On July 30, 2019, the United States Court of Appeals for the District of Columbia Circuit (the “D.C. Circuit”) In re: Sealed Case (No. 19-5068) (the “Circuit Ruling”) affirmed two rulings by the United States District Court for the District of Columbia (the “D.C. District Court”) in the subpoena case involving three unnamed Chinese banks (the “Banks”). The Banks had each been subpoenaed for documents relating to a U.S. investigation into a Hong Kong entity that is accused of laundering money for North Korea’s weapon of mass destruction program. The Banks have yet to turn over the requested documents because doing so would require them to violate Chinese banking secrecy laws. As a result, the Banks face fines of $50,000 a day starting on August 8, 2019. While the exact details of the investigation are still under seal, it is important to note that the Banks are not under investigation and are only involved as witnesses.
There is an ongoing American investigation into a now-defunct Hong Kong front company (the “Front Company”) that was acting on behalf of an unspecified North Korea entity. The Front Company was “designated” by the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) for allegedly laundering money to help finance North Korea’s weapons of mass destruction program. As a designated entity, the Front Company’s property interests in the United States are blocked, meaning that the Front Company’s property may not be “transferred, paid, exported, withdrawn, or otherwise dealt in.” The Front Company is subject to a grand jury investigation for three related crimes: (1) money laundering; (2) violating an order issued under the International Economic Emergency Powers Act; and (3) violating the Bank Secrecy Act. The exact details of the investigation into the Front Company are still under seal.
在判决中，三家金融机构（以下简称“金融机构一、金融机构二和金融机构三”）因为空壳企业通过这三家金融机构在美国的账户累计进行105,339,483.59美金的交易而被卷入此案。三家金融机构因此收到传票，被要求提交与空壳企业有关的交易信息，以配合针对空壳企业的调查。金融机构一和金融机构二在美国设有分支机构，因此收到的是大陪审团传票。金融机构三未在美设有分支机构而只有代理账户，因此收到了依据《爱国者法案》（31 U.S.C. §5318(k)(3)(A)(i)）签发的行政传票。在此案中，三家金融机构收到的大陪审团传票和行政传票的内容非常相似，都要求三家金融机构提交空壳企业的所有交易记录和疑似相关账户信息。
The Banks – referred to as Bank One, Bank Two, and Bank Three in the court rulings – have been drawn into this case as they were responsible for conducting transactions on behalf of the Front Company totaling $105,339,483.59. To aid in the investigation into the Front Company, the Banks were served subpoenas for information relating to the Front Company and its transactions. Bank One and Bank Two, both of which maintain branches in the United States, received grand jury subpoenas. Bank Three, which only has a correspondent account in the United States, received a subpoena under 31 U.S.C. § 5318(k)(3)(A)(i), a codified section of the Patriot Act. The contents of the subpoenas were similar, requesting all records including relating to the Front Company and an account suspected as being used by the Front Company.
The subpoenas were issued in December 2017 and the Banks have not submitted the requested documents as direct compliance with subpoenas would require them to violate Chinese law. Instead, the Banks have offered that they will comply if a request for the documents was made through the 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.
在地区法院就大陪审团是否可以向在美中资金融机构发出传票，要求其提供交易信息、配合刑事调查的事项作出的判决（以下简称“一审判决”）中，地区法院首席法官Beryl A. Howell要求三家金融机构必须遵守这三张传票。Howell法官对国际司法礼让进行了详细的分析，以决定是否要求三家中资金融机构违反中国法律来遵守美国法律。在分析的过程中，Howell法官考虑了7点因素：1）调查所需信息的重要性；2）所需的信息是否足够具体；3）信息的来源；4）获得信息的其他手段；5）冲突中他国的利益；6）要求相关方遵守美国法律的困难程度；和7）善意。在对这7项因素进行平衡分析后，Howell法官得出结论，这些因素支撑实行传票，要求三家中资金融机构配合调查。Howell法官还指定了三家金融机构提交证据的期限。
In the first ruling In re Grand Jury Investigation of Possible Violations Of 18 U.S.C. § 1956 And 50 U.S.C. § 1705 (Nos. 18-175, 18-176 and 18-177 (BAH))(March 18, 2019, unsealed April 30, 2019)(the “Initial Ruling”), Chief Judge Beryl A. Howell of the D.C. District Court ordered the Banks to comply with subpoenas. Judge Howell conducted an international comity analysis to determine whether it was reasonable to order the Banks to violate Chinese law to comply with American law. In doing so, she balanced the seven following factors: importance to the investigation of the requested information; specificity of the request for information; origin of the information; alternative means of obtaining the information; interests of sovereigns in conflict; hardship on the party facing conflicting obligations; and good faith. She concluded that on balance, the factors supported ordering the Banks to comply with the subpoenas. She then set a deadline to do so.
