GATA (Gold Anti-trust Action)Lawsuit... Page 5
2. Pre-1971 Statutes Do Not Permit Gold Market Intervention Today.
The Federal Reserve and the ESF are the only instrumentalities of the federal government with broad statutory authority to "deal in gold." As enacted in the original Federal Reserve Act (Dec. 23, 1913, c. 6, s. 14(a), 38 Stat. 264) and unchanged since, 12 U.S.C. s. 354 provides in relevant part:
Every Federal reserve bank shall have power to deal in gold coin and bullion at home or abroad, to make loans thereon, exchange Federal reserve notes for gold, gold coin, or gold certificates, and to contract for loans of gold coin or bullion, giving therefor, when necessary, acceptable security....
When this statute was enacted, the gold value of the dollar was officially set at $ 20.67/ounce, and the Federal Reserve had no authority to vary this price. This provision, which addresses only what the Federal Reserve can do for its own account, has nothing to do with buying, selling or otherwise dealing with the official gold reserves of the United States, which are under the control of the Secretary of the Treasury acting with the approval of the President. 31 U.S.C. ss. 5116-5118.
Originally created by the Gold Reserve Act of 1934 and funded with profits from the gold confiscation, the ESF is the only other arm of the federal government that "may deal in gold, foreign exchange, and other instruments of credit and securities." 31 U.S.C. s. 5302(b). "Subject to approval by the President, the fund is under the exclusive control of the Secretary [of the Treasury], and may not be used in a way that direct control and custody pass from the President and the Secretary." 31 U.S.C. s. 5302(a)(2). The statute further provides (31 U.S.C. s. 5302(a)(2)): "Decisions of the Secretary are final and may not be reviewed by another officer or employee of the Government."
The DOJ does not argue that this provision precludes judicial review. It does argue that action by the ESF while Mr. Summers was Secretary of the Treasury cannot be attributed to him personally. This argument misrepresents the nature of the ESF, which is a self-financing fund outside the appropriation power of Congress and under the exclusive personal control of the Secretary of the Treasury subject only to the approval of the President. Indeed, the ESF's self-funding nature may well violate the separation of powers. A. J. Schwartz, "From Obscurity to Notoriety: A Biography of the Exchange Stabilization Fund," 29 Journal of Money, Credit and Banking 135, 138 (Vol. 29, No. 2, May 1997).
At the same time that it established the ESF, Congress established $ 35/ounce as the new gold value of the dollar and generally prohibited gold ownership by American citizens. It did not confer on the Secretary of the Treasury any authority to modify or vary the gold value of the dollar, only to defend the value that Congress itself had set. By outlawing most private ownership of gold, Congress effectively foreclosed public trading of gold in the United States, leaving virtually no room for the ESF to come into conflict with American citizens lawfully dealing in gold.
Although Congress has left standing an anachronistic official gold price of $ 42.22/oz., no reasonable argument exists that this figure remains a legitimate target for official attempts to stabilize gold prices. By establishing a free market for gold, Congress foreclosed either the Secretary of the Treasury or Federal Reserve officials from setting any particular price or price level for gold, whether acting directly or through instrumentalities such as the BIS.
C. Defendants Summers, Greenspan and McDonough May Be Held Personally Liable in Damages Because They Knew or Should Have Known They Lack Authority to Manipulate Gold Prices.
Both the Secretary of the Treasury acting through the ESF and the Federal Reserve claim authority to intervene in the currency markets for the purpose of affecting the value of the dollar versus other currencies (P.A. Ex. V). They exercise this authority and regularly admit to exercising it, although sometimes not until well after the fact. But neither the ESF nor the Federal Reserve has ever claimed authority to intervene in the gold market for the purpose of affecting the gold value of the dollar. Nor does the DOJ argue in its memoranda that they have this authority. Rather, it suggests correctly that U.S. officials might affect gold prices incidentally as a result of legal sales from U.S. gold reserves. However, no legal sales of this nature have been reported since 1978.
In fact, both Mr. Greenspan directly and Mr. Summers indirectly have acknowledged their awareness that neither the Federal Reserve nor the Secretary of Treasury acting through the ESF has authority to manipulate dollar gold prices. In his letter to Senator Lieberman, Mr. Greenspan stated that transactions by the Federal Reserve "aimed at manipulating the price of gold or otherwise interfering in the free trade of gold, would be wholly inappropriate" (C. 98; DOJ Ex. E). Similarly, officials who worked under Secretary Summers, although not Mr. Summers himself, denied any interventions in the gold market by the ESF (P.A. Ex. J). These statements are consistent with trying to cover up financial guarantees or other backing extended by the ESF or the Fed to bullion banks engaged in suppressing gold prices through the use of gold derivatives, not to mention gold swaps by the ESF most likely executed by the N.Y. Fed as its agent.
