In parts one and two I looked at how Argentina came to default and at how Vulture funds manage to take entire nations to court and contrive to enforce court judgements upon them. They were concerned with history and the law of sovereign defaults. In this last part I want to look more broadly at the moral swamp out of which our spires of legal imperialism have grown.
It focuses on the moral weakness of trumpeting the rule of law and how we treat people equally, but only doing so, only applying the laws and principles, selectively, to the cases where we expect to benefit and then suspending our interest in cases that might go against us.
One of the things Judge Griesa, in his ruling against Argentina, lamented was the way it had taken 10 years to finally force Argentina to pay up.
Oh, what it must be like to have the moral high ground.
Back in 1993 the indigenous people of Ecuador filed a lawsuit against the American oil company Conoco alleging that the company had polluted and despoiled their land and water. It was, in fact, the case that the area had been heavily polluted, especially the rivers. It was the case that in those areas Conoco had been a major and sometimes the only large industrial concern. It was also the case that the pollution that had occurred was typical of oil drilling and oil production activities. In 2001 Texaco who had bought Conoco admitted that its operations had dumped 16 billion gallons of the highly saline and toxic water, that is a by-product of drilling, in to the forest’s rivers. When the oil company left the area, it left behind around 900 open and untreated waste pits.
The case filed against Conoco alleged the company had knowingly used sub-standard equipment and practices, including waste treatments which the company knew were so inadequate they would have been illegal in the USA.
For over 10 years Conoco denied guilt or liability and refused to pay recompense. When it was clear that a case would be filed against them Texaco/Conoco lobbied hard – spent hard cash – to make sure the case was NOT heard in an American court but in Ecuador. Cynics at the time suggested this was because the company had calculated that buying an Ecuadorean court and judge would be easier and cost less than buying the same back home. It is certain that a US court battle would have cost more than one in Ecuador.
But then the unthinkable happened. In 2011 the court in Ecuador found against Texaco/Conoco and ordered the company to pay $18.2 billion in costs and compensation. The company rejected the ruling and appealed. The Appeal Court rejected the appeal and upheld the original ruling finding against the company again.
Texaco/Conoco’s response was to refuse to pay and instead to declare,
“The Ecuador judgment is a product of bribery, fraud, and it is illegitimate … We do not believe that the Ecuador judgment is enforceable in any court that observes the rule of law,”
If Texaco/Conoco had lost in an American court would they have been so quick to assume and declare, they could ONLY have lost because the court must have been bribed and the process corrupt? It seems to me this is rather blatant racism. If the white man loses in a brown people’s court then..well… you know those brown people , corrupt and on the take. Unlike Western Oil companies obviously.
Now where has been the moral indignation over Conoco refusing to obey a court decision? In the financial and even popular press Argentina is cast as morally in the wrong for refusing to obey a lawful ruling, but in those same papers I have read hardly a word about Conoco. Is this Pari Passu?
Well in one rather fun aspect it is. The problem for the Vulture Fund was finding a way to enforce its home court ruling. It was the same problem for Ecuador. When Conoco left Ecuador it made sure it left no valuables, no assets behind. Nothing for Ecuador to seize.
The break through for Elliot Associates in getting its money was to find a way to tap in to Argentina’s assets as it tried to use them to pay the bond holders it had settled with. The trick was to find that those assets would be passing through a NY bank and get at the bank. So in a delicious parallel Ecuador has found a way of getting at an oil company which is richer than it is. And it has done it with Argentina’s help. As reported in CorpWatch
Adrian Elcuj Miranda, a judge in Buenos Aires, has ordered the seizure of Chevron’s assets in Argentina, to force the company to pay a $19 billion penalty for polluting the Amazon in Ecuador.
You’ll note the ruling is against Chevron. Chevron bought Texaco/Conoco a while back. Chevron is now the second largest U.S. oil company after Exxon. The report goes on,
If Elcuj’s ruling is enforced, Chevron may forfeit as much as $2 billion in Argentine assets and also lose roughly $600 million a year in revenue from ongoing operations in that country, according to estimates by the plaintiffs.
Why Argentina is doing this may not be entirely simple or altruistic. But it does at least have a certain Pari Passu about it, does it not?
“We have fought now for almost two decades to correct the injustice created by Chevron in Ecuador,” commented Pablo Fajardo Mendoza, the lead lawyer in the lawsuit, who grew up in the oilfields polluted by Texaco. “While Chevron might think it can ignore court orders in Ecuador, it will be impossible for Chevron to ignore court orders in countries where it maintains substantial assets.”
It seems to me the parallels could hardly be clearer, with two exceptions. Elliot’s case against Argentina is for the benefit of a Vulture fund only and to the detriment of a nation AND the rest of its creditors. Ecuador’s case and its Argentine extension is for the benefit of a nation and its people, and to the detriment of a polluting global corporation. And while Argentina’s original default is unfortunate, it is accepted that default can and does happen in the normal course of business. Massive despoliation and pollution, on the other hand, is NOT an accepted facet of doing business.
If we in the affluent countries of the North wish to lecture others on moral probity and the rule of law and rub terms like Pari Passu in their faces then perhaps it might be a good idea for us to actually live up to what we preach? The trumpeting of Pari Passu rings rather hollow to me when it is only applied very selectively.
Striking back from the bottom up
For those feeling this has degenerated in to an anti American rant please bear with me. The American government – some parts of it at least – argued against Elliot’s Vulture tactics. The American courts have also not been terribly friendly towards Chevron/Conoco/Texaco’s sudden enthusiasm for a new trial in the USA after they lobbied so hard to avoid a US trial in the first place.
