Justice Upheld the Legality of “Blue-Chip Swap Transactions” Again

On March 11, 2015, Division “B” of the Criminal Court of Appeals for Economic Matters confirmed the ruling issued by the Criminal Court for Economic Matters No. 3 that acquitted a bank and its officials for certain transactions involving the simultaneous sale and purchase of securities back in 2005. Such transactions consisted of the sale of securities by the bank in Argentine pesos and the immediate repurchase of such securities from the same clients in U.S. Dollars. Such transactions were executed prior to the enactment of Communication “A” 4864 (dated November 3, 2008) which established that securities should remain in the seller’s portfolio for at least 72 business hours.

The Court of Appeals ratified that the transactions challenged (involving the simultaneous sale and purchase of securities) cannot be deemed prohibited transactions or, therefore, actions in violation of the regulations or actions characterized as an offense under the Foreign Exchange Criminal Law since these transactions do not constitute technically or strictly a foreign exchange transaction. In this regard, it was noted that there is a foreign exchange transaction in a technical sense, as a rule, only when there is an exchange of one currency for another, and must always involve the national currency (Peso).

On appeal, the Criminal Prosecutor for Economic Matters (PROCELAC) had argued that "the alleged securities transactions were a mere appearance with the purpose to conceal exchange transactions, avoiding going through the regulatory control in force." (...) "... In order to assess the nature of the maneuver, the underlying economic reality should be considered instead of the alleged legal structure ..."

Nevertheless, not only did the Court of Appeals not consider the economic reality principle, but also upheld that there is a constitutional prohibition, that forbids broad interpretation and analog implementation of punitive principles to behaviors that are not provided normatively; since otherwise the legality principle guaranteed by the Argentine Constitution would be violated.

Moreover, the Court noted that the transactions investigated were securities’ transactions rather than foreign exchange transactions; therefore, these securities’ transactions could not and should not be conducted through the Official Foreign Exchange Market (MULC) but through a stock exchange market. In short, the Court of Appeals endorsed the principle that, in foreign exchange matters, the legal nature of transactions cannot be appreciated from the perspective of the subjective purposes taken by the participants, but from the objective aspects of their constitutional or structural characteristics.

Certainly this leading case of the new stage of Argentina exchange regulation post 2002 default confirms the old case law established in the matter by the Supreme Court of Justice at the ruling "Esterlina S.A.” and sets an important precedent for the market, although to our knowledge, to the date of the report it was not final.

For the background of this case, please refer to “Securities Trading or Foreign Exchange Transaction?” published in Marval News # 125 of February 28, 2013, and “Legality of “Blue-Chip Swap Transactions” published in Marval News # 139 of May 30, 2014.