Source: https://case-law.vlex.com/vid/in-re-sealed-case-809204117
Timestamp: 2020-05-25 19:03:43
Document Index: 225626667

Matched Legal Cases: ['§ 1701', '§ 1', '§ 53', '§5318', '§ 1705', '§ 1956', '§5318']

In re Sealed Case, 073019 FEDDC, 19-5068 - Federal Cases - Case Law - VLEX 809204117
Docket Nº: 19-5068, 19-5100, 19-5102, 19-5103
Party Name: In re: Sealed Case
Judge Panel: Before: Tatel, Millett, and Pillard, Circuit Judges.
Case Date: July 30, 2019
Nos. 19-5068, 19-5100, 19-5102, 19-5103
Argued July 12, 2019
Reissued August 6, 2019
Appeals from the United States District Court for the District of Columbia (No. l:18-mc-00175) (No. l:18-mc-00176) (No. l:18-mc-00177)
Before: Tatel, Millett, and Pillard, Circuit Judges.
TATEL, CIRCUIT JUDGE. [*]
The three appellant banks, headquartered in China, hold records that the United States government thinks may clarify how North Korea finances its nuclear weapons program. The government therefore procured subpoenas for those records, obtaining two from a grand jury (for the two banks with U.S. branches) and one from the Attorney General under the Patriot Act (for the bank that has no U.S. branch). The banks resisted on multiple fronts, claiming that the district court lacked personal jurisdiction, that the Patriot Act subpoena exceeded the government's statutory authority, and that compelling production would run afoul of comity principles because turning over the records-even in response to a U.S. court order-would trigger penalties under Chinese law. In a thorough and thoughtful pair of opinions, the district court overruled those objections and, when the first opinion failed to elicit the records, held the banks in civil contempt. For the reasons set forth below, we affirm.
For decades, the Democratic People's Republic of Korea (better known as North Korea) has aspired to a battle-ready nuclear weapons program. Seeking to defuse the threat, the U.S. government has imposed stiff financial sanctions on the North Korean regime and its instrumentalities, exercising authority located in the International Emergency Economic Powers Act. See 50 U.S.C. §§ 1701-02 (granting the President the power to "prohibit" various "transactions" after declaring a "national emergency" posed by "any unusual and extraordinary threat... to the national security, foreign policy, or economy of the United States"). Relevant to this case, those sanctions are intended to cut off North Korea's access to American markets and currency. See Executive Order No. 13, 382, § 1, 70 Fed. Reg. 38, 567, 38, 567 (June 28, 2005) (authorizing various cabinet officers to "block[]" entities that further nuclear proliferation by preventing any "property or interests in property" from being "transferred, paid, exported, withdrawn, or otherwise dealt in"). According to government investigators, however, North Korea manages to evade the sanctions by using Chinese front companies that cloak the true ownership of the funds involved.
The facts uncovered by this investigation so far are a case in point. The U.S. government has collected substantial evidence that a now-defunct Chinese company called (XXXXX) ("the Company") acted as a front for (XXXXX), a North Korea- owned entity ("the NKE"), by facilitating transactions that violated the sanctions orders. In fact, to date the government's "investigation [has] not yield[ed] any evidence that" the Company "was ever used as a legitimate business." Declaration of (XXXXX) ("FBI Declaration") ¶ 10, Joint Appendix ("J. A.") 864. Unsurprisingly, then, in addition to the NKE itself, the government has sanctioned the Company and two of its alleged founders. Actions Taken Pursuant to Executive Order 13382, (XXXXX) (designating the NKE); Notice of [Office of Foreign Asset Control (OFAC)] Sanctions Actions, (XXXXX) (designating the Company); Notice of OFAC Sanctions Actions, (XXXXX) (designating alleged co-founder (XXXXX)); Notice of OFAC Sanctions Actions, (XXXXX) (designating alleged co-founder (XXXXX)).
