[Note: Introduced by a commentary, The BIS and Greenspan: Freezing-Out the U.S. Constitution, dated October 27, 2000, this section of The Golden Sextant focuses on the recently announced plan of the Bank for International Settlements to freeze-out its private shareholders at an Extraordinary General Meeting scheduled for January 8, 2001. The proprietor, who owns several shares of the American tranche, plans to complete, revise, enlarge and extend these materials as time and circumstances permit. Other shareholders are advised to seek their own counsel. All opinions expressed here are those of the proprietor. No assurance can be given that they will be accepted or upheld by any particular court or tribunal.]







CONTENTS [status indicated in brackets]


The Proposed Freeze-Out

By notice dated September 15, 2000, the Bank for International Settlements has advised its private shareholders that it will hold an Extraordinary General Meeting on January 8, 2001, for the purpose of amending its statutes "so as to exclude private shareholders against payment of compensation of CHF 16,000 per share [US$ 9,280 at CHF 1 = US$ 0.58]." The notice is issued in the name of its directors, including Alan Greenspan, Chairman of the U.S. Federal Reserve, and William J. McDonough, President of the Federal Reserve Bank of New York.

Describing the rationale for the freeze-out, the notice states (p. 1): "This measure is intended to enable the BIS to pursue better its objectives of promoting international monetary and financial cooperation." Later the notice continues (p. 3):

Indeed, unlike a commercial bank, the prime objective of the BIS is to employ its resources in support of its public interest functions. ... The existence of a small number of private shareholders, whose interest is essentially financial, is no longer seen to be in line with the international role and future development of the organisation. The BIS is, moreover, the only international organisation in the monetary and financial field to have private shareholders (in contrast to the IMF, the World Bank and the OECD).

In the notice, the BIS states that the average adjusted per share net asset value on March 31, June 30 and July 31, 2000, was US$ 19,099. The principal reasons cited for discounting the freeze-out price to less than half of net asset value were lack of voting rights and low trading liquidity. In determining the freeze-out price, the BIS acted on the basis of an evaluation prepared by JP Morgan & Cie SA and a fairness opinion by Barbier Frinault & Associés (a member of the Arthur Andersen network). Neither report has been made available to the private shareholders.


Relevant BIS Statutes

The Statutes of the Bank for International Settlements can be downloaded from its website (, click on Statutes, click on complete text at end of extracts).

Article 4. (1) The authorised capital of the Bank shall be one thousand five hundred million gold francs, equivalent to 435,483,870.96 grammes fine gold. [One gold franc is the equivalent of .29032258 ... grammes fine gold.]

Article 12. The shares shall be registered and transferable in the books of the Bank. The Bank shall be entitled without assigning any reason to decline to accept any person or corporation as the transferee of a share. It shall not transfer shares without the prior consent of the central bank, or the institution acting in lieu of a central bank, by or through whom the shares in question were issued.

Article 13. The shares shall carry equal rights to participate in the profits of the Bank and in any distribution of assets under Articles 51 [application of yearly net profits], 52 [reserve funds] and 53 [liquidation] of the Statutes.

Article 14. The ownership of shares of the Bank carries no right of voting or representation at the General Meeting. The right of representation and of voting, in proportion to the number of shares subscribed in each country, may be exercised by the central bank of that country or by its nominee. Should the central bank of any country not desire to exercise these rights, they may be exercised by a financial institution of widely recognized standing and of the same nationality, appointed by the Board, and not objected to by the central bank of the country in question. In cases where there is no central bank, these rights may be exercised, if the Board thinks fit, by an appropriate financial institution of the country in question appointed by the Board.

Article 19. The operations of the Bank shall be in conformity with the monetary policy of the central banks of the countries concerned.

Before any financial operation is carried out by or on behalf of the Bank on a given market or in a given currency, the Board shall afford to the central bank or central banks directly concerned an opportunity to dissent. In the event of disapproval being expressed within such reasonable time as the Board shall specify, the proposed operation shall not take place. A central bank may make its concurrence subject to conditions and may limit its assent to a specific operation, or enter into a general arrangement permitting the Bank to carry on its operations within such limits as to time, character and amount as may be specified. ...

Article 20. The operations of the Bank for its own account shall only be carried out in currencies which in the opinion of the Board satisfy the practical requirements of the gold or gold exchange standard.

Article 54. (1) If any dispute shall arise between the Bank, on the one side, and any central bank, financial institution, or other bank referred to in the present Statutes, on the other side, or between the Bank and its shareholders, with regard to the interpretation or application of the Statutes of the Bank, the same shall be referred for final decision to the Tribunal provided for by the Hague Agreement of January, 1930.

Article 55. (1) The Bank shall enjoy immunity from jurisdiction, save: (a) to the extent that such immunity is formally waived in individual cases by the President, the General Manager of the Bank, or their duly authorised representatives; or (b) in civil or commercial suits, arising from banking or financial transactions, initiated by contractual counterparties of the Bank, except in those cases in which provision for arbitration has been made or shall have been made.


Relevant Basic Facts from BIS Documents

The following paragraphs describing relevant aspects of the BIS's founding, legal structure and activities are taken verbatim from the "Profile of the BIS" posted at its website:

[Founding.] The need to create an international organisation such as the BIS had been perceived from the beginning of the century. However, it was not until the adoption of the Young Plan under the Hague Agreements of 20 January 1930, whose main purpose was to facilitate German reparations after World War I, that the necessary steps were taken.

The intergovernmental agreements concluded at the Hague Conference in January 1930 provided for the founding of the BIS by a group of six central banks and a financial institution of the USA and for the granting of a Constituent Charter to the BIS by Switzerland, the country in which the BIS was to be established. The new international organisation was destined not only to perform the functions of trustee in the execution of the Young Plan, but also to promote central bank cooperation and to provide additional facilities for international financial operations.

The BIS commenced its activities in Basel on 17 May 1930 and is thus the world’s oldest international financial organisation and meeting place.

[Legal Structure.] In common with many of its founding central banks in 1930, the BIS was given the legal structure of a limited company with an issued share capital. The Hague Agreements nevertheless established the BIS as an international organisation governed by international law with the privileges and immunities necessary for the performance of its functions. The international legal personality of the BIS and the privileges and immunities which it has enjoyed in Switzerland since its foundation were confirmed in the Headquarters Agreement concluded by the BIS with the Swiss Federal Council on 10 February 1987. The BIS has a legal status comparable to that accorded to the many other international organisations established in Switzerland.

