Tag: Correspondent Bank Account

Rasheed Al Rushaid, et al. v. Pictet & Cie, et al., No. 180 (N.Y. 2016): Personal Jurisdiction Based on Correspondent Bank Account Use
Rasheed Al Rushaid, et al. v. Pictet & Cie, et al., No. 180 (N.Y. 2016)

A foreign bank purposefully avails itself of the privilege of conducting activities within New York, subjecting it to personal jurisdiction, when it repeatedly uses a New York correspondent bank account to facilitate transactions substantially related to the plaintiff’s claims.

Summary

The New York Court of Appeals held that it had personal jurisdiction over Pictet & Cie (Pictet), a Swiss bank, because of its repeated use of New York correspondent bank accounts to launder funds related to a bribery and kickback scheme. Pictet’s vice president, Chambaz, assisted ARPD employees in setting up accounts to receive funds in a scheme that harmed the plaintiffs. The court distinguished this from cases where the use of the correspondent account was passive or incidental. The court found that the defendant’s repeated and purposeful use of the New York accounts demonstrated a sufficient nexus to New York to establish personal jurisdiction, as the New York accounts were used to further the money laundering scheme. This decision clarifies the standard for establishing personal jurisdiction based on the use of correspondent accounts in New York, emphasizing purposeful availment.

Facts

Plaintiff Rasheed Al Rushaid, co-owner of Al Rushaid Petroleum Investment Corporation (ARPIC), sued Pictet, a Swiss bank, along with its Vice President Chambaz, alleging that Pictet knowingly laundered funds related to a bribery and kickback scheme involving employees of Al Rushaid Parker Drilling, Ltd. (ARPD), a subsidiary of ARPIC. ARPD employees accepted bribes and kickbacks from vendors in exchange for purchasing goods and services at inflated prices. Chambaz, a Pictet executive, assisted the employees by setting up a shell company, TSJ Engineering Consulting Co., Ltd., in the British Virgin Islands to receive the bribes. Pictet then used its New York correspondent bank accounts to transfer the funds to the shell company’s Geneva-based Pictet account and the employees' individual accounts. Documents showed numerous wire transfers totaling over $4 million through Pictet's New York correspondent accounts. The plaintiffs sought over $350 million in damages.

Procedural History

Plaintiffs sued the defendants in New York state court. The trial court granted the defendants' motion to dismiss for lack of personal jurisdiction, concluding that the use of correspondent accounts was passive. The Appellate Division affirmed, distinguishing the case from Licci v. Lebanese Canadian Bank, SAL, and holding that the defendants did not purposefully avail themselves of New York. The Court of Appeals granted leave to appeal.

Issue(s)
1. Whether the use of New York correspondent bank accounts by a foreign bank, in connection with a money-laundering scheme, constitutes transacting business within the state, thus satisfying the first prong of CPLR 302(a)(1).
2. Whether the plaintiffs' claims, based on the foreign bank's role in the money-laundering scheme, arose from the bank's transactions in New York, satisfying the second prong of CPLR 302(a)(1).
Holding
1. Yes, because Pictet's repeated use of New York correspondent accounts, as a central component of a money-laundering scheme, constituted the transaction of business within the state.
2. Yes, because the plaintiffs' claims of aiding and abetting breach of fiduciary duty and conspiracy were substantially related to Pictet's transactions in New York via its correspondent accounts.
Court’s Reasoning

The court applied CPLR 302(a)(1), New York's long-arm statute, which requires that the non-domiciliary transact business within the state and that the claim arise from that transaction. The court focused on whether Pictet's activities demonstrated "purposeful availment." The court distinguished the case from Amigo Foods Corp. v. Marine Midland Bank-NY, where the use of the correspondent account was passive and unilateral. Here, Pictet's use of the New York correspondent accounts was a deliberate and integral part of the money-laundering scheme. The court held that Pictet's repeated use of New York correspondent accounts to transfer funds for its client's benefit constituted "purposeful availment" of the New York banking system and thus satisfied the first prong of CPLR 302(a)(1). "Repeated, deliberate use that is approved by the foreign bank on behalf and for the benefit of a customer — as in Licci — demonstrates volitional activity constituting transaction of business." The court also found that the plaintiffs' claims, which included aiding and abetting breach of fiduciary duty and conspiracy, had a "substantial relationship" with Pictet's banking transactions in New York, thus satisfying the second prong of CPLR 302(a)(1).

