District Court Holds the Banks in Contempt
After about a year, the U.S. government filed a motion to compel with the U.S. District Court for the District of Columbia. The district court granted the motion, holding that it had personal jurisdiction over each of the foreign banks and that there were “no problems with the scope of the Patriot Act subpoena.” The district court further declined to quash the subpoenas based on comity principles, even though the government “conceded that compliance with the subpoenas would entail violating at least some Chinese laws.”
One month later, when the banks refused to comply with the district court’s order, the court held the banks in contempt and imposed a fine of $50,000 per day against each bank. However, the court issued a stay of the penalty during the pendency of an expedited appeal.
Court of Appeals Affirms
On appeal, the banks raised arguments based on personal jurisdiction, the scope of the Patriot Act, and comity principles. The court of appeals dispensed with each by agreeing with the district court’s analysis. First, the court agreed that the district court could exercise personal jurisdiction over the banks.
Second, with respect to the third bank, the Patriot Act authorizes the Attorney General to issue subpoenas requesting records “related to” a bank’s correspondent accounts in the United States. The D.C. Circuit concluded that, even though the subpoena sought documents related to transactions in countries other than the United States, “all of the Company’s records are ‘related to’ the Bank’s U.S. correspondent accounts because those accounts were part of the Company’s means of obtaining U.S. dollars.”
Finally, the court found “no abuse of discretion in the district court’s decision to enforce the subpoenas despite the fact that the United States chose not to pursue the MLAA process.” It found no fault with the district court’s conclusion that “the U.S. government had no obligation to submit a voluntary MLAA request because it would likely prove ineffective.”
The appellate court also affirmed the district court’s contempt orders against each of the three banks.
Observers Focus on Patriot Act’s Broad Scope
“I think the thing that really makes the case stand out are its facts,” says John H. Mathias Jr., cochair of the ABA Section of Litigation’s International Litigation & Dispute Resolution Committee. As Mathias observes, “right off the bat, you’ve got North Korea, money laundering, [and] using a phony company.”
The most interesting part of the case is about the “scope of the Patriot Act,” says Warrington Parker, cochair of the Section of Litigation’s Criminal Litigation Committee. The court’s conclusion that all accounts are “related to” the U.S. correspondent accounts was “a no-brainer kind of analysis,” he says. “It was a single purpose entity in the United States, and it was [allegedly] used to launder money,” Parker says. “I think they avoided the hard question related to how broad the Patriot Act is.”
National Security—The Elephant in the Room
Both Mathias and Parker think the national security interest issues were just too compelling to allow the banks to withhold these documents. “We’re talking about the mechanism whereby North Korea was laundering money to finance evasion of sanctions and the perpetuation of its nuclear arms program,” says Mathias. “So, that’s kind of the elephant in the room—and that was going to drive this decision no matter what.”
“This is just one of those cases where they’re facilitating money laundering,” agrees Parker. “This is basically criminal conduct that they’re engaged in,” he says.