[Capital.] The authorised share capital is 1,500 million gold francs, divided into 600,000 shares of equal nominal value (2,500 gold francs per share) of which 529,165 shares are currently issued. They are paid up to the extent of 25% of their nominal value (625 gold francs per share). The amount of the paid-up capital appearing in the balance sheet at 31 March 2000 thus stands at 331 million gold francs.

[Unit of Account: the Gold Franc.] The gold franc of the BIS has a gold weight of just over 0.29 grams of fine gold, which is identical with the gold parity of the Swiss franc from the foundation of the BIS in 1930 until September 1936, when the Swiss franc’s gold parity was suspended. The BIS employs the gold franc solely as a unit of account for balance sheet purposes, with assets and liabilities in US dollars being converted into gold francs at the fixed rate of US$ 208 per ounce of fine gold (equivalent to 1 gold
franc = US$ 1.94) and all other items in currencies being converted into gold francs on the basis of market rates against the US dollar.

[Private Shareholders.] When the BIS’s initial capital was issued, the subscribing institutions were given the option of taking up the whole of their respective national issues of shares or of arranging for those shares to be subscribed by the public. As a result, part of the Belgian and French issues and the whole of the US issue are not held by the institutions to which they were originally allocated. In all, some 86% of the BIS’s issued share capital is registered in the names of central banks, the remaining 14% being held by private shareholders. While all shares carry equal rights with respect to the annual dividend, all rights of voting and representation are reserved for the central bank of the country in which the relevant national issue of shares was initially subscribed. Private shareholders have no right to attend or vote at General Meetings of the BIS.

[Banking Operations.] The Banking Department carries out a wide range of banking operations to assist central banks in the management of their external reserves. A guiding principle observed by the BIS in its banking operations is laid down in Article 19 of its Statutes, which states that: "The operations of the Bank shall be in conformity with the monetary policy of the central banks of the countries concerned." The Bank is not permitted to make advances to governments or open current accounts in their name.

At present, around 120 central banks and international financial institutions from all over the world place deposits with the BIS. The total of currency deposits placed with the BIS amounted to about US$ 128 billion at the end of March 2000, representing around 7% of world foreign exchange reserves. Because a high proportion of the reserve assets which central banks hold in the form of deposits with the BIS needs to be available to them at rather short notice, the BIS’s employment of these resources focuses upon maintaining a high degree of liquidity. Most of these funds are placed in the market, mainly in the form of investments with top-quality commercial banks and purchases of short-term government securities. While these operations today constitute the bulk of the BIS’s business, it also conducts a range of foreign exchange and gold operations on behalf of its customers.

[G-10 Meetings; Gold Market Intervention under Bretton Woods System.] Since 1962 most of the work undertaken in the area of international monetary and financial cooperation has emanated from the Group of Ten (G10). This grouping of countries originated when 10 member countries of the International Monetary Fund (IMF) together with Switzerland, which was not a member of the IMF at that time, agreed to make resources available to the IMF outside their Fund quotas under the General Arrangements to Borrow (GAB). From 1963, the governors of G10 central banks have met on the occasion of the regular BIS meetings. Moreover, through their contacts at the BIS, between 1961 and 1968 central banks coordinated their interventions in the gold markets through the so-called Gold Pool. Similarly, the network of swap arrangements put in place between the US monetary authorities and a number of central banks to reinforce confidence in the US dollar had its origins in 1962 within the framework of the BIS.

The G10 meetings have become the pivotal forum in which much wider activities have been set in motion by the G10 central banks in the pursuit of international financial stability - for example in the fields of monetary and financial market monitoring and analysis, banking supervision and payment and settlement systems.

Non-Participation of the United States until 1994. On May 16,1929, while the BIS was in process of being established, then Secretary of State Henry L. Stimson issued the following public statement (as reported in Supplement, The American Journal of International Law, Vol. 24, p. 102 n. (American Society of International Law, 1930):

In respect to the statements which have appeared in the press in regard to the participation of any Federal Reserve officials in the creation or management of the new proposed International Bank, I wish to make clear the position of this government:

While we look with interest and sympathy upon the efforts being made by the Committee of Experts to suggest a solution and a settlement of the vexing questions of German reparations, this government does not desire to have any American official, directly or indirectly, participate in the collection of German reparations through the agency of this bank or otherwise. Ever since the close of the war the American Government has consistently taken this position; it has never accepted membership on the Reparations Commission; it declined to join the Allied Powers in the confiscation of sequestered German property and the application of that property to its war claims. The comparatively small sums which it receives under the Dawes Plan are applied solely to the settlement of the claims judicially ascertained by the Mixed Claims Commission (United States-Germany) in fulfillment of an agreement with Germany, and to repayment of the expenses of the American Army of Occupation in Coblenz, which remained in such occupation on the request of both the Allied nations and Germany. It does not now wish to take any step which would indicate a reversal of that attitude and for that reason it will not permit any officials of the Federal Reserve system either to themselves serve or to select American representatives as members of the proposed International Bank.

Roger Auboin in The Bank for International Settlements, 1930-1955 (Essays in International Finance, No. 22, May 1955, Princeton University) describes the American role during the Bank's first twenty-five years (pp. 5-6):

The United States monetary authorities have never taken up the seats on the Board of the BIS to which the original American subscription entitled them. For the periods 1930-1935 and 1940-1946, however, the Board elected as President of the Bank persons of American nationality, and it has always appointed a New York bank to exercise at General Meetings the right of voting carried by the shares of the American issue. In addition, close personal contact is maintained between the principal officials of the BIS and officers of the U.S. Federal Reserve System. The Federal Reserve Bank of New York is the Bank's correspondent as regards the American market.

No American official served as a director or alternate director of the BIS until 1994, as reported in the Bank's 65th Annual Report (pp. 205-206) for the fiscal year ending March 31, 1995:

At its meeting on 12th July 1994 the Board took note of, and welcomed, the intention of the Federal Reserve System of the United States of America to occupy the two seats on the Board of Directors to which the central bank of the United States had been entitled since 1930. An Extraordinary General Meeting was convened on 13th September 1994 to approve a minor change in the Statutes of the Bank to take account of the evolution of the Federal Reserve System to its present structure. Alan Greenspan, Chairman of the Board of Governors of the Federal Reserve System, became an ex officio member of the Board on 13th September 1994 and appointed William J. McDonough, President of the Federal Reserve Bank of New York, as a member of the Board for a period of three years from 13th September 1994. ...

Alan Greenspan appointed Alan S. Blinder as his Alternate and Edwin M. Truman as his Alternate in the absence of Alan S. Blinder.

