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In view of the intergovernmental nature of this agreement, the Government of Peru declares that there no longer exist any liabilities for the payment of taxes, or any other charge or obligation, or legal action, civil or otherwise, against the Marcona Corporation or its subsidiaries, branches or affiliates, including the Marcona Mining Company, or against the present or former officials of any of them. regarding their activities as employees of Marcona Corporation, its subsidiaries, branches or affiliates, prior to the conclusion of this agreement. Nor will there be any claims or proceedings based on such taxes, charges, obligations, or legal actions affecting the natural or juridical persons referred to above.
After the entry into force of this agreement, neither Government will present to the other, on its behalf or on behalf of natural or juridical persons of its nationality. any claim or demand arising out of the nationalization by the Government of Peru of Marcona Mining Company's mining-metallurgical complex in Peru or of the operations of the Marcona Mining Company or its subsidiaries. In the event that such claims are presented directly by nationals or juridical persons of one country to the Government of the other, such Government will refer them to the Government to which the national or juridical person belongs.
The preceding paragraph of this Article is subject to the payment of $37 million (thirty-seven U.S. million dollars) in cash and performance of the contractual obligations referred to in Article I of this agreement.
The Government of Peru affirms that in accordance with Article 12 of Decree Law 21228, Hierro-Peru has assumed, by subrogation, the outstanding obligations of the Peruvian branch of the Marcona Mining Company to suppliers and lending institutions, as well as the salaries and social benefits of its employees.
It is the understanding of the Government of the United States of America that the Marcona Corporation recognizes that the undertakings of the Government of Peru specified in the present agreement, once implemented, constitute the full and final settlement of its claims resulting from the nationalization, and that it similarly accepts and promises to carry out fully and in good faith, the contracts with Minero Peru Comercial entered into relating to the sale of ore, and with Compania Peruana de Vapores relating to the freight contract dated December 11, 1975, until its expiration on March 31, 1977.
The present agreement will enter into force upon its approval by the Government of Peru, and upon the signature and acceptance of the promissory note and ore sales contract referred to in this agreement. Done in Lima this 22nd day of September, 1976, in English and Spanish, both versions being equally authentic.
Agreements for the Protection
The United States and Fiji exchanged notes at Suva dated December 30, 1975, and January 9, 1976, relating to U.S. Government investment insurance and guaranties under the authority of section 237(a) of the Foreign Assistance Act of 1961, as amended (22 U.S.C. 2197(a)). The agreement entered into force on January 9, 1976 (TIAS 8281; 27 UST 1826).
The agreement sets forth certain procedural understandings between the two governments regarding the operation in Fiji of the private investment program administered by the Overseas Private
Investment Corporation (OPIC), a U.S. Government corporation which assists and encourages the investment of American private capital and know-how in less developed friendly countries.
In the event payment is made under an OPIC contract, the agreement recognizes the right of the U.S. Government to succeed to an insured party's rights upon payment of a claim; it establishes intergovernmental mechanisms, including third-party arbitration, for resolving certain disputes, and it stipulates that investment projects to be covered under the agreement must be approved by the host country.
An investment guaranty agreement between the United States and Oman was effected by exchange of notes on September 9, 1976, to enter into force following approval by Oman. It applies the standard assurances relating to private investment to investment in the Sultanate of Oman. Differences between the two countries concerning interpretation of the agreement or claims arising under its coverage are to be settled by negotiations between the two Governments or, if such negotiations do not succeed, by an arbitral tribunal.
An exchange of notes between the United States and Syria on August 9, 1976, constituted another in the series of investment guaranty agreements for operation of the U.S. overseas investment insurance and guaranty program. The agreement, which will enter into force following approval by the Syrian Government, provides the standard assurances with respect to subrogation and international arbitration of disputes. It identifies the "issuer" of coverage as OPIC or any other entity which may be legally distinct from the United States. The OPIC coverages offered comprise the investment insurance program and the investment guaranty program. Investment insurance offers protection against political risk including (a) the inability to convert into dollars local currency received by the investor as profits, earnings, or return of the original investment; (b) loss of the investment due to expropriation, nationalization or confiscation by action of the host government; and (c) loss due to war, revolution, or insurrection. The investment guaranty program provides guaranties by the U.S. Government of payment on medium and long term loans made by U.S. lenders to eligible projects.
National Legal Provision for
The Overseas Private Investment Corporation
The Overseas Private Investment Corporation (OPIC), on July 7. 1976, announced that, to strengthen the position of U.S. contractors in competitive bidding for construction contracts abroad, it would offer U.S. businesses the additional coverage of political risk insurance for the letters of credit, known as bank guaranties, which are required by many governments, particularly in the Middle East. The OPIC Board of Directors had authorized issuance of such insurance on June 15, 1976. The announcement stated further:
The letters of credit vary in amount from two percent to 20 percent of the gross contract, provide for guaranty of performance by the contractor, and are treated as loans by the issuing banks. OPIC's insurance will remove the political risk inherent in these transactions, and will permit more U.S. firms to participate in the development of the Middle East.
Under its new program, OPIC will insure 90 percent of the letter of credit against an arbitrary drawing. As a result of OPIC's action, a number of surety companies have agreed to provide on-demand bonds to collateralize the commercial risk under the letters of credit, thus minimizing the issuing banks' risk and facilitating the issuance of the letters of credit.
