Anti-leaking Law

1. Introduction

The De la Rúa administration issued a series of regulations restricting the withdrawal of deposits (the “corralito”). Those restrictions were further enhanced by the subsequent administrations, that also imposed a rescheduling of the deposits.

Law No. 25,561 of Public Emergency and Reform of the Exchange System (the “Emergency Law”), abandoned the peg of 1 Peso to 1 U.S. Dollar established by the Convertibility Law No. 23,928 as amended. Pursuant to the Emergency Law certain foreign currency denominated obligations were “pesofied”.

Depositors flushed the courts with claims and requested the granting of precautionary measures (amparos) pursuant to which judges ordered banks to return the depositors their monies in the currency in which the deposits were made or the equivalent in pesos at the market rate of exchange.

Decree No. 214/2002, as amended, expanded the “pesification” of the economy, and established a 180-day term suspension in all court proceedings challenging the validity of the “corralito” or the “pesification”.

The Argentine Supreme Court, in re Smith, declared the “corralito” unconstitutional, while the suspension of proceedings was considered unconstitutional by lower courts.

On April 25, 2002, the Congress passed the Anti-leaking Law in an intent to limit the provisional remedies that courts may grant, by establishing among other rules that precautionary measures cannot be granted if they have the same practical effect as a final decision.

2. Precautionary Measures

Section 1 of the Anti-leaking Law states that in all judicial proceedings against the federal government, financial entities or insurance companies challenging the provisions of the Emergency Law as amended and complemented it will only be admissible as a precautionary measure the prohibition to alter (prohibición de innovar). Individuals aged 75 or more, as well as those cases in which there is sufficient evidence of risk to the health, life or physical integrity are excluded from the regulation. This provision constitutes a provision of public ordre.

Precautionary measures over Central Bank funds cannot be granted. Also, in order to execute precautionary measures, a previous filing before the Central Bank has to be made.

Prior to the enactment of the Anti-leaking law, precautionary measures related to the Emergency Law as amended and complemented had to be appealed before the Supreme Court. The Anti-leaking Law provides for such appeals to be filed before the corresponding Federal Court of Appeals and such appeals would have a staying effect.

Recently Courts have declared that these rules are contrary to the Constitutional rights of the plaintiffs and that they violate the International Conventions signed by Argentina. A ruling from the Supreme Court will be necessary to give effect to the Anti-leaking Law. Otherwise the lower Courts will not apply these regulations.

3. Jurisdiction

According to Section 6 of the Anti-leaking Law, all judicial proceedings referred to in Section 1 thereof are subject to the jurisdiction of the federal courts.