The decision of the Federal Reserve to participate formally in the affairs of the BIS was reported and discussed in an article entitled "The Bank for International Settlements and the Federal Reserve" by Charles J. Siegman, Senior Associate Director of the Division of International Finance, published in the Federal Reserve Bulletin for October 1994. This article, despite certain inaccuracies, is an important resource with much historical data of interest. Unfortunately, it does not appear to be available online, but many large public libraries subscribe to the Federal Reserve Bulletin and maintain copies going back several years.

Role of Gold in Valuation. A profile piece issued in June 1992 in connection with the BIS's annual meeting contains the following enticement to private shareholders (p. 2):

At 31st March 1992 the balance-sheet total stood at 48.0 billion gold francs, with the Bank's own funds (capital and reserves) at 1.6 billion gold francs. Expressed in US dollars with gold at the then current market price the figures could be put at US$ 99.8 billion and US 3.9 billion respectively.

A similar piece the following year put these numbers on the same basis at US$ 122.4 billion and US$ 4.1 billion, giving the bank an approximate net worth of US$ 8,666 per share.

Issuance of New Shares in 1999. In 1999, the BIS issued new shares to the European Central Bank and certain other central banks, all as set forth in its 70th Annual Report (pp. 172-173):

With a view to further strengthening central bank cooperation, the board of Directors decided on 8 November 1999 to invite the Banco Central de la República Argentina, the European Central Bank, Bank Indonesia, Bank Negara Malaysia and the Bank of Thailand to become members of the Bank and subscribe 3,000 shares each of the third tranche of the capital of the BIS. By the close of the financial year [31 March 2000], which also marked the end of the subscription period, all except Bank Indonesia had taken up the Board's offer, thereby becoming members of the BIS.

The Board's decision on this sixth issue of the third tranche of the Bank's capital was taken in accordance with Articles 6 and 8(3) of the Statutes. The founder central banks represented on the Board waived their rights to the subscription in equal proportions of at least 55% of any additional shares (ie 8,250 of the 15,000 shares issued for subscription). It was decided that these 8,250 shares would be made available to new shareholding central banks.

At its meeting in November, the Board fixed the issue price until the end of the subscription period at 5,020 gold francs per share, equivalent to 1,475.317 [sic] grams of fine gold. [Note: It appears that the 7 and 5 were inadvertently transposed, and that the correct figure is 1,457.317 grams.] As the Bank's shares are paid up to the extent of 25%, or 625 gold francs per share, the issue price of 5,020 gold francs included a premium of 4,395 gold francs per share. The subscribing central banks were given the option of settling the issue price for the new shares either in gold or by paying, in a convertible currency acceptable to the BIS, the amount which would be necessary to purchase the same weight of gold on the market on the value date of the payment.

As a consequence of the subscription of 12,000 new shares of the third tranche of the Bank's capital by the close of the financial year, the number of the Bank's issued shares has risen from 517,165 to 529,165 shares, and the amount of the paid-up capital of the Bank appearing in the Balance Sheet at 31 March 2000 has increased by 7.5 million gold francs to stand at 330.7 million gold francs. The aggregate premium received from the subscribing central banks amounted to 52.7 million gold franks, of which 750,000 gold francs has been allocated to the legal reserve fund and 51,990,000 gold francs to the general reserve fund.

At the stated weight of .29032258 grams, the per share price of 5,020 gold francs equals 1,457.317 grams, or 46.8538 troy ounces of gold, which at US$ 280/oz. equals US$ 13,119 (CHF 22,619 at CHF 1 = US$ 0.58).


Does the BIS Have Authority to Implement the Freeze-Out?

There are no provisions in the Statutes of the BIS specifically addressing the possibility of a freeze-out of its private shareholders. Nor is there any evidence that this possibility was ever discussed or entertained at the time of the Bank's founding in 1930. Indeed, the original treaty documents themselves expressly contemplate that American participation in the BIS will come largely through the private sector while the other founding members act principally through their governments. Convention Respecting the Bank for International Settlements and Constituent Charter of the Bank, 104 U.N.T.S. 443 (No. 2398) (1930).

Most American corporate lawyers of the era probably would have regarded any compulsory take-out of minority shareholders in a corporation as patently illegal. In most American jurisdictions, corporate law has since evolved through statutory changes to permit freeze-outs subject to certain safeguards aimed at assuring fair and equitable treatment of minority shareholders, particularly with respect to the valuation of their shares.

However, as extensively revised in 1992, the Swiss Code of Obligations Governing Corporations contained no provisions of this nature. Whether any have been added since 1992 is unknown, but the BIS in its notice does not refer to any. Accordingly, there does not appear to be any authority in Swiss law for the freeze-out, although it would be useful to obtain the opinion of Swiss counsel on this point. What is more, as set forth below in the section on Swiss courts, the Swiss corporations code provides protections for minority shareholders that ordinarily would bar freeze-outs.

From its founding, the BIS has operated with privately owned, publicly traded shares. In addition to their capital contributions, the BIS's private shareholders are responsible for three important attributes of the Bank: (1) creating plausible justification for some minimal level of American participation either through the Federal Reserve or, in its absence, through some acceptable private American financial institution; (2) requiring that the Bank's operations meet general standards of fiduciary duty to ordinary shareholders, including the pursuit of sound banking practices and publication of audited financial reports; and (3) providing the potential sanction of shareholder actions by private parties should the Bank, under the direction of its central bank members or through their collusion, operate in a manner that violates its Statutes.

With respect to (2) above, Mr. Auboin in his 1955 study of the BIS's first twenty-five years notes (p. 7):

The BIS is, then, an international bank, and both "international" and "bank" deserve emphasis. It was founded by central banks which at one and the same time are its shareholders and customers and provide its directors. It has grown up as a truly European organization, although maintaining close technical relations with the American market. It is an official organization possessing a Charter guaranteed by international convention and enjoying certain special advantages.

But even so, the BIS is essentially a bank and needs to be mindful of its standing, the liquidity of its balance sheet, and the results shown by its profit and loss account. The BIS receives no instructions from any government, except when it is acting in the capacity of agent in the performance of some specific function, and it is not subsidized by any country. The methods which it employs are essentially commercial.

The proposed complete elimination of private shareholders, particularly the American tranche, in order to turn the BIS into a more ordinary form of non-commercial international organization consisting entirely of public or quasi-public entities raises a very basic issue: Is the change so fundamental that it is tantamount to, and should be treated as, a liquidation of the Bank followed by its reorganization into a new international organization? The fundamental nature of the proposed change is underscored by the fact that it would cast into far more serious question the Fed's authority under the U.S. Constitution to continue to participate in the Bank's activities, at least absent appropriate authorization by both the executive and legislative branches of the U.S. Government, probably including a new treaty and Senate approval thereof. Indeed, the Fed's present participation in the BIS rests on very shaky constitutional underpinnings.