OPIC will require that provision for a satisfactory dispute mechanism, specifying that an appropriate forum determine the reason for the drawing of a letter of credit, be contained in the underlying construction contract. If this forum finds that the drawing of funds was justified on the basis of a contractor's nonperformance, liability will lie with the surety company. However, if performance is judged adequate, the action of the host government will be considered expropriatory, and the risk of loss will lie with OPIC. A number of banks have agreed to provide bridge financing during the disputes period.
A September 27, 1976, ruling by the Comptroller of the Currency. which administers national banking regulations, stated that combined standby letters of credit covered by OPIC/Surety insurance will be ruled as exemptions from legal lending limits and allow banks to treat the letters of credit as a contingent liability rather than as a loan chargeable against the customer's line of credit.
OPIC News Releases TS/362, July 7, 1976, and TS/371, Oct. 6, 1976; OPIC Topics, Vol. 5, No. 4 July/Aug. 1976. OPIC also released the OPIC/Surety Proposal for Insuring Standby Letters of Credit for Bid, Performance, and Advance Payment Guaranties, available on request from the Office of Public Affairs, Overseas Private Investment Corporation, 1129 20th St., N.W., Washington, D.C. 20527.
Appeal of Arbitration Award
On July 26, 1976, OPIC appealed to the U.S. Court of Appeals for the District of Columbia Circuit, the July 20, 1976, judgment of the U.S. District Court, in Overseas Private Investment Corporation v. The Anaconda Company, 418 F. Supp. 107 (1976). The District Court denied OPIC's motion to vacate a decision of a panel of the American Arbitration Association holding OPIC liable for payment of expropriation insurance claims filed by the Anaconda Company. Anaconda had filed claims for $154 million in connection with the expropriation in 1971 of two of its Chilean mining properties. Following OPIC's denial of the claims in 1972, Anaconda had submitted the case to arbitration as provided in its insurance contract with OPIC. The arbitration panel, in July 1975, had decided that OPIC was liable, leaving the determination as to the amount of liability to a second stage of the arbitration proceedings. See the 1975 Digest, pp. 497-498.
OPIC's motion to vacate the arbitrators' decision was based on failure to disclose negotiations that allegedly occurred during the arbitration proceedings between one of the arbitrators and a law firm which assisted in the preparation of Anaconda's case. OPIC maintained that the negotiations led to an affiliation of the arbitrator with that firm and that neither the negotiations nor the affiliation were disclosed until after the arbitrators' decision.
OPIC Topics, Vol. 5, No. 4, July/Aug. 1976, p. 7.
The House of Representatives on August 24, 1976, passed by voice vote proposed legislation (H.R. 14681) that would terminate OPIC insurance for companies making significant payments to influence foreign officials. In testimony before the International Relations Committee of the House on August 5, Marshall T. Mays, President of OPIC, opposed the bill on the ground that it was unnecessary and would require OPIC to assume regulatory functions that would have a substantial adverse effect on OPIC's operations without significantly influencing the overall problem of questionable payments made by U.S. companies abroad.
In his testimony, Mr. Mays pointed out that provisions contained in existing OPIC insurance contracts handle the problem of illegal payments in a manner consistent with OPIC's operating procedures. He continued:
_._. . They permit OPIC to operate as an insurer, carrying out U.S. policy by controlling the transfer and assumption of risks. Under the contract, the investor, rather than OPIĆ, assumes the
risk of illegal activity. At the same time, OPIC's insurance provides a substantial measure of protection to investors threatened with adverse governmental action unless demands for payments are met. When the corporate executive is complying with the law and refusing to make payment on an extortion demand, he knows he has the backing of our insurance.
Indeed, the result achieved under OPIC's standard insurance contract fully carries out the basic objective of all these bills in that OPIC's insurance for investment projects creates substantial disincentives to illegal payments and corrupt business practices on the part of the U.S. investor in carrying out the project.
Mr. Mays stated that the bill, as written, could require OPIC to use its insurance and reinsurance programs as a means of regulating conduct that may be neither illegal nor related to the risks covered by the insurance. He said:
There is a deep and important conflict between OPIC's assumption of a regulatory function and its present statutory mandates and operating structure. OPIC provides investment incentives on commercial terms to stimulate private sector development in the LDC's [less developed countries]. It has neither a regulatory function nor the tools of regulation in the sense of the SEC[Securities and Exchange Commission] or the FTC [Federal Trade Commission]. . . . We submit that the use of OPIC as a regulatory agency would constitute a reversal of these mandates and could undermine our efforts to achieve greater private participation.
Mr. Mays also expressed concern that the legislation might be interpreted as applying to contracts already in force and the possibility of the termination of vested contract rights for which substantial premiums already had been paid. "If so," he said, “there are substantial questions as to the constitutionality of the bill." Mr. Mays concluded:
[There is] broad question of the extent to which the United States should undertake unilaterally to solve the problem of questionable payments by U.S. businessmen overseas. . . . In the final analysis, the solution of this problem is in the societies concerned. The United States and other countries can stimulate the activity.
OPIC Topics, Vol. 5, No. 4, July/August 1976. No action was taken by the Senate on H.R. 14681 in the 94th Cong.