IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF OREGON

EUGENE DIVISION

UNITED STATES OF AMERICA, ) Cr. No. 05-60008-HO

 )

Plaintiff, ) ORDER

 )

 v. ) 

 ) 

PIROUZ SEDAGHATY, et al., ) 

 )

 Defendants. )

______________________________ )

The United States moves to compel Al Rajhi Banking and

Investment Corporation to comply with an administrative subpoena

served on the bank on July 17, 2009. The Bank's motion to quash

the subpoena in an ancillary district court proceeding filed in

Washington D.C. precipitated this motion. It raises the same issue

as the motion before this court.

This case involves allegations of filing a false tax return

and failure to report money leaving the country. On March 9, 2000,
co-defendant Soliman Al-Buthe flew to Ashland, Oregon to retrieve

funds donated by Egyptian Citizen Mahmoud Talaat Hassan El Fiki. 

Defendants Pirouz Sedaghaty and Al-Buthe went to the Bank of

America in Ashland and obtained 130 American Express Travelers

checks in $1,000 denominations and a $21,000 cashier’s check made

out to Al-Buthe. On March 12, 2000, Al-Buthe departed the United

States, for Riyadh, Saudi Arabia carrying the travelers checks. 

When he left, Al-Buthe did not file a Currency and Monetary

Instrument Report acknowledging he was leaving the country with

more than $10,000 in currency. The travelers checks and the

cashier’s check were later cashed at the Al Rajhi bank in Saudi

Arabia. In October 2001, defendant Sedaghaty filed Al-Haramain

USA’s tax return for the year 2000 which allegedly covered up this

transaction by falsely reporting that these funds were used to

purchase a prayer house in Missouri, or returned to their original

donor.

The why of the alleged crimes allegedly involves using the

money to support the mujahideen fighting the Russian government in

Chechnya. Al-Haramain contends the money was intended to be used

to distribute Islamic aid and educational material.

The United States Attorney for the District of Oregon served

an administrative subpoena on the Al Rajhi bank pursuant to 31

U.S.C. § 5318(k)(3)(A)(I) which provides 

The Secretary of the Treasury or the Attorney General may

issue a summons or subpoena to any foreign bank that

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maintains a correspondent account in the United States

and request records related to such correspondent

account, including records maintained outside of the

United States relating to the deposit of funds into the

foreign bank. 

The Al Rajhi bank conducts operations in the United States

through correspondent accounts allowing it to make and receive

payments directly through banks in the United States. The subpoena

demanded production of authenticated copies of certified bank

records belonging to Al-Buthe including “[r]ecords pertaining to

the cashing of 130 $1,000 American Express Traveler’s checks by

Soliman Al-But’he in March of 2000 at Al Rajhi Bank” as well as

“[r]ecords pertaining to the deposit and any subsequent disposition

of a Bank of America cashier’s check, check number 1001040568,

issued to Soliman Al-But’he on March 11, 2000, for $21,000.”

A. Venue

As noted above, the Al Rajhi Bank filed a motion to quash in

the United States District Court for the District of Columbia in

case number 10-mc-55-ESH. In its response to the government's

motion, the bank requests that this court refrain from deciding the

motion before this court until the D.C. court decides whether to

change venue. Judge Ellen Huvelle ordered the motion to quash in

Washington, D.C. stayed pending a determination of the same matter

before this court, in an order dated February 9, 2010. 

Accordingly, the issue shall be decided by this court.

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The Bank also argues that the authorizing statute creates an

unconstitutional self-enforcing subpoena, that the subpoena may not

be used to gather evidence for a criminal trial, and that the scope

of the demand exceeds the scope of the authorizing statute. In

addition, the Bank argues that even if the subpoena is otherwise

enforceable, enforcement may be denied when compliance would force

it to violate foreign law.