Does the Fed Have Authority to Participate in the BIS or the Freeze-Out?

The United States is not a signatory to the Convention establishing the BIS. Participation of the Federal Reserve in the BIS rests solely on the Bank's dual public/private nature and the private shares originally subscribed in the United States. A major reason for this unique structure is that when the BIS was formed amidst the isolationist atmosphere of 1929-30, most assumed that the U.S. Congress would neither approve the Convention nor authorize a subscription of shares by the Fed. As it happened, the Secretary of State expressly forbade the Fed to participate either directly or indirectly in the BIS. Accordingly, from a U.S. constitutional perspective, the proposed freeze-out purports to transform the BIS into an international organization in which the United States is a complete stranger and as to which neither the President nor the Congress has ever taken any action.

Indeed, as the notice itself points out (p. 3), the BIS is unique in having private shareholders whereas the IMF and the World Bank, both created in the wake of World War II, do not. However, the United States joined both of these Bretton Woods organizations pursuant to treaties presented by the President and approved by the Senate. What is more, U.S. contributions to both organizations required appropriations approved by the Congress.

The notice (p. 3) fails to give the precise language of the several amendments proposed to implement the freeze-out. However, the notice does affirm (p. 4) that: "shares withdrawn from private shareholders will not be cancelled, but will be redistributed among central bank shareholders of the BIS on 8 January 2001 in the manner determined by the EGM." This language suggests that some proposal for redistribution of the shares must already exist. If so, why is it not being disclosed? Unless the American tranche is to be redistributed to the Federal Reserve, there will be no basis for its continued voting or participation at the BIS. On the other hand, since the Fed is not presently a shareholder, it does not qualify as a potential distributee under a literal reading of the language quoted.

Something is very strange here. From a practical and common sense standpoint, redistribution of the American tranche to the Fed is the only course that makes sense. Of course, admitting to that plan would threaten immense controversy. Is the Fed to get shares more cheaply than the new central banks admitted last year? And if not, why are the present holders receiving less than the price that the Fed will pay? For an organization that never tires of preaching to others about the merits of full and complete financial disclosure, the notice is at best an exercise in shameless hypocrisy. More likely, it is nothing less than a brazen attempt to secure the American tranche for the Fed by outright fraud.

Assuming that the Fed plans to purchase or accept shares, an even more important question is what legal authority exists for the Fed to become a full financial as well as voting participant in the BIS? Whatever their powers, neither the Federal Reserve Board nor the Fed chairman nor the New York Fed has authority to conduct foreign policy for the United States or to enter into treaties or international organizations on its behalf. Nor do they have authority to conduct or to participate in foreign expropriations of the assets of American investors, let alone to do so in a way that fails to meet U.S. constitutional standards of due process.

If the BIS intends to become an international organization like the IMF or the World Bank, U.S. participation and membership therein must be secured in the same constitutional fashion as for those two organizations. As proposed, the freeze-out will not merely exclude private shareholders. It will completely negate any plausible constitutional basis or justification for the Fed's continued participation. Forcing the elimination of any U.S. involvement in the BIS will also change quite radically the original design and purpose of the Bank, making the freeze-out effectively a liquidation followed by a reorganization sans l'Amérique.


Has the BIS Violated Article 19 of its Statutes?

Literature by and about the BIS emphasizes its basic guiding principle as set forth in Article 19 of the 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 in The Bank for International Settlements (North-Holland Publishing Co., Amsterdam, 1958) points out (p. 41): "This provision was important in allaying fears of those who objected to an international superpower which could destroy a country's sovereignty." While members of the Euro Area may not be as concerned about this principle as they formerly were, the United States appears as interested as ever in preserving its monetary sovereignty.

With regard to the Bank's gold operations since 1971, and particularly with regard to its gold operations in the past few years, this principle raises another serious issue under the U.S. Constitution. The Fed cannot conduct any monetary policy in violation of the Constitution or laws of the United States. In a letter dated January 19, 2000, to Senator Joseph I. Lieberman (Dem., Conn.), Fed Chairman Greenspan conceded: "Most importantly, the Federal Reserve is in complete agreement with the proposition that any such transactions on our part, aimed at manipulating the price of gold or otherwise interfering in the free trade of gold, would be wholly inappropriate." In fact, manipulation of gold prices by the Fed would be illegal and unconstitutional.

The monetary provisions of the Constitution grant to Congress sole and exclusive power to determine the gold value of the dollar. "The Congress shall have power ... To coin Money, regulate the Value thereof, and of foreign coin." U.S. Const., Art. 1, s. 8, cl. 5. "No State shall ... coin Money; emit Bills of Credit; make any Thing but gold and Silver Coin a Tender in Payment of Debts." U.S. Const., Art. 1, s. 10, cl. 1.

The Supreme Court has refused to decide whether Congress may constitutionally sever any meaningful link between the dollar and gold or silver, i.e., whether the U.S. monetary system in place since the closing of the gold window in 1971 is constitutional. See Petition for Certiorari in No. 91-221, Walter W. Fischer v. City of Dover, N.H., et al., reprinted at But quite apart from this question, if there is to be a link between the dollar and gold, the Constitution vests in Congress exclusive power to define it. This determination does not and cannot rest in the uncontrolled discretion of the executive branch or the Fed.

In 1934, Congress put the gold value of the U.S. dollar at $35/oz. and generally prohibited gold ownership by American citizens, effectively foreclosing trading of gold in the United States. These measures remained in place after World War II and the adoption of the Bretton Woods system, which also pegged the dollar at $35/oz. Accordingly, when the London Gold Pool operated with BIS support in the 1961-1968 period to try to stabilize the price of gold in private European markets at the official level, it operated in support of a dollar gold price established by Congress and without any possibility of coming into conflict with private American investors trading gold or gold futures in New York or anywhere else in the country.

Today, the situation is wholly different. Although Congress has left standing an anachronistic official gold price of $42.22/oz., there is no reasonable argument that this figure remains a legitimate target for any official gold price stabilization efforts. Congress has also repealed the ban on gold ownership by American citizens. Substantial trading of gold and gold derivatives, including futures and options, now takes place daily through private transactions, over-the-counter financial markets and public commodities exchanges.

The public commodities exchanges are regulated under the authority of Congress precisely to assure that they function honestly and fairly for all participants. Congress has effectively declared by its actions that gold contracts on these exchanges should trade in a free market, not one subject to manipulation by the Fed or anyone else, including other central banks operating through the BIS.

