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May 26, 2009

News Briefs

  1. Discussions Geared for Creditors' Rights
  2. Eye on The Hill: NACM Considers Stance on "Red Flag" Rules, Among Other Issues
  3. What Every Credit Manager Needs to Know About Unclaimed Property
  4. House Judiciary Committee Examines Ramifications of Automaker Bankruptcies
  5. "New Beginnings" With Cuba Continue to Ignite Debate
  6. Obama Signs Credit CARD Act Into Law
  7. Construction Numbers for April Reach a New Low
  8. U.S. Members of Congress Introduce Legislation on Argentine Debt and Court Defaults

Upcoming Events

 

Discussions Geared for Creditors' Rights

The 2009 Creditors' Rights Forum at Credit Congress will be held from 10:30am to Noon on Wednesday, June 17. This unique educational opportunity was developed by the members of the National Bankruptcy & Insolvency Group to provide a forum for open discussion of credit management issues.

The 2009 forum will include nine tables, each with a specific topic and table leader. This year, in light of the current economic situation, table topics will include FACTA and "Red Flags," dealing with the delinquent debtor, pre-bankruptcy UCC Article 2 and your customer sliding into bankruptcy, composition agreements and assignments for the benefit of creditors, involuntary bankruptcy, first day orders and serving on the creditors' committee, 503(b)(9) administrative claims and reclamation, and defending preference actions.

Each table leader provides a brief introduction to the topic and then the participants may ask questions or make comments. The table leader or other participants may respond. This allows the participants to learn from the table leader and each other. Every 30 minutes a break is called to allow participants to change tables.

The forum received rave reviews at the 2008 Credit Congress in Louisville. We hope you'll plan to join us for the 2009 Creditors' Rights Forum!

To register for Credit Congress and this event, click here.

NACM staff

Orlando Is the Nation's Top Value Destination

Credit Congress in Orlando continues to prove it's the best bang for your buck. Orlando was recently named the nation's 2009 top value destination by Hotwire.com. In its survey, which has been released annually for the last four years, Hotwire.com includes the availability of travel discounts and entertainment, transportation and lodging costs in the rankings compilation.

Credit Congress offers the best resort lodging and once-in-a-lifetime educational and extracurricular events all in this top value destination. Join us!

For more information, click here.

Eye on The Hill: NACM Considers Stance on "Red Flag" Rules, Among Other Issues

Despite the Federal Trade Commission's (FTC's) recent decision to delay the implementation of their "Red Flags" Rule from May 1, 2009 to August 1, 2009, compliance with this regulation has the potential to present companies with yet another source of unnecessary stress. NACM's Government Affairs Committee is considering its position on the regulation and whether or not the FTC has overstepped its mandate in making it apply to businesses.

NACM has worked closely with the FTC on educational programs for business creditors required to comply with the "Red Flags" Rule, which states that companies must provide a comprehensive plan for preventing, identifying and correcting any instances of identity theft in their business. Two joint teleconferences have been hosted with officials from the Commission and numerous articles have been written on the subject, appearing in both NACM's weekly eNews and in Business Credit magazine. While NACM is proud of these high-quality and timely programs, much has been said about whether or not the regulation was even designed to apply to business creditors in the first place. A glance at the FTC's documents and the legislation from which it derived its authority to issue the Rule reveals that, in general, the intent was to protect consumers from identity theft and B2B creditors weren't expressly named as entities that would have to comply with the Rule. One passage in the Fair and Accurate Credit Transactions Act (FACTA), however, refers to "commercial" transactions, which can be taken to apply to transactions among businesses. It's the only use of the term "commercial" throughout the document though, and the question is whether or not this one passage has been taken by the FTC to apply to all B2B creditors.

Whether or not the "Red Flags" Rule aligns with Congress' original intent is debatable, and NACM is considering the issue. Member input will be essential in these considerations and discussions of future action, so please, send any comments, experiences or opinions to jakeb@nacm.org.