According to the government, the scheme operated like this: Hobbled by the worthlessness of North Korea's currency, the NKE would use the Company to make or receive payments in U.S. dollars. These transactions helped North Korea access resources that would otherwise have been beyond its reach. For example, the Company's assistance allegedly enabled North Korea to export hundreds of millions of dollars of coal and other minerals, generating revenue in U.S. currency that North Korea could then use to requisition other commodities vital to its weapons program.
In these transactions, the Company routinely took advantage of U.S. correspondent bank accounts-that is, accounts held by banks outside the United States at banks located inside the United States. See 31 U.S.C. § 53l8A(e)(1)(B) (defining "correspondent account" to mean "an account established to receive deposits from, make payments on behalf of a foreign financial institution, or handle other financial transactions related to such institution"). Such accounts allow foreign "banks to conduct business and provide services for their customers in" the United States even if "the banks have no physical presence" here. Minority Staff of the Senate Permanent Subcommittee on Investigations, Correspondent Banking: A Gateway for Money Laundering, S. Hrg. 107-84, 107th Cong., app. 287 (2001). This, in turn, enables a foreign bank's customers to "receive many or all of the services offered by [a] U.S. bank" without forming a direct-client relationship with an American institution. Id. Correspondent banking arrangements are fairly ubiquitous: "[d]ue to U.S. prominence in international trade and the high demand for U.S. dollars due to their overall stability, most foreign banks that wish to provide international services to their customers have accounts in the United States capable of transacting business in U.S. dollars." Id. In short, then, correspondent bank accounts allow foreign banks to offer their clients services-including obtaining and transacting in U.S. currency-without opening a U.S. branch.
These accounts are how the appellant banks (collectively, the "Banks") enter the story. All three are China-based- indeed, the Chinese government owns a substantial minority of each-and hold correspondent accounts in the United States. Banks One and Two also operate branches in the United States, but according to the government the Company relied on the three Banks' U.S. correspondent accounts to execute its scheme.
To better grasp the full scope of the Company's operations, the government seeks certain records from the Banks. The United States and China have a bilateral agreement for obtaining just these kinds of records. Known as the Mutual Legal Assistance Agreement (MLAA), it obligates the two countries to assist each other "in proceedings related to criminal matters," including by "providing . . . records or articles of evidence" and "executing requests for inquiry," and specifies the "[f]orm and [c]ontents" of any requests. Agreement Between the Government of the United States of America and the Government of the People's Republic of China on Mutual Legal Assistance in Criminal Matters, arts. 1, 4, June 19, 2000, T.I.A.S. No. 13, 102. Absent an MLAA request, Chinese law prohibits banks from disclosing records to international investigators.
In this case, however, the United States chose not to go through the MLAA. Stymied by what it perceives as sluggish and typically fruitless cooperation from Chinese authorities in the past, the government unilaterally issued subpoenas to all three Banks in December 2017. The two banks with branches in the United States-(XXXXX) (''Bank One" and "Bank Two," respectively)-received grand jury subpoenas. See Federal Rule of Criminal Procedure 17(e)(1). The third-(XXXXX) ("Bank Three")-has no branch in the United States and received a subpoena from the Attorney General pursuant to the Patriot Act, which gives the Attorney General and the Treasury Secretary special investigatory tools when it comes to U.S. correspondent bank accounts. See 31 U.S.C. §5318(k)(3)(A)(i). The subpoenas seek all records dated 2012 to 2017 concerning all correspondent banking transactions associated with certain accounts linked to the Company, defining records to include signature cards, ledger cards, account statements, and documentation of deposits, withdrawals, and transfers. Through this investigation, the government hopes to learn whether the Company or any other entities have committed various federal crimes, including engaging in unlicensed financial transactions (violating 50 U.S.C. § 1705), money laundering (violating 18 U.S.C. § 1956), or failing to exercise due diligence in correspondent banking as required by the Bank Secrecy Act (violating 31 U.S.C. §§5318 and 5322). The government does not currently suspect the subpoenaed Banks of any wrongdoing.
In correspondence with the U.S. government, the Banks and the Chinese government protested that complying with the subpoenas would violate multiple Chinese laws, including the law designating the MLAA process as the exclusive mechanism for disclosures. They...