There is considerable anecdotal evidence that the BIS, the Fed and the Bank of England were heavily involved in trying to reverse the sharp rally in gold prices that followed announcement of the Washington Agreement on September 26, 1999. Whatever authority the Bank of England may have in this regard, the Fed not only lacked authority to participate in this endeavor but also had both a constitutional obligation and an Article 19 right to assure that the BIS did not act to interfere with the free market in gold that is official U.S. policy.

Testifying before Congress in mid-1998 on the subject of over-the-counter derivatives, Fed Chairman Alan Greenspan testified: "Nor can private counterparties restrict supplies of gold, another commodity whose derivatives are often traded over-the-counter, where central banks stand ready to lease gold in increasing quantities should the price rise." In his letter to Senator Lieberman, Mr. Greenspan elaborated on on his prior testimony: "The observation simply describes the limited capacity of private parties to influence the gold market by restricting the supply of gold, given the observed willingness of some foreign central banks -- not the Federal Reserve -- to lease gold in response to price increases." Were any of these operations carried out through the BIS? Did the Fed ever object?

If the BIS has undertaken operations in the gold market in recent years with the purpose or intent of affecting the international price of gold, it has engaged in egregious violations of Article 19 by reason of violating U.S. legal and constitutional requirements that govern the Fed and any monetary policy that it implements. In this event, the BIS has arguably provided ample grounds to warrant the Bank's liquidation.


Has the BIS Violated Article 20 of its Statutes?

Although it might perhaps have been argued that the Bretton Woods system amounted to a form of gold exchange standard, it is very difficult to see how any of the Bank's operations for its own account could have met the requirements of Article 20 of the Statutes since the closing of the U.S. gold window in 1971. That act alone should have provoked an amendment of the Statutes or a liquidation of the Bank, absent some other country or group of countries agreeing to tie their currencies to gold.

In fact, just the opposite happened. Under U.S. prodding in 1978, the member countries of the International Monetary Fund adopted the Second Amendment to its Articles. This amendment, which ratified after the fact the closing of the gold window, generally sought to reduce the use of gold in the international monetary system. In this connection, it provided that member countries could link or target their currencies to anything or nothing as they saw fit except gold, which also was no longer to be used in settling balances between countries. In other words, all the members of the IMF, including all the nations with central banks represented at the BIS, eliminated by international treaty any possibility of returning to a gold or gold exchange standard. After that date, the operations of the BIS for its own account rested only on its complete disregard of its own statutes and the rule of law.

The demise of the gold exchange standard and the advent of a "free" market in gold also opened up the possibility for an irreconcilable conflict of interest between the BIS's central bank shareholders and its private shareholders in the event that the former could not abide the discipline of a true free market gold price as the measure of their fiat currencies. Exactly that situation has developed over the past five years.

As noted in the following section, BIS shares trade in close correlation with gold prices. Although central banks are major holders of gold, their real power comes from their control over paper currencies. If and when they stoop to trying to make themselves and their paper currencies look good by trashing gold, they damage the price of BIS shares. Today, with gold still the principal component of international monetary reserves second only to the U.S. dollar, rising gold prices are taken by many as portents of both incipient U.S. inflation and a declining dollar. Viewed in this light, the ever growing body of evidence suggesting that Fed and the Bank of England are working together and through the BIS to subvert and cap gold prices is hardly surprising. But they are working directly against the interests of the BIS's private shareholders.

Today the only trace of the gold or gold exchange standards in the actual operations of the BIS is its unit of account: the gold franc. When the Bank issued new shares in 1999, they were priced in gold francs. The subscribing central banks had the option of paying for their shares in an equal weight of gold bullion or in a currency acceptable to the BIS representing the same weight of gold at market prices on the date of payment. Article 20 would appear to require that the BIS follow the same procedure in connection with the proposed freeze-out, i.e., set the official buyout price in gold francs, with perhaps an option for payment of equivalent sums in certain currencies on the date of payment. Of course, this option would have underscored the importance of the gold price to the valuation of the shares, thereby making clear the fraud resulting from the manipulation of gold prices by the member central banks themselves.


Is the Freeze-Out Valuation Fair?

If the freeze-out is deemed a liquidation, Articles 52 and 53 provide that all shareholders receive the same per share net liquidating value. In recognition of this fact, the notice states with respect to applying the NAV methodology (p. 5): "[I]t should be borne in mind that the BIS is not to be liquidated and that most of the NAV in fact represents a cushion for the international financial system." The original private shareholders in the Bank were not investing in a charitable foundation. They were investing in a business that promised to deliver profits, dividends and growth while engaging in sound international banking at the highest levels for the collective benefit of shareholders -- public and private -- as well as the broader world financial community.

If, as it appears, the BIS now proposes to build a new and different organization on the resources and goodwill created by the original, the private shareholders are entitled not only to the net asset value of their shares as calculated for purposes of liquidation, but also to compensation for the goodwill built up by the original organization using the capital resources in part provided by them. Given the reputation and position of the BIS resulting from its first 70 years of operation, any required separate and additional allowance for goodwill would likely be quite substantial.

In any event, the freeze-our price rests on valuation assumptions that are subject to several criticisms. The choice of a discount rate between 6.7% and 7% for a dividend perpetuity model based on a Swiss franc/gold income stream seems high. Even more problematic is the following assumption in the notice (p. 6): "[T]he persistent large discount of the share price to the above adjusted NAV suggests that shareholders have given greater weight to future dividend flow than to the liquidation value in their investment decision."

In fact, BIS shares have long been considered by sophisticated investors as a sort of high quality proxy for gold stocks due to the approximately 200 tonnes of physical gold that it holds for its own account. Although the percentage of the share price directly attributable to the Bank's holdings of gold has declined as its other reserves have grown, there remain over 12 ounces of gold per share, equal to around $3400/share at $280/oz. gold.

Historically there is a high correlation between gold prices and BIS share prices. This correlation continued to show itself during gold rally following announcement of the Washington Agreement in September 1999, when the price of the American tranche moved from around CHF 8,500 to almost CHF 10,000.

Because the price of gold directly impacts both the market value and the NAV of BIS shares, any action by the Bank aimed at depressing the price of gold operates against the interests of its private shareholders. To the extent that it has engaged or participated in any such actions within the past couple of years, it has undercut the fairness of the valuation procedures used.