The complaint alleges, inter alia, that from 1997 through 2000 discrepancies between the gold accounts of the Federal Reserve and the ESF combined with trading losses by the ESF during periods of relatively buoyant gold prices "strongly point to losses on gold trading, probably incurred primarily through some form of participation in gold derivatives, as the reason for the ESF's recent poor trading results" (C. 65). Providing financial guarantees is consistent with ESF practice in other areas, as evidenced by those it gave to the BIS with respect to its Brazilian loans in 1998-1999 (P.A. Ex. K, note 7). What is more, the ESF's balance sheet contains areas where such guarantees or gold swaps, if not off-balance-sheet items, could be hidden, e.g., repurchase agreements with Deutsche Bank (note 2) or transactions involving IMF Special Drawing Rights (note 4), which have an official value of $ 35/ounce.
With total balance sheet assets of some $ 40 billion (P.A. Ex. K), the ESF has ample resources to engage in transactions of sufficient size to affect the gold market. The Federal Reserve has virtually unlimited dollar resources. Both, therefore, have the ability to extend financial guarantees or other support to bullion banks that would reduce their need for protective delta hedging in connection with trading gold derivatives. Done in connection with the writing of call options by bullion banks, this tactic could be very effective in bringing downward pressure on gold prices. The use of gold swaps would make it even more effective by supplying physical gold as well.
Nor can U.S. officials legitimately accomplish through the BIS what they cannot do under federal law. Literature by and about the BIS emphasizes the bedrock importance attached to Article 19 of its Statutes: "The operations of the Bank shall be in conformity with the monetary policy of the central banks of the countries concerned." As Henry H. Schloss wrote in The Bank for International Settlements (North-Holland Publishing Co., Amsterdam, 1958), p. 41: "This provision was important in allaying fears of those who objected to an international superpower which could destroy a country's sovereignty."
Thus, Messrs. Greenspan and McDonough were not only barred by U.S. law from manipulating gold prices, but also possessed a correlative right under Article 19 to require the BIS to respect the free gold market mandated by Congress. If Mr. Greenspan truly thought that U.S. policy prohibited any activities "aimed at manipulating the price of gold," he or Mr. McDonough should have made that point to the BIS under Article 19. Their letter of authority from Secretary of State Christopher expressed an expectation "that active participation of the Federal Reserve on the BIS board will serve U.S. foreign policy interests" (DOJ Ex. C).
Instead, taken as a whole, the evidence warrants a strong inference that the BIS served as a Trojan horse through which top U.S. officials, working with and through the defendant bullion banks, effectively suppressed gold prices. The secretive BIS cooperated because it needed a new mission to avoid, as Mr. Greenspan himself put it (P.A. Ex. I), "being effectively neutered" by the Treaty of Maastricht and the European Central Bank.
D. Defendants Summers, Greenspan and McDonough Knew or Should Have Known They Lack Authority to Arrange for U.S. Membership in the BIS by Purchasing Shares without Authorization and Appropriation by Congress.
The previously undisclosed documents attached to the DOJ's memorandum on behalf of Mr. Greenspan demonstrate at best authority for him and Mr. McDonough to assume seats on the BIS board as that organization was structured in 1994 with the American issue held privately. The DOJ has presented nothing to show that they or Mr. Summers had any authority whatsoever to commit the United States to join a restructured BIS functioning as a public international organization in the manner of the IMF or World Bank.
Withdrawal of the American issue from its private holders has placed Messrs. Greenspan and McDonough as BIS directors in a completely untenable legal and constitutional position. Without the American issue, there is no basis for them to continue to sit on the BIS board unless the Federal Reserve: (1) purchases for its own account the American issue; and (2) submits to the jurisdiction of the "Tribunal" referred to in Article 54 of the Statutes of the Bank (BIS.A. Ex. E). Neither action was authorized in 1994 or has been since.
There are well-established legal and constitutional requirements for U.S. membership in public international organizations. During the 1994-1996 period, Mr. Summers was undersecretary of the treasury for international affairs. He, along with Messrs. Greenspan and McDonough, had direct personal experience with the full panoply of constitutional procedures by which the United States joins international banks or funds, including appropriation of the required funds by Congress and consent by the Senate to any necessary treaty as well as to the appointment of the U.S. representatives to the organization.
The details of these procedures are demonstrated in the historical and statutory notes collected under the opening section of the International Organizations Immunities Act (22 U.S.C.A. s. 288) and nearby sections of Title 22 providing for U.S. membership in specific international organizations. Among the more than 75 international organizations of which the United States is a member are several international banks and funds, including the IMF and the International Bank for Reconstruction and Development (or World Bank). The United States joined the North American Development Bank (22 U.S.C. s. 290m et seq.) in 1994 and the Middle East Development Bank (22 U.S.C. s. 290o et seq.) in 1996.