When the Banks failed to meet the deadline set in the Initial Ruling, Judge Howell found the Banks in civil contempt of court. Writing in the second In re Grand Jury Investigation of Possible Violations Of 18 U.S.C. § 1956 And 50 U.S.C. § 1705 (Nos. 18-175, 18-176 and 18-177 (BAH))(April 10, 2019, unsealed May 15, 2019)(the “Contempt Ruling”), Judge Howell again ordered the Banks to comply with the subpoenas and gave the Banks contempt of court fines of $50,000 per day until they complied. As the Banks were appealing the Initial Ruling, Judge Howell stayed the fines until seven business days after the D.C. Circuit affirmed the Initial Ruling. This means that the Banks will begin paying fines of $50,000 a day on August 8, 2019 if they fail to submit the subpoenaed information before then
上诉法院的三名法官David S. Tatel，Patricia A. Millett和Cornelia T. L. Pillard组成合议庭审理本案。上诉判决具体内容尚未完全公开，但法院在已经公布的内容中认为：“根据本判决书中的法律分析，对特区联邦地区法院的藐视法庭判决维持原判。”目前，原被告双方仍在对判决需要保密的部分进行处理，因此上诉判决全文尚未公布，根据既往经验，大家预计上诉判决会在未来几周内公布。
The appeal was heard by Judges David S. Tatel, Patricia A. Millett and Cornelia T.L. Pillard of the D.C. Circuit Court. In releasing the still sealed Circuit Ruling, the D.C. Circuit Court stated that “The District Court’s contempt orders against all three Banks appealed from in these causes are hereby affirmed, for the reasons in the accompanying opinion.” Following redactions submitted by each side, the Circuit Ruling written by Judge Tatel will be unsealed. Based on the previous rulings, we expect it to be unsealed sometime in the next few weeks.
Although we are not yet privy to the legal analysis underlying their decision, this was the expected outcome. This is because circuit courts are only concerned with determining whether the trial court applied the law correctly. Unless there is an overwhelming error in a factual determination by the district court, a circuit court accepts them as is.
The Banks’ Options
In light of the Circuit Ruling, we examine below some of the options the Banks have going forward and highlight some of the consequences each choice could result in. The options are not necessarily mutually exclusive, and we expect the Banks will proceed with a number of options. These options are: 1) appeal to the Supreme Court of the United States; 2) comply with the American subpoenas; 3) refuse to comply with the American subpoenas; and/or 4) work with China’s Ministry of Justice for assistance in providing evidence under international legal assistance mechanisms.
1) Appeal to the Supreme Court of the United States
The Banks have one more appellate option – an appeal to the Supreme Court of the United States. There is very little downside to another appeal, and it is crucial for Bank Three to stay if they wish to delay provisions under 31 U.S.C. § 5318(k)(3)(A)(i), which allows for the termination of a foreign bank’s correspondent accounts if the bank fails to comply with a subpoena or contest it before a U.S. court.
美国联邦最高法院并没有关于“上诉权”的规定，也没有义务审理每一起上诉案件。三家金融机构必须向联邦最高法院提交复审案件请求书（“writ of certiorari”）以申请上诉。只有最高法院认为该案值得复审时，才会审理该案。一般而言，最高法院只会审理对国家具有重要意义的案件、若干联邦巡回法院判决冲突的案件以及涉及重大新型法律问题的案件。只有当联邦最高法院的9位法官中至少4位法官同意，法院才会审理。一般而言，每年联邦最高法院会从超过7000份申请书中选取100到150起案件进行审理。法院同意审理后，9位法官中至少有5位法官同意才可以暂停实行巡回法院的判决。大家认为，美国联邦最高法院不太可能受理此案，因为巡回法院的法律分析非常直白明确，且目前没有若干联邦巡回法院就该问题作出不一致的判决。即使联邦最高法院决定审理此案，也很难暂停实行藐视法庭判决。正如Howell法官在藐视法庭判决中指出的一样，如果穷尽整个上诉程序，会让案件超过大陪审团的2年存续时限，导致藐视法庭判决无效。
There is no “right of appeal” to the U.S. Supreme Court and therefore no guarantee that their case will be heard. To appeal, the Banks must file a petition with the U.S. Supreme Court by filing a “writ of certiorari.” The Supreme Court will only grant the writ of certiorari if they deem the case worthy of hearing. Generally, this is because the case is of national significance, there are conflicting decisions between the federal circuit courts, and/or the case has precedential value. Four out of the nine justices must vote to accept to hear the case. If the case is accepted, support of five of the justices are needed to issue a stay pending hearing. We think it is unlikely that the Supreme Court would accept the case as the underlying legal issues are rather straight forward and there is no split among the circuit courts regarding those legal issues. Even if the Supreme Court accepted the case, it is unlikely that the contempt order would be stayed. As Justice Howell pointed out in her Contempt Ruling, waiting for the entire appellate process to finish would exceed the grand jury’s two-year limit rendering her contempt order meaningless.
