The Extraterritorial Effect of Foreign Exchange Control Laws

Article VIII section 2(b) of the International Monetary Fund Articles of Agreement makes "exchange contracts" which are contrary to approved foreign exchange regulations of members "unenforceable" and provides that member nations may further agree upon measures to enforce each other's foreign exchange laws. The recent New York Court of Appeals decision in Banco do Brasil, S.A. v. A. C. Israel Commodity Co. illustrates the serious shortcomings of IMF provisions for enforcing foreign exchange controls. The case also suggests that general conflict of laws rules can be used to effectuate the policies underlying exchange control laws.