Before addressing issues raised by the Al Rajhi Bank, the

general standard for enforcement of agency subpoenas should be

noted. The Supreme Court set forth the standard for judicial

enforcement of administrative subpoenas in United States v. Morton

Salt Co., 338 U.S. 632 (1950). The Court stated that an agency's

investigation is lawful if “the inquiry is within the authority of

the agency, the demand is not too indefinite and the information

sought is reasonably relevant.” Id. at 652. The Ninth Circuit has

stated that “[t]he scope of our inquiry in an agency subpoena is

narrow.” NLRB v. North Bay Plumbing, Inc., 102 F.3d 1005, 1007 (9th

Cir. 1996); see also EEOC v. Children's Hosp. Med. Ctr. of N. Cal.,

719 F.2d 1426, 1428 (9 Cir. 1983) (en banc). Generally, a court th

must ask “(1) whether Congress has granted the authority to

investigate; (2) whether procedural requirements have been

followed; and (3) whether the evidence is relevant and material to

the investigation.” Children’s Hosp. Med. Ctr. of N. Cal., 719

F.2d at 1428. An affidavit from a government official is

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sufficient to establish a prima facie showing that these

requirements have been met. See United States v. Stuart, 489 U.S.

353 (1989). Finally, “[i]f the agency establishes these factors,

the subpoena should be enforced unless the party being investigated

proves the inquiry is unreasonable because it is overbroad or

unduly burdensome.” Children’s Hosp. Med. Ctr. of N. Cal., 719

F.2d at 1428. 

Here, Congress granted authority to the Department of Justice, 

including the United States Attorney for the District of Oregon, to

investigate suspected acts of fraud and money-laundering. See 18

U.S.C. § 1956(a)(2). The documents sought are relevant to the

prosecution of this underlying case. However, the subpoena in this

case has the added wrinkle of seeking information from a foreign

entity and thus the novel issues raised by the Al Rajhi Bank need

to be considered.

The Al Rajhi Bank asserts that section 5318(k) grants

“unprecedented” powers to demand foreign bank records at the pain

of “severe sanctions” that puts the bank in the untenable position

of having to choose between violating the laws of its own country,

at the risk of imprisonment and fines, and the permanent loss of

its United States correspondent accounts that are essential to its

business. The bank notes that the Saudi Arabian Monetary Authority

(SAMA) informed it that it was prohibited from complying with the

subpoena and would risk criminal prosecution in Saudi Arabia if it

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complied. SAMA informed the bank that the proper form for the

United States to request the documents was through a letter

rogatory and that SAMA would not allow the bank to comply with a

request made through an administrative subpoena.1

B. Constitutionality of Section 5318(k)

1. Opportunity for Judicial Review

Section 5318(k)’s grant of authority to demand foreign bank

records is one of the new expanded tools that Congress gave the

Executive Branch to investigate and disrupt transnational money

laundering networks in the International Money Laundering Abatement

and Anti-Terrorist Financing Act of 2001, which Congress enacted as

Title III of the USA PATRIOT Act of 2001, Pub. L. 107-56, 115 Stat.

272 (2001). In addition to authorizing the service of

administrative subpoenas on foreign banks, section 5318(k) requires

banks and other “covered financial institutions” in the United

States to “terminate any correspondent relationship with a foreign

bank not later than 10 business days after receipt of written

notice . . . that the foreign bank has failed” either “to comply

with a . . . subpoena” issued under this provision or “to initiate

proceedings in a United States court contesting such . . .

subpoena.” 31 U.S.C. § 5318(k)(3)(C)(I). Failure to terminate a

The government did apparently attempt to obtain the documents

1

through a request to the government of Saudi Arabia pursuant to the

International Convention for the Suppression of Financing and

Terrorism. That attempt has not yielded any results.

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correspondent relationship pursuant to this provision would subject

a “covered financial institution” in the United States to “a civil

penalty of up to $10,000 per day.” 31 U.S.C. § 5318(k)(3)(C)(ii).

The Al Rajhi Bank argues that section 5318(k) grants

enforcement power to executive authorities without reservation of

ultimate enforcement authority to the courts in violation of due

process. The Bank further notes that simply failing to bring a

motion to quash does not cure due process deficiencies if the

agency can then enforce the subpoena and impose sanctions without

a court order. 