In other advocacy news, NACM's proposed changes to the Bankruptcy Code have been embedded into the House Judiciary Committee's staff and any future bills will have the association's language to consider. It's unclear as to whether or not there's much support for a bankruptcy reform bill in the House of Representatives at this time, but NACM will be keeping an eye on the issue and any developments will be posted on the NACM Advocacy web page and in eNews.

A separate privacy bill that could apply to businesses was also recently introduced by Rep. Bobby Rush (D-IL). Dubbed the "Data Accountability and Trust Act," H.R. 2221 would require persons and businesses possessing electronic personally identifiable data to ensure that said data is safe. It makes specific rules for third-party data security providers and establishes notification procedures for when a data breach actually occurs. As of this writing, the bill had attracted four co-sponsors and action on the bill was pending. Again, NACM will be keeping an eye on this legislation and any updates or actions will appear on the Advocacy page and in eNews.

As with its previous lobbying efforts, NACM relies on its members for information regarding potential actions and legislative risks facing business creditors. Send your thoughts, opinions, suggestions or concerns to jakeb@nacm.org and be a part of NACM's efforts to ensure the B2B credit industry is rightly well-known on Capitol Hill!

Jacob Barron, NACM staff writer

Bankruptcy Point/Counterpoint

Bankruptcies are the headline makers of the day. As casualties of the credit crisis and financial maelstrom continue to mount, the need for better understanding of insolvency procedures and techniques creditors can use to protect protect themselves from preferences and other costly headaches are on the rise. On June 3rd, NACM's bankruptcy gurus Wanda Borges, Esq., principal, Borges & Associates, LLC and Bruce Nathan, Esq., partner, Bankruptcy, Financial Reorganization and Creditors' Rights Group, Lowenstein Sandler PC will face off in the Added Advantage teleconference, "Bankruptcy Point/Counterpoint."

Members interested in taking advantage of the copious amount of information provided by the dueling legal expertise of two of the countries brightest bankruptcy attorneys can register here.

What Every Credit Manager Needs to Know About Unclaimed Property

It's tough out there for individuals, companies, municipalities, states and countries. Revenue bases are shrinking, tax receipts are weaker and budget shortfalls are seen across the board from households to the federal government. For many state and local governments the budgetary pinch has been hard felt, particularly with higher costs of assistance and recovery efforts, as well as the stalled bond markets. This means more money needs to be drummed up through regulations, fees and fines that may not have been as strictly enforced in more robust environments. Unclaimed property is an easy target.

"Many states now view the enforcement of unclaimed property laws as a means to generate revenue with little downside political risk, and that's unfortunate from my perspective," said Valerie Jundt, Esq., director, Thomson Reuters, during the recent NACM-sponsored teleconference "Escheatment: What Every Credit Manager Needs to Know."

Like many U.S. laws, escheatment and unclaimed property laws have roots that go back several centuries to British common law. Under the regulations, after a certain period of time, companies are required to turn over all unclaimed or unapplied customer credit balances, rebates, dividends, uncashed paychecks, commissions, discounts and a whole host of other properties to the state. Escheatment is actually the physical transfer of property to the state that has the effect of making the state the legal owner, rather than merely the custodian, of the transferred property. More often than not, states are looking for a quick buck and are interested in cash or cash equivalent property that can be liquidated quite easily.

Companies that are acting as holders for unclaimed property are required each year to submit reports to the government outlining their unclaimed property activities and to remit funds as necessary. The problem is that often times, companies are simply unaware of their unclaimed property responsibilities or are culpable of some sort of infraction as laws and statutes vary widely from state to state. Most companies will have some form of unclaimed property liability and if they have never filed a report to the state, doing so will likely set off a red flag and certainly puts that business on the radar to be audited, depending on its presence in a particular state. This is where the option of voluntary disclosure agreements (VDAs) can work in favor of a firm.

"The real benefit of a VDA is that it gives you the authority and the ability to manage your own destiny," explained Jundt. "That doesn't mean you shouldn't pay what you owe, but many states will permit limited reach back—they won't go back 25 or 30 years like they will in an audit—most of the states go back 10 reporting years. Also, if you come forward voluntarily and identify yourself, that gives you an insurance policy, an umbrella, to do your own self-managed audit."

