Economic Sanctions and Central Banks: Applying the Principles Articulated in the Arbitral Decision between the Federal Reserve and Bank Markazi

Thomas C. Baxter

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Chapter 10 Economic Sanctions and Central Banks: Applying the Principles Articulated in the Arbitral Decision between the Federal Reserve and Bank Markazi

In: International Sanctions: Monetary and Financial Law Perspectives

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Thomas C. Baxter Jr.

Thomas C. Baxter Jr.
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Type:: Chapter

Pages:: 224–250

DOI:: https://doi.org/10.1163/9789004705708_012

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Abstract

This chapter analyzes the principles that were applied by the Iran-United States Claims Tribunal in an arbitration decision issued in November of 1999. The decision concerns a rare case between Bank Markazi, the central bank of the Islamic Republic of Iran, and the Federal Reserve Bank of New York, the central bank of the United States, where the dispute arose from an application of economic or financial sanctions by the host central bank, the Federal Reserve, with respect to the assets of Bank Markazi, during the Iranian Hostage Crisis. The economic or financial sanctions applied by the Federal Reserve had the effect of “freezing” or “immobilizing” the assets of Bank Markazi. With respect to the legality of the action taken by the Federal Reserve, the tribunal articulated the principle that when the economic or financial sanction is incorporated into U.S. law, which it was, then the legality of the Federal Reserve action imposing the sanction “could not be doubted.” The chapter also addresses the principle established by the tribunal with respect to a reasonable rate of interest with respect to frozen “cash” assets. If neither the applicable contract between the central banks nor the economic or financial sanction itself addresses whether interest is payable, it would be equitable to require payment of a reasonable rate. The tribunal discerned a reasonable rate from the course of dealing between the central banks. The chapter then applies the basic principles articulated by the tribunal to prospective future claims by the Central Bank of the Russian Federation against central banks holding Russian assets that have been frozen because of Russia’s aggression against Ukraine. The chapter observes that there is a substantial likelihood of claims by third-party creditors against such frozen Russian assets and foresees a need for some type of claims tribunal to adjudicate how the assets are to be distributed.

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International Sanctions: Monetary and Financial Law Perspectives

E-Book ISBN:: 9789004705708

Publisher:: Brill | Nijhoff

Print Publication Date:: 19 Jul 2024

Subjects
- Human Rights and Humanitarian Law
  - Human Rights
- International Law
  - International Commercial, Trade & Investment Law

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Chapter 10 Economic Sanctions and Central Banks: Applying the Principles Articulated in the Arbitral Decision between the Federal Reserve and Bank Markazi

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International Sanctions: Monetary and Financial Law Perspectives

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