The Bank contends that section 5318(k), by its plain language,

allows the Treasury to order domestic banks to close a foreign

bank’s correspondent accounts, as a sanction for failing to comply

with a subpoena, without first obtaining judicial review of the

subpoena’s enforceability. The bank’s argument in this regard is

significant on this issue of first impression. The court is

concerned with the lack of an explicit procedure in the statute,

via judicial oversight, initiated by the agency seeking enforcement

through termination of correspondent accounts. However, the court

need not reach the issue of the constitutionality of the

enforcement procedures of section 5318(k) because foreign banks

have no constitutional interest in their correspondence

relationships with U.S. banks or in the privacy of the overseas

records.

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2. Constitutionally Protected Interest

The government contends that even if section 5318(k) permitted

the government to compel the termination of a foreign bank’s

correspondent relationships without judicial review of the

administrative subpoena, enactment of such an enforcement mechanism

would be within Congress’s power to regulate commerce with foreign

nations. 

The Supreme Court in Buttfield v. Stranahan, 192 U.S. 470, 493

(1904) stated:

As a result of the complete power of Congress over

foreign commerce, it necessarily follows that no

individual has a vested right to trade with foreign

nations which is so broad in character as to limit and

restrict the power of Congress to determine what articles

of merchandise may be imported into this country and the

terms upon which a right to import may be exercised. This

being true, it results that a statute which restrains the

introduction of particular goods into the United States

from considerations of public policy does not violate the

due process clause of the Constitution.

In United States v. Verdugo-Urquidez, 494 U.S. 259 (1990) the

Court held that the Fourth Amendment does not apply to searches and

seizures by United States agents of property owned by foreign

nationals located in a foreign country. “There is ... no

indication that the Fourth Amendment was understood by

contemporaries of the Framers to apply to activities of the United

States directed against aliens in foreign territory.” Id. at 267. 

However, aliens do receive constitutional protections when they

have come within the territory of the United States and have

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developed substantial connections with this country. See, e.g.,

Plyler v. Doe, 457 U.S. 202, 212 (1982) (The provisions of the

Fourteenth Amendment “are universal in their application, to all

persons within the territorial jurisdiction”); Kwong Hai Chew v.

Colding, 344 U.S. 590, 596, n. 5 (1953) (“The Bill of Rights is a

futile authority for the alien seeking admission for the first time

to these shores. But once an alien lawfully enters and resides in

this country he becomes invested with the rights guaranteed by the

Constitution to all people within our borders”).

With respect to foreign policy, 

[a]pplication of the Fourth Amendment to those

circumstances could significantly disrupt the ability of

the political branches to respond to foreign situations

involving our national interest.

Verdugo-Urquidez, 494 U.S. at 274. Application of the

constitutional protections argued by the Al Rajhi Bank would

certainly disrupt the ability of the government to combat financing

of international terrorism outside of the borders of this country.

The Bank contends that constitutional protections are afforded

in this context because the access to foreign bank records under

section 5318(k) rests on the Bank’s presence in the United States

in the form of correspondent relationships and the subpoena seeks

a return of documents in the United States. This argument would be

stronger if the bank had a more physical presence in the United

States such as a branch office. However, foreign, remotely

maintained correspondent relationships are no more worthy of

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constitutional protections than a foreign corporation seeking to

sell a product in the United States banned by domestic policy. Cf.

Buttfield, 192 U.S. 470 (due process of law is not denied in

forbidding importation of inferior tea already delivered to United

States). Imposing a fine on a domestic bank for maintaining a

correspondent account which, in effect, sanctions a foreign bank

for failing to produce documents related to investigation of

financing of terrorism does not involve issues of constitutionality

any more than denying clearance papers for a foreign vessel while

fines related to regulation of foreign commerce remain unpaid. See

Oceanic Navigation Co., Ltd. v. Stranahan, 214 U.S. 320 (1909)

(Congress could empower the Secretary of Commerce and Labor to

enforce, without invoking the judicial power, the penalty imposed

by Act March 3, 1903, c. 1012, § 9, 32 Stat. 1215, for bringing

into the United States an alien afflicted with a loathsome or

dangerous contagious disease).