Unclaimed property fines are not a tax, though they often are viewed as one. Both civil and criminal penalties can be applied for unclaimed property violations. Fines can be assessed for not reporting unclaimed property, for not performing due diligence or complying with state statutes or for not handing over the property to the state. Knowingly filing a fraudulent report can have devastating financial impacts as interest as much as 75% can be tacked on to the property as well as fines of as much as $25,000. Plus, failure to properly account for unclaimed property liability can be viewed as a violation of Generally Accepted Accounting Principles (GAAP) or Sarbanes-Oxley Act internal control and reporting requirements. States are vigilant for any warning signs from companies that could trigger an audit on a company, resulting in unclaimed property laws violations.

Jundt suggests that all companies conduct internal audits of their unclaimed property procedures and set up an unclaimed property committee that is responsible for compliance. There has to be support from upper management, and the committee should be composed of the controller, treasurer, tax director and anyone else who is responsible for disbursements.

"Many companies will say to me, 'What's that going to cost? How am I going to justify it?' All I can say is how can you not justify it?" said Jundt. "Often times, by having an independent review, making sure you've addressed all your potential risks and gaps will far outweigh the long-term costs of an audit. So, I'm not going to belabor that."

Matthew Carr, NACM staff writer

Protect Your Assets—Get the Best Working for You

Unemployment claims are on the rise, but credit and finance professionals are more important for your company's bottom line than ever. Protect your assets, keep your credit positions and fill them with high-quality talent.

Discover who's out there with NACM's Careers in Commercial Credit, Collections & Finance (C4F), the online resource for employment connections in the business credit industry. No more endless piles of resumes from unqualified applicants lacking relevant experience. No more countless returns at other job board sites to sift through.

Click here to get started!

C4F: Employment Connections for the Business Credit Community

House Judiciary Committee Examines Ramifications of Automaker Bankruptcies

A recent hearing in the House Judiciary Committee analyzed the far-reaching ramifications of the Chapter 11 bankruptcy filing of Chrysler LLC and the as-yet uninitiated but expected filing of General Motors Corp. (GM)."Today's hearing will consider a wide-ranging ripple effect and possibly unintended consequences presented by automaker bankruptcies," said Committee Chairman John Conyers (D-MI). "I want to see how various constituencies are being affected."

Assembled before committee members was a panel of experts focusing on a wide-range of issues, from the health of the nation's bankruptcy statutes to the state of minority-owned dealerships all the way to consumer safety in the wake of an automaker bankruptcy. Those focusing on the Bankruptcy Code and the government's response to the failure of Chrysler and GM were Andrew Grossman, senior legal policy analyst at the Heritage Foundation, Lynn LoPucki, Security Pacific Bank Professor of Law at the University of California, Los Angeles School of Law, and David Arthur Skeel, M.D., S. Samuel Arsht Professor of Corporate Law at the University of Pennsylvania Law School.

"The U.S. bankruptcy courts have a disease," said LoPucki, who noted that a debtor's right to file wherever they please has put all the other parties at a disadvantage and that this practice has increased remarkably over the last two decades. "In the 1980s, about 30% of companies forum shopped; today it's 75%, mainly at just two courts: Delaware and New York." The Chapter 11 process, LoPucki noted, has become biased in favor of whomever can pick where they file because bankruptcy courts are often in competition to get these cases. "Chapter 11 is developing a bias toward those who control the forum, and the U.S. is, in the Chrysler case, a beneficiary of this bias," he said. "The people on the other side are the creditors, the suppliers, the employees, the landlords and literally hundreds of thousands of people. It's just not a level playing field."

"The courts have to do something to attract the cases," he added. "If the New York court did not approve the Chrysler case, it would not get the GM case and it would've gone to Delaware." This affects the proceedings by allowing debtors to pick a court where things will go more favorably for them and processes such as Section 363 sales can be approved without much trouble even though, as LoPucki noted, "they shoudn't be approved by the court. Everyone knows they will be and the courts will be unable to deny them because if one court says no to them, they'll simply go to a different court."