In this connection, the valuation prepared by JP Morgan & Cie SA may also be questioned. Its parent, J. P. Morgan, has played an outsized role in the OTC gold derivatives market since mid-1999, thereby raising legitimate issues with regard to: (1) Morgan's knowledge of manipulative activities in the gold market; and (2) whether Morgan is under a duty in connection with its valuation to disclose any manipulative activities of which it is aware to the BIS's shareholders. See In re Daisy Systems Corp., 97 F.3d 1171 (CA9 1996) (investment banker's negligent or purposeful miscalculation of a firm's value).

"[T]he particularities of the privately held BIS shares, especially the lack of voting rights, the dual right to veto transfers and the low degree of liquidity," are cited in the notice (p. 5) as grounds for discounting NAV by roughly half. They do not justify this haircut, singly or together.

No BIS shares have voting rights. The right to vote pertains to each central bank (or approved proxy therefor) quite apart from whether it owns all, some or none of the tranche subscribed in its home country. All original shareholders, whether private persons or central banks, paid in exactly the same amount of gold per issued share. The right to vote was not then, and has not since, ever been given a value, let a value in derogation of the full property value of the shares. The effort to compare the BIS to a corporation in which there are two classes of shares, voting and non-voting, is completely bogus and borders on outright fraud.

The liquidity issue is similarly bogus. No mention or consideration is given to the observed fact that the liquidity of the Belgian and French tranches is much lower than that of the American tranche. If liquidity were a valid consideration, the discount applied to the Belgian and French tranches would be greater than that applied to the American tranche, and holders of the American tranche would receive a higher price. What is more, there are many steps that the Bank could take, particularly in cooperation with its member banks or other financial institutions, to increase the market liquidity of its privately held shares, including the issuance of public certificates against these shares as authorized under Article 16.

The dual veto, a reference to Article 12, has largely outlived its original purpose, which was to assure that the partially paid up shares be transferred only to parties with apparent ability to meet any future calls. Absent some history or evidence of actual recent use, there is little reason to give any weight to the dual veto for purposes of valuation. Far more sensible as a practical matter would be a vote to repeal Article 12.

What is more, if the American tranche is eliminated, not only are there no shares on which to base the Fed's voting rights at the BIS, but also, were these shares somehow deemed transferred to the Fed, there is no way that it could meet a call absent an appropriation by Congress. Indeed, the proposed freeze-out confirms what has long been apparent: the BIS has no intention of making any further calls, thereby rendering the dual veto largely superfluous.


Potential Forums Available to Shareholders

1. Arbitration. Under Article 54(1), disputes between the BIS and its shareholders "with regard to the interpretation or application of the Statutes of the Bank...shall be referred for final decision to the Tribunal provided for by the Hague Agreement of January, 1930." This reference is to an arbitration tribunal established under Article XV of the Agreement between Germany et als. Regarding the Complete and Final Settlement of the Question of Reparations, signed at The Hague on January 20, 1930, 104 L.N.T.S. 244 (No. 2394) (1930). The United States is not a signatory to this treaty either. The arbitration provision provides in relevant part (104 L.N.T.S. 252-253):

1. Any dispute, whether between the Governments signatory to the present Agreement or between one or more of those Governments and the Bank for International Settlements, as to the interpretation or application of the New Plan shall ... be submitted for final decision to an arbitration tribunal of five members appointed for five years ....

9. The present provisions shall be duly accepted by the Bank for the settlement of any dispute which may arise between it and one or more of the signatory Governments as to the interpretation or application of its Statutes or the New Plan.

The so-called "New Plan" for payment by Germany of war reparations arising out of World War I ended long ago, and with it any justification for the continued existence of the arbitration tribunal, which under the treaty had a mandate only to hear disputes between the BIS and signatory governments, not between the BIS and its shareholders. This same language, focusing exclusively on disputes between the BIS and governments, was carried over into the Constituent Charter, which provided in Paragraph 11: "Any dispute between the Swiss Government and the Bank as to the interpretation or application of the present Charter shall be referred to the Arbitral Tribunal provided for by The Hague Agreement of January, 1930."

In 1987, the BIS and the Swiss Federal Council entered into a new agreement regarding the Bank's legal status in Switzerland. Recueil systématique: (10 février 1987). Extracts translated into English are available at the BIS website, where each article that is translated appears in its entirety and ellipses represent omitted articles. Article 27, paragraph 1, of the agreement repeats the arbitration clause of the Constituent Charter, but then adds a new paragraph 2:

Les parties peuvent toutefois convenir de saisir un tribunal arbitral ad hoc composé de trois membres. Dans ce cas, le Conseil fédéral suisse et la Banque désigneront chacun un membre du tribunal et les membres ainsi désignés choisiront leur président. En cas de désaccord entre les membres du tribunal au sujet de la personne du président, ce dernier sera désigné par le Président de la Cour internationale de justice à la requête des membres du tribunal ou, si ce dernier est empêché d'exercer son mandat, par le vice-président, ou encore, en cas d'empêchement de celui-ci, par le membre le plus ancien de la Cour. Le tribunal ad hoc fixera sa propre procédure.

Article 27 is not included in the extracts at the BIS website. The new paragraph 2 essentially provides an alternative forum for arbitration. In place of the old arbitration tribunal under the lapsed Hague Agreement of 1930, the parties can substitute an ad hoc panel of three members, with each party naming one member and the two designated members choosing a third as president.

Perhaps when the old tribunal was actually in existence a claim could have been sustained that it possessed appropriate ancillary jurisdiction over disputes involving the Bank and its private shareholders. But it requires a big stretch to recreate this tribunal today to hear a dispute that: (1) does not involve governments; (2) does not arise under the defunct treaty for which the tribunal was established; and (3) does not arise under the Bank's original and now expired charter that made reference to the tribunal.

While U.S. courts regularly honor agreements to arbitrate, it is difficult to order arbitration before a tribunal that no longer exists. Conceivably an argument could be made that the Permanent Court of Arbitration at the Hague should form a tribunal to substitute for that originally contemplated. Indeed, particularly in light of the new arbitration provision in the 1987 agreement, it is rather surprising that the BIS did not long ago update Article 54(1) along these lines. The PCA has a modern set of rules for arbitration between international organizations and private parties. Of course, even now this alternative is one to which the Bank and its private shareholders could voluntarily agree, and is a possibility that might well commend itself to all parties.

2. Swiss Courts. As revised in 1992, the Swiss Code of Obligations Governing Corporations contained several provisions for the protection of minority shareholders. An English translation is available (R. Bosch et al., Swiss Corporation Law (Schulthess, 1992). As set forth therein, these provisions include:

706. VI. Contestation of Resolutions of Meeting of Shareholders - 1. Standing and Cause of Action.

The board of directors and each shareholder are entitled to contest resolutions of the meeting of shareholders which violate the law or the articles of incorporation by bringing an action against the corporation before a court.

