By Bruce Zagaris
On July 30, 2019, the United States Court of Appeals for the D.C. Circuit unanimously affirmed a contempt order against three Chinese banks that failed to comply with subpoenas from the U.S. Department of Justice (DOJ).
On April 30, 2019, the U.S. District Court for the D.C. Circuit unsealed an opinion issued on March 18, 2019, by Chief Judge Beryl A. Howell enforcing grand jury subpoenas and an administrative subpoena against three Chinese banks for records of transactions for a now-defunct Hong Kong-based front company for North Korea’s state-operated company.
While the banks involved are not named in court papers, they were previously reported to be the Bank of Communications, China Merchants Bank and Shanghai Pudong Development Bank (SPD).
In a unanimous ruling, which is under seal, the circuit panel rejected the banks’ arguments that Chinese banking privacy rules and other laws require that requests for customer records in U.S. criminal inquiries be made through a legal assistance agreement between the two countries.
The case grew out of an investigation by the U.S. Department of Justice into Mingzheng International trading Limited, a Hong-Kong entity that allegedly moved $105 million to FTB, a sanctioned North Korean bank, between 2012 and 2015.
In 2017, a U.S. civil forfeiture action contended that Mingzheng used accounts at the three Chinese banks to transmit the money in violation of sanctions on North Korea. In 2017, the U.S. Treasury sanctioned Mingzheng.
Chinese bank regulatory officials have informed the banks that the only way the banks could comply under Chinese law was through the process established under the bilateral China-U.S. June 19, 2000 Mutual Legal Assistance Agreement (MLAA). The banks have informed the U.S. courts that the Chinese government has ordered them not to provide the requested records. The DOJ visited China in April and August 2018 to discuss China’s repeated failure to respond to MLAA requests, which required the U.S. to proceed through unilateral subpoenas. The DOJ informed the district court that China is unresponsive or much delayed in responding to MLAA requests.
Judge Howell has fined the three Chinese banks $50,000 a day, although the fines were stayed pending the appeal. In addition, SPD, China’s ninth-largest bank by assets risks losing access to U.S. dollars.
The case constitutes the first known instance in which a U.S. court has upheld subpoenas to a Chinese bank in a sanctions investigation. The affirmance by the appellate court will increase the tension between the U.S. and China over sanctions. Already, the U.S. and China are in a contest over the extradition of Meng Wanzhou from Canada, the CFO and Vice President of Huawei, for allegedly making false statements in connection with Huawei’s transactions and business with Iranian entities in violation of U.S. sanctions. Criminal and civil cases are pending in the U.S. against Huawei for, inter alia, stealing intellectual property of U.S. firms. The U.S. is pressuring countries around the world not to use Huawei for developing 5G technology.
Meanwhile, as North Korea has taken diplomatic initiatives to break out of its isolation and UN and U.S. sanctions, the U.S. – through enforcement actions against Mingzheng – has tried to maintain the pressure against North Korea. The next issue of the IELR will report further on this case.
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