Chinese Bank Pushes Back In US
November 18 2015 - 2:03AM
Dow Jones News
(FROM THE WALL STREET JOURNAL 11/18/15)
By Nicole Hong in New York and Lingling Wei in Beijing
As China's big banks expand in the U.S., they are testing how
far U.S. judges can go in demanding account records located in
China.
In a closely watched case, Kering SA's Gucci and its other
luxury brands allege that some of their most troublesome
counterfeiters have accounts with Bank of China Ltd. and have
issued subpoenas for information about their transactions. The bank
is fighting the effort.
U.S. District Judge Richard Sullivan in Manhattan has repeatedly
ordered Bank of China to comply, but the bank has said that
producing the information would violate Chinese law and has
disclosed only a fraction of the records demanded by the court. On
Tuesday, lawyers for Gucci and Bank of China will square off in a
hearing to decide whether the lender should be held in contempt of
court and pay a multimillion-dollar fine for defying the court's
orders.
The case wades into relatively new territory for U.S. courts,
and the outcome could set a blueprint for U.S. lawyers trying to
pierce China's secrecy laws in future cases.
"U.S. courts don't have a lot of insight into banking records in
China," said Mark Hanchet, a partner at Mayer Brown LLP. "Here's an
example of a court actually penetrating that."
Gucci points to Bank of China's New York branch and wire
transfers from Bank of China's own accounts, known as correspondent
bank accounts, at Chase Bank in the U.S. as a reason U.S. courts
should have jurisdiction in this case. Bank of China said the
requested records in China are unrelated to its business in the
U.S. and that Gucci should instead litigate this case in China.
Bank of China's U.S. lawyers and representatives in China didn't
respond to requests for comment. Gucci's lawyers and a spokeswoman
for Kering declined to comment.
The bank's lawyers have said in court filings that China has a
vital national interest in protecting its citizens' account
security to promote and develop its nascent banking system.
These disputes are common in counterfeit cases. In a series of
lawsuits, high-end jeweler Tiffany & Co. has tangled with
Chinese banks as the company seeks to enforce monetary judgments
against alleged counterfeiters.
China's top four state-owned banks in recent years have targeted
overseas expansion to offset slowing profit growth and smaller
lending margins at home. Overseas assets at the banks are up almost
10% from the end of last year, totaling $1.3 trillion. Bank of
China has been one of the most aggressive of that group, with 19%
of its total profit coming from foreign operations.
That expansion is bringing them into conflict with a U.S. legal
system that typically views abiding by U.S. law as the price
foreign companies must pay to benefit from doing business in the
country.
U.S. lawmakers have long complained about China's lack of
cooperation in legal proceedings. In a May report, a congressional
commission that monitors U.S.-China economic issues wrote that
Chinese businesses in the U.S. use "the shroud of Chinese law,
including official secrecy laws" to keep themselves "largely immune
from the jurisdiction of U.S. courts."
U.S. judges have tried to resolve the disputes by ordering
plaintiffs to make their records requests through provisions of an
international treaty, a solution suggested by Bank of China as well
in the Gucci case. But plaintiffs have argued that the method is
too slow and unwieldy.
This dispute dates back to 2010, when the brands sued a group of
people, accusing them of counterfeiting goods like Gucci handbags
and then selling them online in the U.S. Gucci alleged the
counterfeiters wired the illegal proceeds to accounts at the Bank
of China, making the bank records indispensable for finding out how
much revenue the counterfeiters made and whether other perpetrators
were involved.
Bank of China fought subpoenas for those records, saying in
court filings that they could subject the bank to criminal
prosecution in China.
Judge Sullivan found Bank of China in contempt of court in 2012,
imposing a fine of $75,000 plus $10,000 a day until the records
were produced.
After an appeals court found his original order too ambiguous
and kicked the case back to him, the judge issued a new order in
September, saying U.S. courts do have specific jurisdiction in this
case to order Bank of China to produce the documents. He said there
is no evidence that China rigidly enforces its bank secrecy laws
and that the U.S. interest in protecting its intellectual property
clearly outweighs China's state policy.
Gucci has asked Judge Sullivan to punish the bank by ordering a
$12 million cash payment as compensation for how much the
counterfeiters would have owed the brands in damages. Bank of China
called the $12 million request baseless in a filing on Tuesday.
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(END) Dow Jones Newswires
November 18, 2015 02:48 ET (07:48 GMT)
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