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BANCO CENT. DE RESERVA DEL PERU v. RIGGS NAT'L BAN

December 12, 1994

BANCO CENTRAL DE RESERVA DEL PERU, Plaintiff,
v.
THE RIGGS NATIONAL BANK OF WASHINGTON, D.C., Defendant. THE RIGGS NATIONAL BANK OF WASHINGTON, D.C., Plaintiff, v. THE REPUBLIC OF PERU, et al., Defendants.



The opinion of the court was delivered by: GREENE

 Plaintiff, Banco Central de Reserva del Peru ("BCR") seeks to recover a $ 2 million dollar deposit placed with the Riggs National Bank of Washington, D.C. Defendant Riggs has filed a counterclaim requesting that the Court declare that it properly set off the deposit against outstanding debts. The parties have filed cross motions for summary judgment.

 Background

 In the early 1980s, Riggs made loans to Banco de la Nacion, Corporacion Financeria de Desarrollo S.A. ("COFIDE"), and Banco Popular del Peru ("BPP"), all of which are wholly-owned entities of the Republic of Peru. The loans totalled approximately $ 6 million. In 1983, Riggs renewed the loans pursuant to the restructuring of the Republic of Peru's debt. Peru unconditionally guaranteed the repayment of the loans upon demand. In addition, the then-President of Peru's External Debt Committee and the President and Chairman of the Board of Banco de la Nacion, Mr. Blacker-Miller, promised to maintain a $ 2 million deposit in the name of Banco de la Nacion with Riggs until the debt had been repaid.

 Approximately one month after Mr. Blacker-Miller made this commitment, Riggs received a $ 1 million deposit from BCR. Riggs communicated to Mr. Blacker-Miller that it had thought the guarantee-deposit would be maintained by Banco de la Nacion. An additional month later, Riggs received another $ 1 million deposit from BCR. This deposit was accompanied by a Telex from Hector Neyra, the Manager and Director of International Operations of BCR, that stated, "we are pleased to make an additional deposit in your distinguished bank in the amount of one million dollars, as agreed with the Comite de la Dueda Externa del Peru [Foreign Debt Committee of Peru)."

 In 1984 the loans became due, but Peru requested that Riggs extend the maturity dates. Riggs did so, extending the maturity dates periodically. BCR continued to maintain the $ 2 million deposit. In November of 1985, BCR instructed Riggs to cancel the deposit. Riggs thus demanded repayment of the $ 6 million in loans from the individual debtor banks, and then from the Republic of Peru as guarantor of the loans. The loans were not repaid. Riggs then executed a setoff by applying the BCR deposit, which at the time amounted to $ 2,320,303.08, to the obligations of the Republic of Peru under its guaranty.

 BCR brought suit in this Court requesting recovery of its deposit from Riggs on the grounds that the setoff was improper. Riggs seeks to have this Court declare that the setoff was proper.

 I

 II

 A bank may set off deposits against the indebtedness of a depositor where: (1) the debt to the bank has matured; and (2) there is mutuality between the debtor and the creditor and between the debt and the deposit. See, e.g., Martens v. Hadley Memorial Hospital, 729 F. Supp. 1391, 1396 (D.D.C. 1990). The parties do not contest that the debts had matured. What they do dispute is whether mutuality existed.

 BCR contends that the deposit it maintained with Riggs was for its own benefit, and was not placed to satisfy Mr. Blacker-Miller's commitment. Allegedly, Riggs knew that the account was for BCR's own benefit, rather than as a guarantee of the other Peruvian banks' debts. The accounts were opened in BCR's name, not in the name of Banco de la Nacion, as had been agreed. Additionally, the Riggs loan committee did not categorize the deposit as "collateral" for the other loans. Thus, as there was no connection between BCR's deposit and the other banks' loans, there was no mutuality between the deposit and the debt.

 This argument is premised on the fact that BCR and the other Peruvian banks are separate juridical entities as set up by Peruvian law. BCR is the central bank and monetary authority for Peru. Banco de la Nacion is the fiscal agent of Peru; its shares are wholly owned by the Republic. BPP and COFIDE are also both wholly owned by the Republic. As a general rule, courts must give great deference to the intent of foreign governments to establish separate entities. "Government instrumentalities established as juridical entities distinct and independent from their sovereign should normally be treated as such." First National City Bank v. Banco Para el Comercio Exterior de Cuba, 462 U.S. 611, 626-27, 77 L. Ed. 2d 46, 103 S. Ct. 2591 (1983) (Bancec). Thus, BCR maintains, despite the fact that all the banks involved are operated by the Peruvian government, Riggs cannot treat a deposit placed by BCR as a deposit maintained by Banco de la Nacion.

 There is an exception to the general rule, however, where treating an entity as separate from its government "would work fraud or injustice." Id. at 629. Riggs extended the loans of COFIDE, Banco de la Nacion, and BPP in exchange for a guaranty by Peru. Along with this guaranty, Peru agreed to deposit $ 2,000,000 in the name of Banco de la Nacion with Riggs until the deposit had been paid. The parties do not dispute this. A deposit was never made by Banco de la Nacion. At approximately the time Riggs expected the deposit from Banco de la Nacion, however, it received two $ 1 million deposits from BCR. The telex accompanying the second of those deposits referenced the agreement with Peru's external debt committee. Riggs is not asserting that BCR and the Republic of Peru are one entity for all purposes, but only for purposes of this transaction. And there is evidence, the telex from Mr. Neyra, that the government of Peru chose to complete its transaction through BCR. BCR cannot now disassociate itself from the Republic of Peru, circumventing the entire purpose of the deposit and ...


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