Practical Implications

This case provides important guidance on establishing personal jurisdiction over foreign banks based on their use of New York correspondent accounts. It is vital for cases involving claims against foreign banks for financial misconduct. The ruling clarifies that a foreign bank can be subject to jurisdiction even if it does not directly direct deposits into a New York account; its active involvement in a scheme that uses such accounts is sufficient. This ruling impacts how attorneys analyze and litigate cases involving international financial transactions and potential liability for aiding and abetting illegal activities. Courts may be more willing to assert jurisdiction over foreign financial institutions that use New York's banking infrastructure to further financial schemes. It reaffirms that the quality and quantity of a foreign bank's contacts with the correspondent bank matter more than whether another bank could have been used. Later cases may cite this case to assert jurisdiction over financial institutions implicated in illicit transactions.
November 22, 2016
Licci v. Lebanese Canadian Bank, SAL, 20 N.Y.3d 327 (2012): Establishes Jurisdictional Reach for Foreign Banks Using NY Correspondent Accounts

Licci ex rel. Licci v. Lebanese Canadian Bank, SAL, 20 N.Y.3d 327 (2012)

A foreign bank’s repeated use of a New York correspondent account to effect wire transfers on behalf of a client constitutes transacting business in New York and establishes an articulable nexus between the transaction and alleged breaches of statutory duties, thus satisfying the requirements for personal jurisdiction under CPLR 302(a)(1).

Summary

This case addresses whether New York courts can exercise personal jurisdiction over a foreign bank, Lebanese Canadian Bank (LCB), based on its use of a correspondent bank account in New York to transfer funds for a client allegedly linked to terrorist activities. The plaintiffs, victims of rocket attacks in Israel, sued LCB, claiming that the bank’s wire transfers facilitated terrorist acts. The New York Court of Appeals held that LCB’s repeated use of the correspondent account to conduct transactions constituted transacting business in New York and created a sufficient connection between the transactions and the plaintiffs’ claims to establish personal jurisdiction under New York’s long-arm statute.

Facts

Plaintiffs, residing in Israel, were injured or lost family members in rocket attacks during the Second Lebanon War in 2006. They sued Lebanese Canadian Bank (LCB), alleging that LCB assisted Hizballah by facilitating monetary transactions through the Shahid Foundation, identified as Hizballah’s financial arm. LCB maintained a correspondent banking account with American Express Bank (AmEx) in New York. Plaintiffs alleged that LCB used this account to transfer millions of dollars via dozens of wire transfers on behalf of Shahid, knowing that Hizballah was a terrorist organization and that Shahid was supporting terrorist activities. Plaintiffs claimed LCB’s actions enabled and facilitated the attacks.

Procedural History

The case was initially filed in New York Supreme Court, then removed to the U.S. District Court for the Southern District of New York. The District Court dismissed the case for lack of personal jurisdiction, finding that LCB’s maintenance and use of the correspondent account was insufficient to establish jurisdiction and that the claims did not “arise from” the bank’s activities in New York. The plaintiffs appealed to the Second Circuit Court of Appeals, which then certified questions of New York law to the New York Court of Appeals regarding the interpretation of CPLR 302(a)(1).

Issue(s)

1. Whether a foreign bank’s maintenance and use of a correspondent bank account in New York to effect numerous wire transfers on behalf of a foreign client constitutes transacting business in New York under CPLR 302(a)(1)?

2. Whether the plaintiffs’ claims under the Anti-Terrorism Act, the Alien Tort Statute, or for negligence or breach of statutory duty in violation of Israeli law, “arise from” LCB’s transaction of business in New York within the meaning of CPLR 302(a)(1)?

Holding

1. Yes, because the foreign bank’s repeated use of a New York correspondent account to effect wire transfers constitutes a purposeful availment of New York’s banking system.

2. Yes, because there is an articulable nexus or substantial relationship between LCB’s transaction of business in New York and the plaintiffs’ claims, as the alleged breaches of statutory duties occurred when LCB used the New York account to support terrorist activities.

Court’s Reasoning

The Court of Appeals emphasized that the jurisdictional inquiry under CPLR 302(a)(1) requires examining the specific facts of each case to determine whether the defendant “purposefully availed” itself of the privilege of conducting activities in New York. The court distinguished this case from Amigo Foods Corp. v. Marine Midland Bank-N.Y., where the bank’s involvement was passive and unilateral. Here, LCB’s repeated use of the AmEx account on behalf of a client indicated a “course of dealing,” showing purposeful availment of New York’s banking system. Regarding the “arise from” prong, the Court found an “articulable nexus” between LCB’s use of the New York account and the plaintiffs’ claims. Even though the direct harm came from rocket attacks, LCB’s alleged support of terrorist activities through the New York account was sufficiently related to the cause of action. The court stated, “Complaints alleging a foreign bank’s repeated use of a correspondent account in New York on behalf of a client—in effect, a ‘course of dealing’—show purposeful availment of New York’s dependable and transparent banking system, the dollar as a stable and fungible currency, and the predictable jurisdictional and commercial law of New York and the United States.” The court also noted, “where at least one element arises from the New York contacts, the relationship between the business transaction and the claim asserted supports specific jurisdiction under the statute.”

November 20, 2012

Tag: Correspondent Bank Account

Rasheed Al Rushaid, et al. v. Pictet & Cie, et al., No. 180 (N.Y. 2016): Personal Jurisdiction Based on Correspondent Bank Account Use

Licci v. Lebanese Canadian Bank, SAL, 20 N.Y.3d 327 (2012): Establishes Jurisdictional Reach for Foreign Banks Using NY Correspondent Accounts