execution’ (ICAR, 22 October 2020) <>.


[1]Martin Dietrich Brauch, ‘Yukos v. Russia: Issues and legal reasoning behind US$50 billion awards’ Investment Treaty News (September 2014) <>. [2] NML Capital, Ltd. v. BCRA, 652 F.3d 172 (2d Circuit 2011) (“NML Capital”).

[3]Arisa Yoshida, ‘Emerging Nations Intervene to Stop Drops in Currencies’, (Nikkei Weekly, 2008), page 6. [4] UN General Assembly, United Nations Convention on Jurisdictional Immunities of States and Their Property, (2004) , A/RES/59/38 2004. (“UN Convention”) [5] Ibid. [6] Ibid. UN Convention comes into force upon the deposit of the thirtieth instrument of ratification. Currently 22 parties have ratified. [7] Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. United States of America), Merits, Judgment, 27 June 1986, ICJ Reports 1986, para. 186. [8] NML Capital I (n 2), page 34. [9] Weston Cie de Finance et D‟Investissement, S.A. v. Ecuador, 823 F. Supp. 1106 (S.D.N.Y. 1993). [10] AIC v Central Bank of Nigeria, [2003] EWHC 1357 (2003). [11] AIG Capital Partners Inc and Anr v Kazakhstan (National Bank of Kazakhstan intervening) [2006] 1 WLR 1420. [12] Ibid. [13] Article 10 of its Constituent Agreement executed with the Swiss Federal Government and Article 4(4) of the Headquarter Agreement with the Swiss Federal Council [14] NML Capital Ltd. et al v BIS and Debt Enforcement Office Basel-Stadt, Swiss Federal Supreme Court, 5A_360/201. [15] Federal Supreme Court, ATF 124 III 322. It held that state immunity only covers monetary assets that are ‘clearly earmarked for concrete goals of public interest, which supposes that they can be distinguished from other assets’. [16] République socialiste du peuple arabe de Lybie-Jamahiriya v. Actimon SA, Tribunal fédéral suisse, 24 Apr. 1985, ATF 111 Ia 62; 82 ILR 30, at 35. [17] Federal Supreme Court, ATF 106 IA 148. [18] Ibid; Decision 5A.261/2009 of 1 September 2009 [19] Lijiang Zhu, ‘State Immunity from Measures of Constraint for the Property of Foreign Central Banks: The Chinese Perspective’ (2007) 16 Chinese J Int Law 67, para 79 [20] Article 1, 2005 Judicial Immunity from Measures of Constraint for the Property of Foreign Central Banks [21] L. Zhu, (n 19), para 33. [22] As a party to the UN Convention, once it enters into force Switzerland is likely to undertake legislative amendments making its protections for central banks’ assets consistent with Article 21. [23] NML Capital, page 8. [24] Hazal Fox, QC Phillipa Webb The Law of State Immunity (3rd edition, OUP 2013), 524.

The views and opinions expressed in the article are those of the author(s) solely and do not reflect the of official position of the institution(s) with which the author(s) is /are affiliated. Further, the statements of the author(s) produced herein should not be construed as legal advice.

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