LoPucki also raised the issue of exorbitant professional fees which he claimed drained funds from the debtor that could be more effectively used in the reorganization. "If a court tries to control the fees, it has no effect because the cases will go to a court that doesn't try to control the fees," he said. "The system set up by Congress to review the fees has atrophied."

Other witnesses were openly critical of President Barack Obama and his administration's plan to streamline the Chrysler bankruptcy, with some lending their support to the Chapter 11 process. "The bottom line is that a regular Chapter 11 would've had better results than the administration's scheme," said Grossman. "Chapter 11 works well to turn around troubled businesses." Grossman specifically criticized the administration for widely circulated reports that indicated the Obama Administration's Task Force strong-armed secured creditors into taking less-favorable deals on what they were owed. "The system is threatened when it is abused to steal from one part," he said. "Secured creditors were told to take a hike so that their assets could be handed over to union control."

"Our bankruptcy laws are well designed to handle the distress and to facilitate their reorganization," said Skeel, who also chided the Obama Administration for its lack of faith in the process. "The administration's handling has violated the basic rules of bankruptcy," he said. "Our laws, and in particular Chapter 11, are well designed to successfully restructure the automakers." Because of the strength of this restructuring process, Skeel noted that the stigma surrounding bankruptcy is unearned and that, in the case of the Detroit Automakers, Chapter 11 was something they should've considered sooner. "Their biggest mistake was waiting so long to consider the bankruptcy process," he said.

NACM recently submitted its suggested changes to the Bankruptcy Code to the House Judiciary Committee, which would aim to make the Chapter 11 process a more regularly successful one by altering preference statutes and venue shopping provisions. A full copy of the changes can be found on NACM's Advocacy page, here.

Jacob Barron, NACM staff writer

The Lighter Side of Credit

With so much continuing bad news about the economy, isn't it time for a bit of humor? The June issue of Business Credit magazine features some "Lighter Accounts" from credit professionals, stories submitted as part of Business Credit's first Credit Words contest.

As part of the managing business risk issue, these stories will remind you—hopefully with a laugh—that not all risk comes in traditional forms.

June's managing business risk features:

—Thinking Globally, Working Locally: A New Era in Credit Insurance to Manage Risks in a Changing Economy
—A Return to Form in the Wake of the Global Financial Crisis: Tradition Is the New Innovation and Credi Risk Management Is Ready for Its Close-up

Get all this and more in the June issue of Business Credit. To start a subscription, click here.

"New Beginnings" With Cuba Continue to Ignite Debate

Trade issues have historically been some of the most divisive throughout history. Rifts between the northern and southern U.S. states concerning the exporting of rice, cotton and indigo began in the 1820s. Little more than a hundred years later came the broad brush Smoot-Hawley Tariff that was signed into law by President Herbert Hoover, resulting in boycotts and retaliation tariffs on U.S. goods by dozens of foreign countries. In the 1940s, following the widespread economic and physical devastation of World War II, the scope of the tariffs receded and the United States and the rest of the world plunged headlong into multilateral trade. International commerce chugged forward, though not without the bumps of threats, embargoes and sanctions.

Now, the world is facing one of the most contentious trade issues in what to do about Cuba, who just recently celebrated its 50th anniversary of communist rule. At one time, Cuba and the U.S. were economic allies, with 60% of Cuba's sugar industry controlled by U.S. companies, importing 95% of the total Cuban crop. Then came Fidel Castro and the nationalization of more than $1 billion in private U.S. property and businesses located in Cuba. Relations between the nations soured to the point of near war, sparking a storied string of assassination attempts by the United States. In February of last year, the seemingly indestructible Fidel stepped down and his brother Raul took over. The rest of the world scratched their chins and spied opportunity amidst a global meltdown.

"It's time for us to face the facts regarding Cuba," said Senator Max Baucus (D-MT), chairman, Senate Finance Committee. "It's a fact that Cuba is one of our closest export markets. It's a fact that our current trade and travel sanctions aren't working." President Barack Obama has already announced a loosening of travel between the two countries and Congress has been wrestling with easing trade ties with Cuba over the last couple years, something that former U.S. Secretary of Commerce Carlos Gutierrez, a Cuban refugee, has hotly opposed. Gutierrez has called the U.S. embargoes a success and has painted Raul as nothing more than "Fidel without the charisma, without the seven-hour speeches." He has called for U.S. policy to remain unchanged, as have others.