2) Comply with the American Subpoenas
The second option for the Banks is to just comply with the American subpoenas. Bank Two had told the District Court that it had “took steps to collect and preserve documents” shortly after receiving the subpoena. Bank Two said the subpoenaed documents could be “collected in days.” Bank One “estimated” that the requested documents “could be collected within 30 days.”
While compliance is the incentivized option as it would prevent the accrual of contempt fines or immediately halt them, it would likely result in the violation of a series of Chinese laws and regulations. This includes, among others, Article 73 of China’s Commercial Banking Law, Article 40 of the Regulation on Credit Investigation, Article 28 of the Corporate Deposit Regulations, Article 32 of the Anti-Money Laundering Law, and Articles 64 & 66 of China’s Cybersecurity Law. Violation of these laws could result in a number of consequences, including fines of up to RMB 500,000. It is noteworthy that one of the main laws preventing Chinese banks from submitting evidence directly to U.S. authorities – the newly passed International Criminal Judicial Assistance Law – does not provide any punishment for its violations.
The Banks also face a number of risks if they comply with the subpoenas. If the requested documents show that the Banks were negligent in their compliance screenings or violated U.S. sanctions on purpose, they may be exposed to additional investigations, enforcement actions, litigation, and/or public exposure if they cooperate. As we mentioned before, the Banks are at this point only witnesses in the grand jury investigation.
3) Refuse to Comply with the American Subpoenas
The three banks could refuse to comply with the subpoenas and wait until the grand jury expires since the contempt fines are set to expire when the grand jury expires. Grand jury terms are limited to 18 months with the potential for a six-month extension for a total of 24 months. Although we don’t know the specific date of when the grand jury was initiated as information is still under seal, the subpoenas were sent in December 2017. Therefore, the grand jury will at latest finish by December 2019.
The issue with waiting the grand jury out is that the Judge Howell, who maintains jurisdiction over the contempt orders, may raise the contempt of court fine if she feels that the banks are attempting to outlast the grand jury. In her Contempt Ruling, she notes that she is conscious of this possibility and therefore made it clear that she is willing to increase the contempt of court fines if the banks fail to comply. These fines can get quite exorbitant in the United States. In a civil lawsuit involving the Bank of China, the Bank of China refused to comply with a civil subpoena for the same reasons raised by the Banks in this case. To induce compliance, the judge in the Bank of China case ordered the Bank of China to pay contempt of court fines of USD $100,000 per day, doubling every 30 days. If such a sanction was implemented by Judge Howell, the Banks could end up paying millions of dollars a day in fines before the grand jury expires.
市场最关注的问题是，金融机构三是否会因为不遵守依据《爱国者法案》签发的传票而被美国禁止使用美金代理账户。这个问题来源于《爱国者法案》（31 U.S.C. § 5318(k)(3)(C)(i)）的规定：如果外国金融机构未能遵守依据《爱国者法案》（31 U.S.C. § 5318(k)(3)(A)）签发的传票或者未能在法律程序中对传票提出异议，美国财政部长或者司法部长有权关闭该外国金融机构在美代理账户。虽然依据该条款，确实存在金融机构三的美金代理账户被关闭的可能性，但是如果金融机构三上诉至联邦最高法院，继续对传票提出异议，将可能保护其代理账户暂免关闭。
A much-discussed topic has been whether Bank Three can be barred from having a correspondent account in the U.S. for failing to comply with the subpoena it received pursuant to 31 U.S.C. § 5318(k)(3)(A)(i). This question arises from the fact that 31 U.S.C. § 5318(k)(3)(C)(i) provides that the Secretary of the U.S. Department of the Treasury (the “Treasury Secretary”) or the U.S. Attorney General can order the termination of a foreign bank’s U.S. correspondent account if the foreign bank has failed “to comply with a summons or subpoena issued under [31 U.S.C. § 5318(k)(3)(A)]” or has failed “to initiate proceedings in a United States court contesting such summons or subpoena.” While this provision does create the possibility of Bank Three being barred from having a correspondent account in the U.S., the fact that the bank continues to contest the subpoena in the U.S. courts will protect its correspondent accounts from being suspended for the time being.
