"[Congress] contemplated that the surveillance and watchfulness of the Securities and Exchange Commission would be an ever present safeguard to investors in connection with securities issued by the bank."
Despite Walter C. Louchheim, Jr.'s assurances, the International Bank for Reconstruction and Development argued that its bonds should be treated as U.S. Government securities and be exempt from registration and various types of liability under the Securities Acts. John J. McCloy asserted, "[T]here are such material inconsistencies between the Securities Act of 1933 and the Bretton Woods Agreements Act, under which the United States accepted membership in the bank, as to furnish reasonable grounds for asserting that the Bretton Woods Agreement Act pro tanto repealed the Securities Act of 1933."(36)
The Bank also claimed that the National Advisory Council and not the SEC had the ability to approve any Bank issuance. An immediate concern was that the Bank wanted to distribute its securities in the United States through a large number of dealers and banks. The Bank did not want these distributors to be considered underwriters under the 1933 Act as that would create potential liability for the distributors and they would refuse to sell the Bank's bonds.(37)
Under pressure from NAC, the SEC issued a number of rules which assisted the Bank's first offering. The rules included eliminating some civil liability, such as liability related to misstatements in the registration statement for distributors of the bank's securities. In July 1947, the Bank undertook its first issuance of bonds of $250 million through 1,700 dealers. The Bank was not satisfied with the SEC's last-minute concessions and continued to press for multiple exemptions on the ground that "legal restrictions which tend to hamper the Bank . . . should be removed."(38)
Significant disagreements between the SEC and the Bank continued. By 1949, NAC also argued that Bank securities should be exempt from registration. In that year, Congress began debating whether to amend the Bretton Woods Act to specifically exempt the Bank's bonds. Eventually a compromise was reached whereby the securities were exempted from registration but the SEC could require the Bank to file annual reports. Furthermore, the SEC was given the power in consultation with NAC to suspend the Bank's exemption from registration should it be necessary.(39)
In regard to the Bank's bonds, the SEC understood itself to be a domestic regulatory agency whose mission was to protect American investors by requiring issuers to make full disclosures; it did not understand itself as part of a new international economic order. This occurred even while Louchheim touted the Bank and its bonds.
The Bank was a centerpiece for the United States' new belief in internationalism. It was intended to represent a new type of international institution that stood above any one country's domestic laws. In fact, agreements that the United States entered into specifically exempted Bank employees from liability so that a country's laws would not interfere with how the Bank functioned.
The United States at Bretton Woods and thereafter was the chief proponent of free and open markets. It could be argued that strict enforcement of U.S. securities laws hampered the free flow of capital, which was a mantra of U.S. foreign economic policy. The SEC was not willing to abide by this internationalist thinking. For the SEC, the distribution of the Bank's securities involved domestic markets and the protection of U.S. investors. It refused to make concessions regarding what it understood to be its central mission.
(36) June 18, 1947 Letter from John J. McCloy, International Bank for Reconstruction and Development, to the SEC (courtesy of the National Archives and Records Administration)
(37) July 9, 1947 Letter from John J. McCloy, International Bank for Reconstruction and Development, to SEC Chairman James J. Caffrey on relations between the International Bank and the SEC (courtesy of the National Archives and Records Administration)
(38) March 10, 1948 Memo from Walter C. Louchheim, Jr. , Adviser on Foreign Investment, to SEC Commissioner Edmond M. Hanrahan on International Bank for Reconstruction and Development (courtesy of the National Archives and Records Administration)
(39) May 23, 1949 Hearing on International Bank for Reconstruction and Development (H.R. 4332) before the House Committee on Banking and Currency (Government Records)
