Montana's Foreign Capital Depository Act: A Financial Pie in the Rocky Mountain Sky or a Sensible New Assets Attraction Approach?
Aronofsky, David, Vanderbilt Journal of Transnational Law
In 1997, Montana attracted national and world financial attention when Montana Governor Mark Racicot signed into law Senate Bill 83, the Foreign Capital Depository Act (Act), creating the first U.S. state-chartered financial entity designed solely for attracting non-U.S. capital.(1) Depicted by skeptics as an unworkable "Panama without the Canal," "Switzerland of the Rockies" and "Rocky Mountain High," Montana is nonetheless pursuing a creative approach to increased state revenues that capitalizes on the state's unique privacy laws as well as innovative statutory drafting. The Act warrants attention from offshore assets owners and managers who seek U.S. stability in a state committed to full financial privacy protections.(2)
This Article first describes the Act's history, key provisions and implementing regulations. It then briefly assesses several legal issues affecting the Act's likely future. These include: (1) Montana's constitutional privacy rights applicable to foreign capital depositories and their customers; (2) the Act's relationship to federal money laundering laws; (3) the Act's express statutory bar against recognizing and enforcing most non-U.S. court judgments adverse to depositories and their customers; and (4) the implications of newly emerging federalism jurisprudence that suggests that sovereign state activities, including those related to international financial services, may fall outside the scope of international treaty and federal regulatory statutes traditionally deemed applicable to such activity. Finally, the Article draws some preliminary conclusions about the Act's future.
II. ACT SUMMARY AND OVERVIEW
The Act enables the creation of new foreign capital depository institutions (depositories) available solely for non-resident alien customer liquid assets and precious metals accounts.(3) It amends more than one hundred Montana statutes, and creates two new statutory chapter parts. These changes exempt depositories and their customers from Montana taxes, treat depositories as other state-chartered financial entities for most regulatory purposes,(4) and create a detailed new legal scheme to govern depository charter and customer accounts activities, including accounts comprised of precious metals.(5)
Depositories receive non-bank charters from the Montana Banking Board (Board), and depository activities are regulated by the Montana Commerce Department Division of Banking and Financial Institutions (Division).(6) The Division Commissioner (Commissioner) is the principal state official who oversees depository activity.(7) The Board and the Division have adopted regulations to carry out these functions.(8)
The Act imposes severe civil and criminal penalties for breaching depository customer confidentiality, subjecting state officials who breach confidentiality to removal from office.(9) It bars depository disclosure of customer records to state or local officials except for suspected or actual legal violations.(10) It also bars disclosure except pursuant to subpoenas based on probable cause of wrongdoing, giving both depositories and customers fights to quash them.(11) The Act strictly limits foreign civil judgment enforcement by: (1) declaring most such judgments repugnant to Montana public policy; (2) requiring those seeking enforcement to prove their validity and compatibility with U.S. law; and (3) allowing for damage awards in the event of enforcement activity adverse to customer privacy fights.(12)
III. A BRIEF ACT HISTORY(13)
In 1995 the Montana Legislature adopted Senate Joint Resolution 19, and began to study the depository as a financial institution that could produce new state revenue through a state-owned or a state-chartered foreign investment non-bank depository for non-U.S. capital.(14) Because the Legislature meets biennially, legislators vote at each session's end on issues to be studied between sessions by bipartisan committees. …