In this age of the internet, it seems like no one entity or person is immune from having their skeletons eventually pulled out of their proverbial closets – though the actual private nature of these skeletons for some may be suspect. While it’s hard for us as individuals to maintain our privacy, we should all be glad that at least we can eventually live down our collective indiscretions.
The same can’t be said for organizations or countries. If they screw up, they have their whole history recorded in textbooks to be taught to future generations.
Why suddenly bring up Nazi Germany you ask? Well, it’s because that part of history which many Germans everywhere would probably like to forget ever happened just doesn’t seem to want to go away. It doesn’t matter how many David Hasselhoffs or Sandra Bullocks they give us, because as soon as everyone starts to forget about the atrocities committed by Nazi Germany, BAM, something else comes out to remind everyone that Germany also gave us Hitler.
This latest uproar is over German government bonds that were sold to Americans after World War I. These bonds were sold by Germany so that they could raise money to rebuild the country after the war. The bonds worked like any government bond and gave the same attractive benefits. The best being that government bonds are guaranteed by the issuing country. This means that short of the government going bankrupt or being overthrown, the bonds will always be paid back.
At the time, Germany
was selling bonds at a high interest rate in order to generate money
faster. However, Hitler then used some
of the money to create his army and start World War II. After the dust settled, many US bondholders
couldn’t get paid. Why? Because Germany claims that the Soviet Army
stole many repaid bonds from a Nazi vault after the war ended. Therefore in response, Germany instituted a
complex validation process to ensure any bond submitted for repayment today are
authentic and not part of the stolen Soviet bonds.
You can probably guess what happened next. Germany denied a bunch of US bonds claiming they were part of the stolen Soviet bonds. The bondholders got angry, but held on to their bonds. And today, bondholders have filed suit in US federal courts in order to get those denied bonds repaid, which if they are, could mean potential losses in the billions of dollars for Germany.
The question now is whether or not Germany will actually have to pay. Unfortunately the answer is that they probably won’t.
Unfortunately for these bondholders, international business transactions are governed by a very complex area of law that generally favors governments over private citizens. The reason is because the principle of international comity compels most government judicial systems to rule in favor of countries, rather than individuals. Comity is just a fancy way of saying governments try to respect the sovereignty of other governments in order for them to get the same respect back (basically it’s a “we won’t stop you if you don’t stop us” mentality).
Though the international comity isn’t the only things courts will consider, it’s one of the driving factors in their decision making process. To that end, in the case of foreign property, such as a bond, US courts will always defer to foreign law when deciding a case. Specifically, in this instance it would be German law. Though the US court will usually do an inquiry into whether the foreign law itself is just, which they almost always will find that it is (comity, remember?). In which case, the court will then look at whether the person bringing the property claim followed the foreign law in question. Here it would be whether the bondholder went through the Germany bond validation process and whether the determination that the bond was invalid for repayment was correct. This is where the US bondholders will likely run into the most trouble.
You see, the authentication process is a very fact specific process requiring concrete evidence. Germany maintains a list of stolen bonds. The US bondholder would need to show evidence that would refute Germany’s list. And chances are, it will probably be very hard for any bondholder to find any evidence to support them since the bonds were issued over 70 years ago. Most homicide investigations get cold after a year of searching, and that’s with a full staff of trained detectives. What’s the chances anyone will be able to find credible evidence on something as old as a WWI era government bond? Not very likely.
I don’t want to say these bondholders will never get the money they believe they deserve. However, if it were me, I think my time would be better spent trying to find a wealthy Nazi memorabilia collector looking to expand his inventory instead of trying to win a 70 year old lawsuit.
By: Andrew Dat
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