My argument is not with ‘America’ as if it were one single entity. My argument is with American corporate power and how it uses the courts, and fears little or no criticism from the press. Which by now is largely corporate owned or advertising dependent anyway.
If you remember I wrote a couple of articles called The Eurofiscal Corruption contest. Consider this an honourary US entry.
When BP polluted the Gulf Coast of The USA there was widespread outrage at BP’s corporate arrogance and guilt. And quite right too. BP deserved everything thrown at it and more. But where was the outrage and press campaign over Conoco? Or for that matter over Union Carbide in Bhopal. Thousands died in Bhopal and the US response, governmental as well as corporate, was to fly the Union Carbide chief out of the country and stonewall all enquiries.
Now however US corporate power, led by financial power, is bringing those habits back home. The rule of law? What happened to the robo-signing fraud? Swept aside or talked till it died. What happened to all those threatened court actions from all those State Attorney Generals? Not a lot. What happened to the cases brought against Citi, or Goldman or JPMorgan or Wachovia or even HSBC? Mostly token fines and no-admission-of-guilt settlements.
For decades too many citizens of the United States and Europe have turned a deaf ear to injustices as long as they happened to someone else and might have benefited ‘our’ interests. But those ‘interests’ have become used to being above the law and are importing their habits back home. Now it will be the American and European people who find it is one rule for the global companies and banks, and another for ordinary citizens.
I think perhaps Americans and the rest of us should look to Argentina for both a warning of what could happen to us – I think this is particularly true for countries like Greece who are on the cusp of the same exact path, but also for inspiration of how nations and their people can strike back.
What I like about the Argentine ruling to sequester Chevron/Conoco assets and profits is that it points how global companies, even banks have assets and assets can be seized. Argentina has been using the idea quite a lot.
Only a few weeks ago the Argentine government nationalized the formerly national oil company, YPF, which was sold off in the era when Argentina was being looted by its creditors. The oil company ended up owned by Spain’s Repsol oil company. Spain is now furious.
The chairman of Spain’s Repsol told a Spanish newspaper he still hoped for an agreement with Argentina,
“to compensate us for that which belonged to us.”
“That which belonged to us”? You could not make this stuff up. Irony? Whatever the intricacies of the legal arguments about nationalization I surely can’t be the only one to find a wonderful, poetic justice in hearing Spain cry about how someone stole treasure FROM them in S. America. That’s not a crime that’s Karma for all those tons of stolen gold and silver.
Argentina is showing that what companies can do, so can nations. They use the courts to sequester assets. So can we.
Of course you could ask will fighting back, as Argentina is doing, work? Won’t such action backfire on Argentina? Won’t companies and nations simply refuse to deal with a nation that plays that way? Well actually not at all. Argentina has shown that if a U.S. court tries to sequester its assets and force bankruptcy then Argentina can strike back and seize the assets of a U.S. company. I suggest this was more Argentina’s motive than solidarity with Ecuador. But they have said, as reported in this informative FT article that the hold on Chevron’s assets will stay till the company pays what it owes to Ecuador.
But having sequestered $2 billion’s worth of assets belonging to Chevron and its subsidiaries what has happened to relations with Big Oil? Actually they have never been better. How can that possibly be? Simple, when Argentina nationalized YPF they did so knowing the company was sitting on,
approximately 774 trillion cubic feet of shale gas in the Vaca Muerta basin…
This is a large and potentially very lucrative asset. Enough to revolutionize Argentina’s fortunes. What has Big Oil done in response? It has formed an orderly line at their door asking if they can be partners. Waiting politely in line are …Chevron, Exxon and Apache. In fact Chevron has already signed a memorandum of understanding with YPF! Presumably ‘understanding’ that Argentina may have sequestered their assets but doing more business is better than doing none.
So Argentina nationalizes YPF, sequesters $2 billion of Chevron’s assets saying they will NOT be released until Chevron pays the $18 billion it owes Ecuador and STILL everyone wants to do business with Argentina. Where is the – ‘You can’t mess with the bond holders – you can’t default, the sky will fall in’ scenario in all this? Other countires should pay attention and learn from what Argentina is doing. Greece should NOT sell its assets. Greece should grow some balls, organize its own ‘chapter 11′ default and bankruptcy protection and then sequester whatever it bloody well takes. Instead of cringing in the gutter like Germany’s whipped dog.
Companies and banks can flit from one jurisdiction to another so can nations. If a court in Manhattan rules to enforce upon a NY bank then move banks. Use banks in Luxembourg or Hong Kong to simply move the money where it cannot be touched. Who says Argentina even needs to tell the USA or anyone else who their agent bank is? Insert a confidentiality clause binding upon the bank and the bond holders that no one can reveal where the funds are being paid. Why should we pay fines to companies when they won’t pay taxes to us?
It seems corporations expect nations and their tax payers to pay them but refuse to pay when it is their turn. We bail them, they screw us. We should pay fines when we owe them but they walk away from their guilt? And they have to cheek to invoke Pari passu? I don’t think so.
Banks and private capital want bankruptcy protection and confidentiality for them but not for us. I say Pari bloody Passu to that.
If people, ordinary people in every country, rich and poor, creditor and debtor, core and periphery alike do not wake up to the way private capital is trying to shift power from us and our vaguely democratic institutions to their entirely undemocratic institutions then we will all be the losers in the end. They will come for the rights and freedoms of the Argentinians and the Greeks first but they will come for yours eventually. Don’t kid yourself otherwise.