同时，值得关注的是，依据《爱国者法案》（31 U.S.C. § 5318(k)(3)(C)(i)），关闭金融机构三美金账户的权力被赋予了美国财政部长和司法部长，两者均为美国总统领导下的内阁成员。因此，他们必须对美国总统负责，且必须作出符合现任政府政策的决定，不排除美国将来把关闭金融机构三美金代理账户作为与中国政府进行贸易战谈判的筹码。
Unfortunately, the power to terminate Bank Three’s correspondent accounts under 31 U.S.C. § 5318(k)(3)(C)(i) is given to the Treasury Secretary and the U.S. Attorney General, both of which are political appointees belonging to the Cabinet of the United States. They are therefore beholden to the U.S. President’s agenda and should make their decisions should be in line with the current administration’s policies. The concern is that the U.S. will use the possibility of prohibiting Bank Three’s access to U.S. correspondent accounts as a bargaining chip in future trade-related discussions with China.
4）Work with China’s Ministry of Justice
The fourth option is for the Banks to work with China’s Ministry of Justice to facilitate the sharing of evidence through international legal mechanisms and ensure that it happens as quickly as possible. This is the one option that would allow the Banks to avoid violating U.S. or Chinese laws while preserving the dignity of both countries’ legal systems. In the Contempt Ruling, Judge Howell noted that Bank Three had explained that it had “conduct[ed] document searches to ensure it has collected and preserved documents responsive to the subpoena and [sought] permission from Chinese authorities to permit it to produce the documents.” Bank One and Bank Two could, if they had not already done so, do the same thing. While it is ultimately a political decision to be made by Chinese authorities, which is complicated by the on-going trade war, the Banks can take steps to ensure they are ready to comply with the subpoenas as soon as possible.
As is often the case in these sorts of complex and protracted legal situations, the best solution is to be proactive and avoid such situations in the first place. Although that is not an option for the Banks at this point, other Chinese companies operating internationally should treat this case as a wakeup call. We highly recommend that Chinese companies operating internationally take the following measures to prevent, control, and minimize the legal risk of U.S. sanctions violations with the assistance of Chinese cross-border compliance lawyers:
1.If your company does not have a sanction compliance program and operates internationally, we highly recommend that you begin to develop and implement a comprehensive sanction compliance program. You can read our recent article on OFAC’s updated sanction compliance guidance here for an overview of the features of a successful and effective sanction compliance program.
2.If your company has a sanction compliance program in place, we recommend that you hire external counsel to conduct periodic audits to evaluate its effectiveness and ensure that it remains robust and up to date.
3.We recommend that you take a risk-based approach to screening transactions and identify ahead of time countries, regions, industries, and/or entities that are of heightened sanction risk. When conducting transactions with clients that have exposure to such heightened sanction risk, we recommend that you conduct comprehensive due diligence of the parties – including third parties - involved in the transaction regardless of whether their name appears on a U.S. sanction list.
4.If you find a suspicious looking transaction and are unsure whether you have violated U.S. sanctions, we highly recommend that you immediately consult sanction compliance lawyers to conduct a sanction risk assessment and make further decisions based on the result of assessment. While the U.S. provides substantial leniency for self-reporting of violations, it is important to engage Chinese lawyers to ensure that your interests are protected.
5.If you are currently under investigation, subject to an enforcement action by a U.S. authority, or involved in U.S. litigation relating to sanction violations, we recommend that you hire competent cross-border compliance attorneys to conduct crisis management in the United States. Actions taken at the beginning of legal proceedings can have a large impact on the availability of options later in the process.
We will stay abreast of this case and provide updates as they become public. We will provide a detailed legal analysis of the Circuit Ruling once it is redacted and unsealed.
 In the United States federal court system, the general trial courts are referred to as “district courts” while the intermediate appellate courts are referred to as “circuit courts.”
 The three subpoenas requested all records, including “(a) signature cards; (b) documentation of account opening; (c) account ledger cards; (d) periodic account statements; (e) due diligence (including invoices); and (f) records (copied front and back) of all items deposited, withdrawn, or transferred” relating to banking transactions for the Front Company and a specific account thought to be used by the Front Company. The grand jury subpoenas for Bank One and Bank Two requested information from January 1, 2012 to December 26, 2017, while the subpoena for Bank Three requested information from January 1, 2012, through the present.