But it's hard to ignore new markets, particularly one just 90 miles off shore, when mired in a recession. For the second time, Baucus has introduced the Promoting American Agricultural and Medical Exports to Cuba Act that has received bipartisan support and looks to begin a new era of relations with the U.S.' one-time enemy.

"Opening Cuba to our exports means more money in the pockets of farmers and ranchers across America," touted Baucus. "Lifting financing and other restrictions on U.S. agriculture could increase U.S. beef exports from states like Montana and Colorado from $1 million to as much as $13 million."

According to the Senate Finance Chairman, lifting the sanctions could allow agricultural exports in states like North Dakota and Arkansas to obtain nearly 70% of Cuba's wheat market, nearly 40% of its rice market and more than 90% of its poultry market. The legislation has strong support from farming states, especially when considering as much as $1.2 billion in total agricultural goods could be exported to Cuba. Further backing the move is research by the International Trade Commission that claims easing export restrictions could allow the U.S. to grab a 65% annual stake in Cuban agricultural imports, which translates into an additional $450 million per year for American businesses. With the United States lagging behind many other developed countries in Cuban relations, there is mounting pressure to move forward with some sort of agreement.

"Europe has scrapped its Cuba sanctions," said Baucus. "Just last week, EU officials were in Havana calling for full normalization of ties. And those officials made no secret of wanting to solidify ties with Cuba now to get the jump on the United States."

The opposition is vocal and emotional. Senator Robert Menendez (D-NJ) has fired several shots across the bows of President Obama and other political leaders looking to reignite ties with Cuba or weaken embargoes. He has said that the U.S. cannot lose sight of the ongoing human rights violations that Fidel and Raul Castro have been guilty of or that Cubans have yet to be awarded the basic civil liberties that U.S. citizens take for granted.

Florida Senator Mel Martinez (R-FL) also continues to stress the human rights angle: "While I appreciate the President's willingness to address some of the challenges facing the Cuban people, I also ask that he consider implementing policies that will empower the Cuban people, not embolden the regime," said Martinez. "Wholesale change in Cuba won't come from Washington. Change for Havana can only come from Havana."

However, the push to rebuild trade ties is also viewed as a means to promote diplomatic change. "I'm not blind to the Cuban people's suffering or the crimes of their government," said Baucus. "But I also see that increased trade ties historically have led to improved political ties, whether between Argentina and Brazil in this hemisphere or between former rival nations in Europe."

Matthew Carr, NACM staff writer

Industry Credit Groups

Credit groups are an effective management tool. They permit credit professionals of different companies servicing the same customer, regardless of industry or trade, to compare information on collection history and provide a forum for the exchange of data as to the most recent payment practices. The purpose of exchanging information is to help group members segregate fiction from fact, so competent and realistic credit decisions about a customer can be made.

Managed and operated by NACM Affiliates nationwide, NACM-Canada in Canada and FCIB internationally, credit groups:

• Provide unparalleled networking opportunities
• Assist in the exchange of credit information on common customers
• Facilitate the receipt and analysis of information to make unilateral credit decisions
• Provide the forum to discuss the latest developments on credit department procedures, equipment and other credit management functions
• Support the discussion of account information and delinquent account reports
• Adhere to federal antitrust guidelines

Click here to learn more about NACM credit groups and find the group for your industry.

Obama Signs Credit CARD Act Into Law

An act that would impose major limits on credit card issuers recently passed both houses of Congress and was enacted into law by President Barack Obama shortly thereafter. The Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 is aimed at preventing what many have considered to be the abusive practices of card issuers by prohibiting certain actions against delinquent customers such as unannounced interest rate increases and high penalty fees.