The court finds that even if judicial oversight of the

administrative subpoena is not permitted on the face of the statute

in question, there can be no due process or Fourth Amendment

violation in compelling compliance with the subpoena through the

enforcement actions of fining domestic banks that fail to terminate

correspondent accounts with a foreign bank.

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B. Administrative Subpoena as an Evidence Gathering Tool

The Al Rajhi Bank next argues that the government may not use

an administrative subpoena to gather evidence for trial. The Bank

primarily relies on Resolution Trust Corp. v. Thornton, 41 F.3d

1539 (D.C. Cir. 1994). There, the court held, with respect to an

administrative subpoena issued pursuant to the Financial

Institutions Reform, Recovery, and Enforcement Act, that the Act

confers no power on Resolution Trust Corporation to subpoena

information for purposes of ascertaining cost-effectiveness of

litigation after the agency files suit against the subpoena

recipient. However, the court also provided the following

discussion:

we first must decide whether Grant Thornton's arguments

are foreclosed ... by our recent decision in Linde

Thomson. In Linde Thomson, a law firm challenging

enforcement of an RTC subpoena argued, inter alia, that

the RTC's filing of a civil complaint terminated the

agency's investigation into the existence of legal claims

and the cost-effectiveness of filing suit, and,

therefore, also mooted a subpoena issued in furtherance

of that investigation.... We rejected that argument for

two reasons. First, we referred to our conclusion,

reached earlier in the opinion, that two of the

subpoena's investigative purposes-determining whether the

RTC should seek to avoid the transfer of interests or

incurrence of obligations, and determining whether the

RTC should seek to attach assets-remained viable even

after civil proceedings began. [footnote omitted] Id. at

1517-18. Second, we found that “the statute authorizing

RTC investigations [does not] contemplate the termination

of investigative authority upon the commencement of civil

proceedings.” Id. at 1518. The RTC argues that here, as

in Linde Thomson, the purpose that animated the subpoena

when it issued in November 1992- i.e., determining the

cost-effectiveness of contemplated litigation-continues

to justify enforcement. In the RTC's view, the fact that

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suit subsequently has been filed is mere happenstance. We

disagree.

We perceive an important difference between this case and

Linde Thomson. Unlike the subpoena at issue in Linde

Thomson, the only purpose served by the San Jacinto

subpoena is the determination whether pursuing litigation

would be cost-effective. While we recognized in Linde

Thomson that the RTC continues to exercise investigative

authority after the commencement of civil proceedings, we

did so only after finding that two of the subpoena's

purposes, both related to uncovering further wrongdoing

by the subpoena recipient, remained viable after suit was

filed. See Walde, 18 F.3d at 950 (characterizing Linde

Thomson as enforcing subpoena after commencement of civil

proceedings “because ongoing investigation might reveal

information to underpin further charges”). The very fact

that we relied on these continuing investigative purposes

to affirm the district court's enforcement order strongly

suggested that the purpose of ascertaining the

cost-effectiveness of litigation could not sustain the

subpoena after civil proceedings began. Thus, while our

Linde Thomson decision does establish that the

commencement of civil proceedings fails to extinguish a

subpoena supported by viable investigative purposes, it

does not establish that ascertaining the

cost-effectiveness of suit is such a purpose....

Nor can we discern any grant of authority in the FIRREA

to subpoena documents for this purpose.

Id. at 1545-46 (emphasis added).

The context of this case is quite different. While a criminal

case has been initiated here, the subpoena is not directed to the

target of the prosecution and the use of the subpoena does not run

into the discovery roadblock present in Thornton. See id. at 1547

(The RTC's asserted power also conflicts with well-established

limits on a litigant's ability to discover an adversary's financial

and insurance information. The federal discovery rules generally

prohibit a litigant from discovering an opponent's assets until

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after a judgment against the opponent has been rendered.) 

Additionally, the subpoena at issue seeks documents for purposes

noted under the statute in question. Congress intended to confer

powers in excess of preexisting authorities which had proven

outmoded and inadequate in cases in which money laundering involved

foreign entities. See International Money Laundering Abatement and

Antiterrorist Financing Act of 2001, Pub. L. 107-56 § 302(a)(8, 115

Stat. 297 (2001).

