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Obtaining Jurisdiction in New York Courts through Repeated Use of Correspondent Bank Accounts

In the past, a foreign bank’s use of correspondent bank accounts in the United States to facilitate wire transfers has not necessarily given New York courts a sufficient basis for jurisdiction over the bank.  But a recent 4-3 Court of Appeals decision may change that.  In Rushaid, et al. v. Pictet & Cie, et al., No. 180, 2016 BL 387923 (N.Y. Nov. 22, 2016), Judge Rivera writing for the four person majority (and overturning decisions of both the First Department and the Commercial Division) ruled that a foreign bank’s “repeated, deliberate” use of correspondent bank accounts in the United States is enough to establish New York jurisdiction.

Pictet involved a money laundering scheme involving the employees of a Saudi oil company, Al Rushaid Parker Drilling (ARPD).  ARPD contracted with Saudi Arabia’s national oil company to build six oil rigs.  However, three of ARPD’s officers and directors, who were responsible for procuring and paying vendors for the project, allegedly breached their fiduciary duty by soliciting and accepting kick-backs from vendors.  According to the complaint, in order to receive, launder, and hide the proceeds from this scheme, the employees sought assistance from Pictet and one of its bankers.

Allegedly, the Pictet banker established a shell company in the British Virgin Islands, TSJ Engineering Consulting Co. Ltd. (TSJ), to receive the kick-back money.  In order to facilitate the scheme, the Pictet banker instructed that funds be wired to TSJ’s account at Pictet via correspondent accounts in New York.  Once the money was deposited in the Pictet account, it was distributed to the individual employees.  Many of the invoices from TSJ to the vendors referenced the New York correspondent bank accounts.  From July 2006 to October 2008, more than $4 million worth of alleged bribes moved through Pictet’s correspondent bank accounts in New York.

Plaintiffs filed the action in the Commercial Division on August 26, 2011, asserting claims for breach of fiduciary duties and civil conspiracy.  Defendants moved to dismiss for lack of personal jurisdiction (among other reasons), arguing that the transfer of funds through Pictet’s correspondent accounts in New York was passive - not purposeful - and was thus insufficient to establish jurisdiction in New York.  Judge Saliann Scarpulla of the Commercial Division agreed, and dismissed plaintiffs’ action solely on the basis of lack of personal jurisdiction.  The Appellate Division, First Department thereafter affirmed, finding that Pictet “merely carried out their clients’ instructions” to wire the money through New York and did not “purposefully avail” themselves of conducting business activities in New York.[1]

The Court of Appeals reversed, holding that “[D]efendants’ use of the correspondent bank accounts was purposeful and that plaintiffs’ aiding and abetting and conspiracy claims arise from these transactions.”[2] In reaching this conclusion, the Court used a two-pronged test: (1) whether defendants purposefully availed themselves of conducting business in New York and (2) whether there was a substantial relationship between the transaction and the claim asserted. 

As to the first prong, the Pictet Court relied primarily on two Court of Appeals cases that outlined the conduct necessary to establish that the use of correspondent bank accounts constitutes “purposeful availment” of the New York banking system: Amigo Foods Corp. v. Marine Midland Bank-NY 39 NY2d 391 (1976) and Licci v. Lebanese Can. Bank SAL. 20 N.Y.3d 327 (2012). 

The Amigo court had rejected the use of New York correspondent bank accounts as a basis for establishing jurisdiction, finding that the foreign bank was merely the “passive” recipient of funds via its correspondent bank in New York.  Indeed, when the correspondent bank attempted to transfer funds to the intended recipient, a bank in Maine, the funds were rejected.[3]  

The Amigo decision had often been interpreted to mean that personal jurisdiction over a foreign bank could only arise when the use of correspondent bank accounts in New York was accompanied by additional activity in the state.  The Pictet court rejected this reading, reasoning that Amigo was just an example of the type of activities that do not give rise to personal jurisdiction, i.e., a non-domiciliary bank’s passive receipt (or intended receipt) of a transfer from a correspondent bank in New York.  

Instead, the Pictet court concluded that the use of the New York correspondent bank in this case more closely resembled the use of the correspondent account in the Licci case, where Hizballah had used New York correspondent bank accounts to facilitate transfers of monies used to fund terrorist attacks.[4]  In that case, the court ruled that allegations of the foreign banks’ “repeated use of a correspondent account in New York on behalf of a client . . . show[ed] purposeful availment of New York’s dependable and transparent banking system.”[5] Here, the Court reasoned that Pictet’s use of a New York correspondent account similarly reflected a “repeated, deliberate use that is approved by the foreign bank on behalf of and for the benefit of a customer,” which “demonstrates volitional activity constituting transaction of business.”[6]

The Court further emphasized that the “quantity and quality of a foreign bank’s contacts with the correspondent bank must demonstrate more than banking by happenstance.”[7]  As the Court observed, plaintiffs alleged that Pictet received at least 15 wires from the New York correspondent accounts, which amounted to the movement of millions of dollars between the vendors and TSJ. 

Importantly, the Court noted that the New York correspondent accounts at issue in Pictet were “integral” to the scheme because the defendants chose New York when they could have picked other jurisdictions. Thus, the Court ruled that defendants’ actions were sufficient to establish a purposeful course of dealing sufficient to satisfy the jurisdictional requirement.

Considering the next prong of the test for New York jurisdiction, the Pictet Court ruled that there was a “substantial nexus” between the transaction in question the and the claim asserted.  Disposing of defendants’ assertions that the use of New York bank accounts was “incidental” to the scheme, the Court concluded that the complaint “easily” satisfied the nexus requirement.[8]  The Court reasoned that since the money laundering could not have proceeded without the use of the New York correspondent bank accounts and since the money laundering was essential to plaintiffs’ claims, there was a sufficient nexus between the business conducted in New York and the claims being asserted.

It should be noted that a concurring opinion in Pictet by Judge Michael Garcia emphasized the Pictet banker’s knowledge of the illegal nature of the money transfers involved.  Nonetheless, Pictet may represent a significant tool for plaintiffs who seek to bring cases against foreign entities in New York.

 

[1] Rushaid et al. v. Pictet & Cie et al., 127 AD 3d 610, 611 (1st Dep’t 2015).

[2] Rushaid et al. v. Pictet & Cie et al., No. 180, 2016 BL 387923 (N.Y. Nov. 22, 2016) (citing CPLR § 302(a)(1)).

[3] Rushaid, 2016 BL 387923 at *4 (citing Amigo Foods Corp. v. Marine Midland Bank-NY, 39 NY2d 391, 396 (1976)).

[4] Rushaid, 2016 BL 387923 at *4-5 (citing Licci v. Lebanese Can. Bank SAL., 20 N.Y.3d 327 (2012)).

[5] Rushaid, 2016 BL 387923 at *5.

[6] Id. at *6.

[7] Id.

[8] Id.