Like earlier statutes authorizing U.S. membership in international organizations, the 1994 and 1996 acts generally provide: (1) express authorization for the President "to accept membership for the United States" (s. 290m(a); s. 290o); (2) provision for appointment of U.S. representatives by the President "with the advice and consent of the Senate" (s. 290o-1); (3) an appropriation for the subscription of stock by the Secretary of the Treasury (s. 290m(b); s, 290o-4); (4) a requirement that distributions of net income be paid into the Treasury (s. 290m(b)(4); s. 290o–4(d); and (5) provisions relating to jurisdiction of U.S. courts and the Securities and Exchange Commission (s. 290m(g)&(h); s. 290o-5&o-7). What is more, these statutes also make express provision for Federal Reserve Banks to serve as depositories (s. 290m(f); s. 290o-3).
The DOJ has presented nothing, and there is nothing in the public record, to show that Secretary Summers or Messrs. Greenspan or McDonough made any effort whatsoever to follow any of these procedures with respect to the proposal last year to restructure the BIS as a public international organization. Instead, recklessly and wilfully ignoring all relevant constitutional requirements, they proceeded to interfere with the property rights of U.S. holders of the American issue by instigating, approving and/or voting in favor of the freeze-out.
Absent compliance with the required constitutional procedures, there is no authority for the Secretary of the Treasury, the Federal Reserve System or the N.Y. Fed to purchase BIS shares or to submit the United States to the jurisdiction of the Tribunal under Article 54 of the Bank's Statutes. Accordingly, any further participation by the United States in the BIS, or any purchase of its shares by or on behalf of the United States, should be enjoined absent compliance with constitutional requirements. Indeed, injunctive relief is particularly appropriate here, where by requiring the United States to choose between not participating in the BIS or joining it by constitutional means, an injunction might also precipitate voluntary action to remedy the feeze-out's unconstitutional interference with the property rights of holders of the American issue.
E. Defendants Summers, Greenspan and McDonough Knew or Should Have Known that Suppressing Gold Prices through the BIS or Otherwise Is Contrary to U.S. Foreign Policy toward Sub-Saharan Africa.
In 1999, the IMF's proposed gold sales failed to secure approval by Congress as required under 22 U.S.C. s. 286c, which itself was revised to provide in relevant part (Pub.L. 106-113, div. B, s. 1000(a)(5) [title V, s. 504(d)(1)], 113 Stat. 1536, 1501A-317):
Unless Congress by law authorizes such action, neither the President nor any person or agency shall on behalf of the United States ... (g) approve any disposition of Fund gold, unless the Secretary certifies to the Congress that such disposition is necessary for the Fund to restitute gold to its members, or for the Fund to provide liquidity that will enable the Fund to meet member country claims on the Fund or to meet threats to the systemic stability of the international financial system.
At the same time, Congress enacted a new 22 U.S.C. s. 286nn (Pub.L. 106-113, div. B, s. 1000(a)(5) [title V, s. 503(a)], 113 Stat. 1536, 1501A-316) approving a substitute IMF plan to mobilize some of its gold for the purpose of aiding poor countries "without allowing [its] gold to reach the open market or otherwise adversely affecting the market price of gold."
Congress took these actions precisely because the potential economic harm to Africa's sub-Saharan gold producing countries threatened to more than offset any aid that might be generated from the proceeds of the IMF's proposed gold sales. Congressional Record, S7905 (6/30/99); H5339 (7/12/99); E1613 (7/21/99). See D. E. Sanger, "Clinton Aides Seek Alternatives To an I.M.F. Sale of Some Gold," The New York Times, July 23, 1999, p. C4. In a more general vein, there have been many official expressions of U.S. support for the new multiracial government in South Africa as well as for all the struggling democracies of the region. Against these considerations, any efforts after mid-1999 to suppress gold prices and thereby damage the economies of these nations can only be viewed as deliberate circumvention of declared U.S. policy.
The Logan Act, 18 U.S.C. s. 953, provides in relevant part:
Any citizen of the United States, ... who, without authority of the United States, directly or indirectly commences or carries on any correspondence or intercourse with any foreign government or any officer or agent thereof, with intent to influence the measures or conduct of any foreign government or of any officer or agent thereof, in relation to any disputes or controversies with the United States, or to defeat the measures of the United States, shall be fined ... . [Emphasis supplied.]
Although generating few reported cases, the Logan Act has been asserted in a civil action to try to prevent judicial enforcement of a contract obtained in alleged violation thereof. Waldron v. British Petroleum Co., 231 F.Supp. 72, 88-89 & n. 30 (S.D.N.Y. 1964). Similarly, a federal official whose conduct contravenes the Logan Act should not be allowed to invoke sovereign immunity to defeat a private right of action for damages under the Fifth Amendment arising out of that same conduct, which is itself an affront to the sovereign.
The BIS's board consists mostly of central bank officials who are officers or agents of foreign governments. Unauthorized cooperation with these people, specifically including the Governor of the Bank England, to suppress gold prices is conduct calculated to defeat clearly stated U.S. foreign policy measures. First, it undermines Congress's support for stronger gold prices as reflected in its 1999 enactments relating to IMF gold. Second, it causes serious damage to the economies of gold producing nations in sub-Saharan Africa contrary to U.S. intent. And third, it makes a mockery of the free market principles which the United States advocates worldwide.
Best Regards, J.T. |