In particular, resolutions may be contested if they:

(1) revoke or restrict rights of shareholders in violation of the law or the articles of incorporation;

(2) unduly revoke or restrict rights of shareholders;

(3) result in unequal treatment of, or discrimination against, shareholders not justified by the purpose of the corporation;

(4) revoke the profit-making objective of the corporation without approval of all shareholders.

736. A. Dissolution in General - 1. Grounds

A corporation shall be dissolved: ...

(4) by judicial decree if shareholders whose combined holdings represent at least ten percent of the capital stock request a dissolution for cause. In lieu of a dissolution, the court may adopt other measures which are appropriate given the circumstances and which are acceptable to all persons involved. ...

Presumably the BIS will claim that none of these provisions applies to it. Indeed, the notice (p. 4) cites Paragraph 5 of the Constituent Charter adopted as part of the Convention. It provided: "The said Statutes and any amendments which may be made thereto in accordance with Paragraphs 3 or 4 [essentially Articles 57 and 58 of the current Statutes] hereof respectively shall be valid and operative notwithstanding any inconsistency therewith in the provisions of any present or future Swiss law." However, Article 3 of the 1930 Convention provided: "The present Convention is entered into for a period of fifteen years." Accordingly, the protection provided by Paragraph 5 of the Constituent Charter appears to have lapsed.

Under Article 4, paragraph 1, of the 1987 agreement between the BIS and Switzerland, the Bank is immune "from criminal and administrative jurisdiction" except as waived in specific cases. Paragraph 3 provides: "In all other civil and commercial matters the Bank may be proceeded against in any court of competent jurisdiction, save in those cases in which provision for arbitration has been or shall have been made."

3. Jurisdiction of U.S. Courts. Generally speaking, U.S. courts will exercise jurisdiction over a foreign defendant when there is a sufficient nexus between the defendant's alleged improper conduct and the United States, particularly when the conduct, although taking place outside the United States, violates U.S. law or causes foreseeable harm or injury to persons resident within the United States. However, because the BIS is majority-owned and controlled by foreign central banks and describes itself as an "international organization," the question arises as to whether it is entitled to any immunities in the United States under the Foreign Sovereign Immunities Act, 28 U.S.C. s. 1602 et seq., or the International Organizations Immunities Act, 22 U.S.C. s. 288 et seq.

Whether the BIS qualifies as an "agency or instrumentality of a foreign state" under the FSIA is arguable. There is some case law to support the proposition: (1) that a central bank is an instrumentality the sovereign; and (2) that the shareholdings of more than one sovereign may be pooled for purposes of determining whether a majority of the shares are "owned by a foreign state" so as to invoke the FSIA. However, assuming that the BIS is a foreign sovereign, it is subject to U.S. jurisdiction under two separate exceptions to general grant of jurisdictional immunity.

Section 1605(a) withdraws immunity in any case: ...

(2) in which the action is based upon a commercial activity carried on in the United States by the foreign state; or upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States;

(3) in which rights of property taken in violation of international law are in issue and that property or any property exchanged for such property is present in the United States in connection with a commercial activity carried on in the United States by the foreign state; or that property or any property exchanged for such property is owned or operated by an agency or instrumentality of the foreign state and that agency or instrumentality is engaged in a commercial activity in the United States; ....

Both the commercial activity and international takings exceptions were held applicable in Siderman de Blake v. Republic of Argentina, 965 F.2d 699, 708-713 (CA 9 1992), where the plaintiffs were American shareholders of a corporation that owned a vacation hotel seized and operated by Argentine government officials. A taking violates international law if it is not for a public purpose, is arbitrary or discriminatory, and is not accompanied by provision for fair and just compensation. Id. at 711-712, and cases and materials cited.

The BIS is not covered by the IOIA. Section 288 of that act provides:

For the purposes of this subchapter, the term "international organization" means a public international organization in which the United States participates pursuant to any treaty or under the authority of any Act of Congress authorizing such participation or making an appropriation for such participation, and which shall have been designated by the President through appropriate executive order as being entitled to enjoy the privileges, exemptions, and immunities provided in this subchapter. ...

The BIS does not meet a single requirement of this definition: no treaty, no congressional authorization, no appropriation, and no presidential designation. What is most instructive, however, is the long list of international organizations, including many development banks, that do meet these requirements and have been designated under the act. The manner in which the United States "joined" the BIS can only be described as aberrant, completely outside the scope of both customary practice and any reasonable concept of the Fed's authority or that of its chairman.


Potential Substantive Causes of Action under U.S. Law

1. Common Law Fraud and Breach of Fiduciary Duty.

The factual core of a common law fraud case can be broken down into three related sets of allegations: (1) acting jointly and in concert with certain other central banks, bullion banks and government officials to manipulate gold prices to lower levels than would have prevailed in a free market; (2) with knowledge of these manipulative activities and to take advantage thereof with specific intent to defraud, acting to freeze-out the private shareholders of the BIS at an unfairly low share price directly resulting from the artificially and illegally depressed gold price; and (3) knowingly making false and misleading statements about, and knowingly failing to disclose relevant information regarding: (a) the manipulation of gold prices; and (b) the BIS and the freeze-out.

Subpart (1) of the foregoing paragraph also describes horizontal price fixing, a per se violation of the Sherman Act. The possibility of bringing an antitrust claim is considered in part 4 below.

A separate claim for breach of fiduciary duty and corporate waste also lies on account of the issuance by the BIS of new shares at below NAV to new central bank members in 1999. A legitimate argument might be made in favor of issuing a few shares at low prices to new central banks to encourage them to join the BIS. But for this purpose, a nominal number of shares is sufficient. Issuing a bunch of shares to the European Central Bank, which is basically an association of major central banks that are already members of the BIS, is more in the nature of a sweetheart deal for a close relative.

Actions against directors for breach of duty, mismanagement or waste frequently must be brought as derivative actions on behalf of the corporation rather than as direct (or class) actions by shareholders. Being quite technical, extended discussion of the appropriate use of derivative versus direct actions is beyond the scope of this memo. Suffice it to say, however, that in the context of compulsory freeze-outs, the law in this area turns much more favorable to direct actions by minority shareholders.

As a practical matter, as the result of recent changes in the federal securities laws and the federal jurisdiction available under 12 U.S.C. s. 632 over cases involving international banking or financial transactions, a count for common law fraud brought in U.S. courts adds only the possibility of punitive damages, which are not available in actions for securities fraud under Rule 10b-5.

2. Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934. Section 10(b) of the Securities Exchange Act of 1934 is the principal antifraud provision of the federal securities laws. It provides:

It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange -- ...

(b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the commission may prescribe as necessary or appropriate in the public interest for the protection of investors.

The implementing regulation is Rule 10b-5, which provides:

It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange,

(a) to employ any device, scheme or artifice to defraud,

(b) to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or

(c) to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.

In the context of the freeze-out of the BIS's private shareholders, the elements of a Rule 10b-5 case are substantially the same as in common law fraud. The U.S. federal courts have exclusive jurisdiction of cases arising under Rule 10b-5, and there is a right to trial by jury as in common law fraud.

Several points should be noted at the outset. Both sales and purchases of securities are covered. Sales include forced sales such as freeze-outs. Use of the mails alone is sufficient to invoke the act. Trading or registration on a national securities exchange is not required. Although procedurally circumscribed by the Private Securities Litigation Reform Act of 1995, adding a new s. 21D to the Exchange Act, the existence of a private right of action for damages to remedy violations of Rule 10b-5 is long-established.

Section 3(9) of the act provides: "The term 'person' means a natural person, company, government, or political subdivision, agency, or instrumentality of a government." It should also be noted that Federal Reserve Banks are deemed "federal instrumentalities" for various purposes, but they do not qualify as a "federal agency" within the meaning of the Federal Tort Claims Act, and therefore cannot shelter themselves from the Exchange Act under the FTCA. Lewis v. United States, 680 F.2d 1239 (CA9 1982). Nor does the Board of Governors of the Federal Reserve System appear to qualify for this dodge. Board of Governors of the Federal Reserve System v. DLG Financial Corp., 29 F.3 993, 999 (CA5 1994), cert. dismissed, 513 S.Ct. 1140 (1995).

3. Direct Relief under the Constitution. The unique constitutional heritage of the United States began before adoption of the Constitution with the Declaration of Independence, authored by Thomas Jefferson, whose writings on money and banking show a keen appreciation of the threat that banks by their very nature pose to freedom. That the BIS, Federal Reserve and a small band of large international banks controlling most of the derivatives business are attacking currencies and disrupting national economies all for their own power and profit would not surprise the Sage of Monticello (

And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.

If we determine that a dollar shall be our unit, we must then say with precision what a dollar is.

If the American people ever allow the banks to control the issuance of their currency, first by inflation and then by deflation, the banks and the corporations that will grow up around them will deprive the people of all property until their children will wake up homeless in the continent their fathers occupied.

The monetary provisions of the Constitution were aimed at averting just these dangers. But even Jefferson could never have foreseen the worldwide scale on which a paper U.S. dollar would someday operate, nor that huge international banks would manipulate it to impoverish many smaller nations before its own ultimate collapse would produce the same result in its superpower homeland.

The due process clause of the Fifth Amendment provides: "No person shall ... be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use without just compensation." This clause is fundamental to the American constitutional scheme, and precedent exists to support an implied private right of action for damages against federal officials who violate it (Davis v. Passman, 442 U.S. 228 (1979)), particularly when they act outside the scope of their employment. Boyce v. United States, 523 F.Supp. 1012 (D.C.N.Y. 1981). Declaratory relief for violations of the Constitution is available in federal courts under 28 U.S.C. s. 2201.

Federal officials in the executive branch have a qualified immunity for actions taken in good faith with a reasonable belief that they are constitutional even though that belief ultimately proves mistaken. Hunter v. Bryant, 502 U.S. 224 (1991) (Secret Service agents). Mitchell v. Forsyth, 472 U.S. 511 (1985) (U.S. Attorney General). Reasonable error is tolerated; willful wrongdoing is not.

4. Price-Fixing. It may seem odd, except to lawyers versed in the basics of antitrust law, that the most obvious wrong is the hardest to raise. After all, price-fixing is really the heart of the matter. It is not only illegal, but also often prosecuted criminally, as in United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 223-224 (1940), where the Supreme Court stated the basic rule:

Under the Sherman Act a combination formed for the purpose and with the effect of raising, depressing, fixing, pegging, or stabilizing the price of a commodity in interstate or foreign commerce is illegal per se. ... Where the means for price-fixing are purchases or sales of the commodity in a market operation..., such power may be found to exist though the combination does not control a substantial part of the commodity. In such a case that power may be established if as a result of market conditions, the resources available to the combinations, the timing and the strategic placement of orders and the like, effective means are at hand to accomplish the desired objective. But there may be effective influence over the market though the group in question does not control it. Price-fixing agreements may have utility to members of the group though the power possessed or exerted falls far short of domination and control. ... Proof that a combination was formed for the purpose of fixing prices and that it caused them to be fixed or contributed to that result is proof of the completion of a price-fixing conspiracy under s. 1 of the Act.

Mr. Justice Douglas, who wrote this opinion of the Court, almost seems to have glimpsed the world gold price-fixing conspiracy a half century before its time. Of course, when he wrote in 1940, gold was money and Americans could not own it. But today, at least as a matter of American law, gold is just another commodity, to be traded domestically and internationally like any other. Demoted to that lowly legal status and banished to the free market by the Congress, gold came under the protection of the Sherman Act, just like meat and potatoes.

So why can't the BIS and the rest of the gold cabal be sued for price-fixing? Well, they could be indicted and prosecuted criminally by the U.S. Department of Justice. In a just world, with a competent and honest government in Washington, that is exactly what would happen. In today's world, however, the question is whether a private shareholder in the BIS, or perhaps even a shareholder in a gold mining company, can bring a civil antitrust action against the participants in the gold price-fixing scheme.

The answer that most antitrust lawyers would give is no. A gold mining company itself probably would have standing to do so, but the great weight of precedent suggests that shareholders do not. However, so far as I can determine, none of this precedent actually involves gold, gold mining companies, or their shareholders. But the general rule is that the harm to shareholders in these kinds of situations is indirect and derivative, and that the corporation itself is the better situated and more appropriate party to bring an antitrust suit. And in the great majority of these cases, this notion is almost certainly correct.

However, the BIS is not home free. The precedents are not quite so adverse to shareholder standing under the antitrust laws in one particular context: freeze-outs of minority shareholders. Arnett v. Gerber Scientific, Inc., 566 F.Supp. 1270 (S.D.N.Y. 1983), motion denied, 575 F.Supp. 770 (1983). This exception underscores another point. The standing requirements in private antitrust actions rest on prudential rules developed by the courts, not commands of federal statutes. Accordingly, there is always the possibility, however remote, that in a particular case, presenting unique or special circumstances, a shareholder might be granted standing in spite of the general rule to the contrary.