The Ninth Circuit has stated that administrative subpoenas

may issue even after an agency grants a right to sue to the

charging party. See E.E.O.C. v. Federal Express Corp., 558 F.2d

842, 851 (9 Cir. 2009) (“The Fifth Circuit concluded that “in a

th

case where the charging party has requested and received a right to

sue notice and is engaged in a civil action that is based upon the

conduct alleged in the charge filed with the EEOC, that charge no

longer provides a basis for EEOC investigation.... we cannot

agree.”). The Federal Express court further stated that “We

believe that it is well-established that an administrative subpoena

is to be enforced unless agency authority is plainly lacking,” id.

at 851, n. 3, and that “nothing in § 706(f)(1) of Title VII

indicates that the EEOC's investigatory powers over a charge cease

when the charging party files a private action.” Id. at 853.

Similarly, there is nothing in the subpoena authority granted

by Congress in section 5318(k) to indicate that the Justice

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Department may not issue subpoenas post-indictment. A criminal

investigation need not cease upon the filing of an indictment.

C. Scope of the Authorizing Statute

The Al Rajhi Bank next contends that the scope of the demand

exceeds the limits of the authorizing statute because it does not

relate to correspondent accounts. The Subpoena seeks:

Account records for account number 140608010109206 for

the time period of February, March, and April of 2000, to

include:

(1) Copies of signature cards and customer applications;

(2) Copies of bank statements, ledger cards, or records

reflecting dates and amounts of deposits and withdrawals;

(3) Copies of debit and credit memos;

(4) Copies of deposit slips and checks deposited

(including the backs of the checks);

(5) Copies of withdrawal slips and teller records showing

the withdrawal of currency, including records reflecting

the type of currency received (U.S. dollars or Saudi

Riyals);

(6) Copies of checks issued for withdrawals (including

the backs of the checks);

(7) Copies of all records reflecting the cashing of

traveler’s checks, including teller records, receipts

indicating the number of cashier’s checks cashed, the

denominations of the cashier’s checks cashed, and the

type of currency received (U.S. dollars or Saudi Riyals);

(8) Records reflecting the customer exchange rate of U.S.

dollars to Saudi Riyals on March 13, 2000, March 14,

2000, March 27, 2000, and March 28, 2000;

(9) Records pertaining to the cashing of 130 US $1,000

American Express Traveler’s checks by Soliman Al-But’he

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in March of 2000 at Al Rajhi Bank, to include the date

and time of the transaction, the amount of the

transaction, and type of currency received by Al-But’he

(U.S. dollars or Saudi Riyals); and 

(10) Records pertaining to the deposit and any subsequent

disposition of a Bank of America cashier’s check, check

number 1001040568, issued to Soliman Al-But’he on March

11, 2000, for US $21,000.

The government asserts that the requests are related to AlButhe’s negotiation of the financial instruments at the center of

this investigation, i.e., the cashier’s checks and traveler’s

checks identified in the indictment. The government contends that

the financial instruments in question were issued in U.S. dollars

by U.S. banks and that the negotiation of those instruments

inevitably related to correspondent accounts in the United States. 

The Bank disagrees contending that the records relate to a personal

account of Al-Buthe in Saudi Arabia. The requests shall be limited

to those directly related to the cashier’s check and 130 travelers

checks issued by U.S. banks and thus to requests 7, 8, 9, and 10

and requests 2-6 to the extent any documents relate to the

cashier’s check and traveler’s checks or otherwise to correspondent

accounts with United States Banks.

D. Conflict with Foreign Law

The Bank also asserts that the subpoena should be quashed

because compliance would require it to violate the laws of the

Kingdom of Saudi Arabia. 

