CITIC Industrial Bank v. Superintendent of Banks, 79 N.Y.2d 412 (1992)

The Superintendent of Banks has broad authority under New York Banking Law to seize assets of a failed foreign bank located in New York, even if those assets are related to transactions initiated before the seizure but completed afterward.

Summary

CITIC Industrial Bank sought the return of $31 million it transferred to a New York bank account of the Tokyo branch of Bank of Credit and Commerce International (BCCI) just before the New York Superintendent of Banks seized BCCI’s New York agency. The transfer was part of a “Eurodollar” agreement. The Court of Appeals held that the Superintendent had the authority to seize the funds under Banking Law § 606(4), which grants broad powers to seize assets of foreign banks in New York, even if those assets are related to a foreign branch and the transaction was in progress when the New York agency was seized. The Court rejected CITIC’s claims of restitution, constructive trust, and mistake of fact.

Facts

• CITIC regularly engaged in “dollar placements” with the BCCI Tokyo branch, depositing U.S. dollars into a BCCI Tokyo branch account at BankAmerica International (BAI) in New York.
• On July 4, 1991, CITIC and BCCI Tokyo agreed to a Eurodollar agreement, where CITIC would transfer $31 million to BCCI Tokyo, to be repaid with interest the following Monday.
• On July 5, 1991, CITIC initiated an electronic transfer of $31 million from its Citibank account in New York to the BCCI Tokyo branch account at BAI in New York.
• Later that morning, the New York Superintendent of Banks seized the New York agency of BCCI due to its unsound financial condition.
• BAI was informed of the seizure and instructed not to allow any funds out of BCCI accounts.
• The transfer from Citibank to BAI was completed after the seizure, and the funds were credited to the BCCI Tokyo branch account.

Procedural History

• The Superintendent sought release of the $85 million seized from the BCCI Tokyo branch account at BAI.
• Supreme Court ruled in favor of CITIC, ordering the return of $31 million.
• The Appellate Division reversed, upholding the Superintendent’s authority to seize the funds.
• The Court of Appeals granted CITIC leave to appeal and affirmed the Appellate Division’s order.

Issue(s)

1. Whether the Superintendent of Banks had the authority under Banking Law § 606(4) to seize funds transferred to a New York bank account of a foreign branch of BCCI after the Superintendent seized BCCI’s New York agency.
2. Whether CITIC was entitled to the return of its funds under the doctrine of constructive trust.
3. Whether the transaction was executed under a mistake of fact, warranting recovery under the contract doctrine of impossibility/impracticability of performance.

Holding

1. Yes, because Banking Law § 606(4) grants the Superintendent broad powers to seize assets of foreign banks in New York, including assets of a foreign branch located in New York regardless of whether those assets have any business connection to the New York agency.
2. No, because CITIC was not an innocent victim and knowingly took a risk by doing business with BCCI, which was known to be in financial trouble.
3. No, because the mistake did not exist at the time the contract was negotiated; at that time the Tokyo branch was operating normally.

Court’s Reasoning

• The Court emphasized the broad language of Banking Law § 606(4)(c)(2), which defines “business and property in this state” to include assets of a foreign bank located in New York State regardless of whether those assets have any business connection to the New York agency.
• The Court distinguished this case from traditional receivership principles, which might apply to deposits transferred to the seized business of a New York agency or branch. Here, the seizure was of assets in an account at BAI, a fully operational unrelated banking entity, belonging to a foreign branch of BCCI which at the moment of seizure was still in operation.
• The Court rejected CITIC’s argument that the seizure of the New York agency meant that BCCI could no longer accept deposits, stating that it overestimated the Superintendent’s ability to control a multinational banking corporation.
• The Court emphasized the policy of granting the Superintendent the necessary powers to seize assets of a failed foreign banking entity to protect the integrity of the New York financial market.
• Regarding the constructive trust claim, the Court found that CITIC was not an innocent party, as it knew or should have known of BCCI’s financial troubles.
• The Court also rejected the mutual mistake and impossibility arguments.
• The court stated, “This case does not involve overreaching by the State at the expense of an innocent depositor, but rather the entirely proper seizure of funds which CITIC chose to transfer to BCCI prior to its collapse. BCCI’s financial and legal troubles were well documented and well known prior to the seizure. It is clear that CITIC took a known risk, hoping to reap a larger return than it could have elsewhere. Risk assessment is always clearer after the disaster. CITIC’s attempts to invoke such hindsight cannot serve as a valid basis to grant relief.”