"Over the past few months, the Obama Administration has worked aggressively to set our economy back on track, repair our financial system and help support the flows of credit on which small businesses and consumers depend. This effort requires new rules of the road that will protect consumers from predatory and unfair lending practices. Credit card reform is a key part of increasing those consumer protections—protections against deceptive and complex rules, from sudden rate hikes to hidden fees that have hurt millions of responsible borrowers," said U.S. Treasury Secretary Timothy Geithner, who applauded the bill and its enactment. "The passage of the Credit Card Accountability, Responsibility and Disclosure Act, in an overwhelmingly bipartisan vote, is an important step forward in consumer protection and will help create a more fair, transparent and simple consumer credit market."

The bill passed by an overwhelming 90-5 margin in the Senate and 361-64 margin in the House. However, while a large majority of legislators voted for the bill, some were left disappointed by what the bill excluded, namely a provision that would've provided more aid to the nation's small businesses, that have frequently been required to rely on credit cards to get them through rough patches. "The Credit CARD Act provides significant protections for consumers who could otherwise fall victim to abusive and deceptive practices by credit card companies," said Senator Mary Landrieu (D-LA), chair of the Senate Committee on Small Business and Entrepreneurship. "Unfortunately however, the Credit CARD Act does not apply protections to small business owners who have fallen victim to predatory credit card practices."

Landrieu included an amendment with support from both sides of the aisle that would've made the bill apply to small businesses just as much as it applies to consumers, but the provision was excised from the final version. "I am disappointed that the Senate did not accept my bipartisan amendment cosponsored by Senator Olympia Snowe (R-ME) that would have applied the bill's protections to small businesses with 50 or fewer employees. While 59% of small businesses recently reported that they use credit cards to finance their businesses, 63% report that their interest rates have increased in the last year and 41% reported cuts to their credit limits," said Landrieu. "I will continue to work with my colleagues on the Small Business and Entrepreneurship Committee to pass legislation that will protect America's Main Street businesses from usurious credit card practices."

Jacob Barron, NACM staff writer

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For more information or to enroll in this program, please click here and enter passcode 51JVYT or call 1-800-MEMBERS (1-800-636-2377, 8:00am-6:00pm EST, M-F).

Construction Numbers for April Reach a New Low

The bright side of the construction industry seems to be continually lost in an eclipse. Industry sectors continue to report a running tally of declines, and construction workers have been some of the hardest hit in terms of unemployment, mired in an unemployment rate twice the national average at 18.7% and struggling under ongoing waves of heavy layoffs. In April, the U.S. Department of Labor reported that the construction industry showed seasonally adjusted job losses of 110,000, representing one-fifth of total job losses seen across the nation. More bad news comes via the exceptionally bleak new residential construction numbers for April, with privately owned building permits down 3.3% from March to 494,000, more than 50% below the numbers seen in April of last year.

In April, privately owned housing starts continued to feel for a bottom, falling 12.8% below March estimates to 458,000, and are now more than 54% below the April 2008 figure of 1,001,000. Single-family housing starts did experience a modest tick upwards though, to 368,000, up 2.8% from March.

Housing completions, which have been in freefall, continue to struggle. According to Census Bureau statistics, privately owned housing completions in April stood at a seasonally adjusted rate of 874,000, 4.9% below March estimates and representing a 15% decline from the rate seen in April of last year. One positive was that single-family housing completions inched upwards slightly to 549,000 from March, an increase of a mere 0.2%.

The latest report is just one part in a precipitous slide that the housing and real estate sector has been experiencing over the last several years. Housing starts saw a peak at the beginning of 2006 but have since plummeted 80%, while houses currently under construction are at a 12-year low, down 60% from the first quarter of 2006. The complete collapse has reverberated throughout a multitude of industries, not only resulting in severe job losses in residential building, but also in specialty trade sectors related to housing—not to mention financial services that got left holding the bag when the bottom fell out.

To help offset some of the widespread deterioration being experienced by the construction industry, the Department of Treasury and the Department of Housing and Urban Development (HUD) are doling out $5 billion from the American Recovery and Reinvestment Act (ARRA) to put construction workers to work building affordable housing. The effort is to fight off two birds with one stone: putting more Americans to work and making more homes available to struggling families.

HUD will also be issuing an additional $2.25 billion in grants to state housing credit agencies under the Tax Credit Assistance Program (TCAP) to complete the construction of developments that will ultimately provide homes for some 35,000 low-income households.