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The possibility of civil or criminal sanctions will not

necessarily prevent enforcement of a subpoena. See Restatement

(Second) of the Foreign Relations Law of the United States, § 39-40

(1965). When the laws of two jurisdictions conflict, the court

must balance the interests, including the respective interests of

the states involved and the hardship that would be imposed upon the

person or entity subject to compliance. The Restatement (Third) of

the Foreign Relations Law of the United States, section 442(1)(c)

identifies relevant factors in deciding whether or not foreign

statutes excuse noncompliance with discovery orders. These factors

include:

the importance to the investigation or litigation of the

documents or other information requested; the degree of

specificity of the request; whether the information

originated in the United States; the availability of

alternative means of securing the information; and the

extent to which noncompliance with the request would

undermine important interests of the United States, or

compliance with the request would undermine important

interests of the state where the information is located.

Richmark Corp. v. Timber Falling Consultants, 959 F.2d 1468, 1475

(9 Cir. 1992). th

Courts have held that the United States’ interest in law

enforcement outweighs the interests of the foreign states in bank

secrecy and the hardships imposed on the entity subject to

compliance. See, e.g., United States v. Davis, 767 F.2d 1025 (2d

Cir. 1985) (finding interest in enforcing criminal laws against

fraud overcame Cayman Islands interest in bank secrecy); United

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States v. First Nat'l City Bank, 396 F.2d 897 (2d Cir. 1968)

(finding strong interest in grand jury investigation of antitrust

violations); SEC v. Banca Della Svizzera Italiana, 92 F.R.D. 111

(S.D.N.Y. 1981) (compelling production in regulatory action to

enjoin violations of federal securities laws). But see In re

Sealed Case, 825 F.2d 494, 499 (D.C.Cir. 1987) (reversing contempt

sanction against bank, stating “we should say it causes us

considerable discomfort to think that a court of law should order

a violation of law, particularly on the territory of the sovereign

whose law is in question”).

The Kingdom of Saudi Arabia and the United States are parties

to the International Convention for the Suppression of Financing of

Terrorism which obligates mutual assistance. See International

Convention for Suppression of the Financing of Terrorism, G.A. Res.

109, Art. XII, § 1, U.N. GAOR, 54th Sess., U.N. Doc. A/RES/54/109

(Dec. 9, 1999). Although the bank, as a private entity, is not a

party to the agreement, The Convention specifically bars parties

from “refus[ing] a request for mutual legal assistance on the

ground of bank secrecy.” See id. Art. XII, § 2. However, under

section 5 of article 12, mutual legal assistance is provided only

in conformity with any treaties or other arrangement of legal

assistance and in the absence of such treaties (as is the case

here), assistance shall be in accordance with respective domestic

laws.

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Additionally, the sanctions the court would condone in this

case are not directed at the bank, but only at domestic banks and

their relationship with the foreign bank. The court will not defer

to Saudi law and require that the correspondent accounts remain

open if the Al Rajhi Bank refuses compliance with the subpoena.

The records sought are directly relevant and the documents, as

limited above, are identified with a high degree of specificity. 

The documents are located in Saudi Arabia and those who will

produce the documents are subject to the laws of Saudi Arabia. 

While the records could conceivably be obtained via a letter

rogatory, the government’s previous request of the Saudi government

appears to have been met with no viable response. Thus, there is

no other means of securing the information. Although compliance

with the subpoena ostensibly may violate Saudi law, the

International Convention for the Suppression of Financing of

Terrorism confirms that both countries have a strong interest in

production. Accordingly, the United States’ interest in law

enforcement in this case outweighs the interests of the Kingdom of

Saudi Arabia in bank secrecy and the hardships imposed on the Al

Rajhi Bank in complying with the subpoena. The court grants the

motion to the extent that the government may seek to impose the

sanctions authorized under section 5318(k) unless the Al Rajhi Bank

complies with the subpoena.

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CONCLUSION

For the reasons stated above, the United States' motion to

compel compliance with the July 17, 2009, subpoena issued pursuant

to 31 U.S.C. § 5318(k) (#253) is granted to the extent that the

government may seek to impose the sanctions authorized under

section 5318(k) unless the Al Rajhi Bank complies with the subpoena

as limited above. To the extent that the Al Rajhi Banking &

Investment Corporation's motion to quash filed in Case Number 10-

mc-55-ESH in the United States District Court for the District of

Columbia is before this court, the motion is denied as moot.

DATED this 26 day of February, 2010. th

 s/ Michael R. Hogan 

United States District Judge

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