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February 02, 2017 Practice Points

Substantial Activity through Correspondent Bank Subjects Foreign Party to Jurisdiction

Use of correspondent banks can subject foreign banks to personal jurisdiction in New York

by Eric (Rick) S. Rein

In a recent New York Court of Appeals decision, a foreign bank submitted to personal jurisdiction as a consequence of its intentional and repeated use of New York correspondent bank accounts in a money laundering scheme. In Rashid v. Pictet & Cie, 2016 N.Y. Lexis 3569 (Ct. App. N.Y. November 22, 2016). The complaint alleges that corrupted plaintiff employees had the help of a Swiss banker to set up an offshore fictitious company to receive bribes and kickbacks and the bank managed the bank accounts where the bribes and kickbacks were deposited. There were 15 transfers to the correspondent bank account through which the defendant Swiss bank orchestrated the wiring of bribes.

To maintain the claim in New York, plaintiff needed to show there was long-arm jurisdiction under both New York state and federal law. The court reasoned that "the quantity and quality of a foreign bank's contacts with the correspondent bank must demonstrate more than banking by happenstance." The court found that the correspondent amount was crucial to a course of repeated banking activity and was not merely "adventitious." Therefore, the correspondent banking activity was sufficient to establish a purposeful course of dealing constituting the transaction of business in New York under CPLR 302(a)(1).

Moreover, a purposeful course of dealing must also involve a cause of action where there was an "articulable nexus or substantial relationship between the business transaction and the claim asserted." The court noted that the claim need only be "in some way arguably connected to the transaction." Here, the money laundering could not have proceeded without the use of the correspondent bank account through which the laundered funds passed and the bribes and kickbacks were paid. Thus, the cause of action arose from the contacts with New York.

Finally, the exercise of personal jurisdiction under the New York long-arm statute must comport with federal due process requirements. The "minimum contacts" test under federal law rests on whether a defendant's conduct and connection with New York are such that it should reasonably anticipate being hailed into a court there. The court held that here defendant's maintenance and repeated use of a New York correspondent bank account "to achieve the wrong complained of in this suit satisfies the minimum contacts component of the due process inquiry." Also, the maintenance of the suit in New York would not "offend traditional notions of fair play and substantial justice" because the "burden of litigation in New York is reduced by 'modern communication and transportation,'" the complaint implicates the fraudulent use of New York's banking system of great importance to the State, and New York courts provide plaintiff a greater possibility of relief.

In essence, foreign parties substantially utilizing the correspondent banking system in New York may subject themselves to suit in New York if the claims arise from use of that banking system.

Keywords: banking, personal jurisdiction, commercial litigation, correspondent banks, foreign party defendant

Eric (Rick) S. Rein is with Horwood Marcus & Berk Chartered in Chicago, Illinois.

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