Matthew Carr, NACM staff writer

U.S. Members of Congress Introduce Legislation on Argentine Debt and Court Defaults

American Task Force Argentina (ATFA), a coalition of more than 40 taxpayer, investor, educator, Latino and agriculture organizations, recently commended members of the U.S. House of Representatives for introducing legislation imposing stiff penalties on wealthy and middle-income nations like Argentina that refuse to honor obligations to U.S. creditors.

The effort is being led by Representative Eric Massa, a Democrat from New York State who was raised in Argentina while his father served as the U.S. Naval Attaché in Buenos Aires. Also introducing the legislation were Representatives Paul Tonko (D-NY), Robert Wexler (D-FL), Timothy Bishop (D-NY), Carolyn Maloney (D-NY), Dan Maffei (D-NY) and Mike McMahon (D-NY).

The bill, H.R. 2493, called the Judgment Evading Foreign States Accountability Act of 2009, would bar from U.S. capital markets any nation that has been in default of U.S. court judgments totaling more than $100 million for more than two years. The legislation would also require the U.S. government to consider the default status of these countries before granting them aid.

"Argentina is ignoring billions of dollars in U.S. court judgments, which has hurt not just U.S. citizens, but also Argentine citizens," said ATFA Executive Director Robert Raben. "U.S. taxpayers are still waiting to be repaid money they lent to Argentina in good faith. At the same time, Argentina is saddled with the reputation of a deadbeat because their government defaults on court judgments. This legislation should pave the way for a fair resolution for both countries."

In 2001, Argentina defaulted on $81 billion in obligations to investors — the largest sovereign debt default in history. In 2005, Argentina offered bondholders 27 cents on the dollar for outstanding debt, far below the international norm for sovereign debt restructurings. Argentina repudiated its debts to the 50% of foreign lenders who declined the offer. U.S. courts have ruled in favor of these "holdout" bondholders in numerous cases, but the Argentine government has refused to repay its debts, choosing to default on those judgments.

"President Kirchner has said several times she's prepared to negotiate with bondholders, but we've seen no action whatsoever," Raben said. "Argentina has $45 billion in reserves and can afford to pay its $3.5 billion in debts to U.S. bondholders many times over. It's time to resolve this issue for the benefit of both nations."

A team of Argentine economists concluded in 2006 that Argentina's default status causes the nation to lose more than $6 billion in foreign direct investment every year. The U.S. State Department warned in February 2009 that Argentina's unresolved debts, and the resulting court judgments, have created a risky climate for U.S. investors.

Argentina's refusal to resolve its outstanding debts may be setting a precedent in the region. Ecuador in recent months defaulted on more than $3.8 billion in obligations to foreign investors, citing Argentina as a model.

The legislation is intended to encourage responsible lending, support the rule of law and improve international accountability by:

• Denying Argentina and other foreign states that have been in default of U.S. court judgments exceeding $100 million for more than two years access to U.S. capital markets;
• Denying domestic corporations of such judgment evading foreign state that remain in default for more than three years access to the U.S. capital markets;
• Requiring the U.S. government to consider the default status of countries before granting them aid; and
• Requiring the Secretary of the Treasury to issue annual reports naming these states and analyzing the impact of their behavior on the U.S. economy.

The legislation would not affect poor nations, including those eligible for International Development Association financing or relief through the World Bank's Heavily Indebted Poor Countries (HIPC) Initiative or the Multilateral Debt Relief Initiative.

Made up of an alliance of organizations, ATFA's leadership includes Executive Director Robert Raben, a former assistant attorney general at the U.S. Department of Justice, and is co-chaired by the Honorable Robert J. Shapiro, former Under Secretary of Commerce for Economic Affairs in the Clinton Administration, and Ambassador Nancy Soderberg, Ambassador at the U.S. Mission to the United Nations in New York from 1997 to 2001.

For additional information, please visit our website at www.atfa.org, or contact
media@atfa.org, or +1-888-662-2382.

Source: American Task Force Argentina

 

 

To view past eNews issues or visit the NACM Archives, click here.

 

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