According to @BDL_Lebanon, it holds more than $13 billion worth of gold, most or all held in vaults in the US. If the Govt of Lebanon (GoL) defaults on its Eurobond obligations, can bondholders take enforcement action against BdL assets and seize the gold? Maybe, but probably not
GoL Eurobonds are governed by NY law & sovereign immunity has been waived, meaning the GoL agreed to submit to the jurisdiction of NY State/Federal courts for claims/proceedings arising from the Eurobonds. These are standard provisions in most Eurobonds in countries like Lebanon.
What does NY law say on the question of the gold? The Foreign Sovereign Immunities Act (FSIA) is the governing statute. Politically, the US Govt is reluctant to enforce judgements against CB assets as it doesn’t want to discourage CBs from keeping their reserves in the US.
The FSIA is consistent with that goal and grants extensive immunity to CB assets. US Courts have interpreted FSIA the same. For example, creditors in the Argentina default case were unable to execute against assets of the Argentine CB (in a case also under NY law).
In that case, the US Ct of Appeals for Second District made two important interpretations of FSIA. Firstly, central bank immunity is not waived w/ the sovereign’s unless plaintiffs demonstrate “day-to-day control over the instrumentality [i.e., the CB] by the parent govt.”
That means the Govt dictates the CB’s business decisions. Loans between a CB & Govt, & coordination in setting monetary policy, does not demonstrate day-to-day control for purposes of the FSIA.
Secondly, CB immunity can be waived for property not used for central banking functions. How courts are to determine what constitutes central banking functions remains unclear esp as CB functions change over time.
However, US Congress can always change the law even while proceedings are ongoing. For ex, US Congress limited the immunity of Iran’s frozen central bank assets to allow for the execution of terrorism related judgments.The US Supreme Court can also change the law’s interpretation
What does all that mean for Lebanon’s gold? Most likely it is immune from judgement under current law. However, BdL owns significant property unrelated to its central banking functions (e.g., MEA) which may not be immune from execution. For MEA, that means planes could be seized.
Plaintiffs could always try to demonstrate that BdL and/or its gold fall under one of the exceptions to the FSIA described above (unlikely to succeed), US Congress can change the law (political decision), or Supreme Court could change the interpretation of the law.
It is also unclear how Law No 42 in 1986 passed by Lebanon’s parliament, “prohibiting the disposal of gold assets with or on behalf of the [BdL], & under any circumstances,” would factor into a court’s decision re: whether BdL assets controlled by GoL thru legislation are immune.
