U.S. Patriot Act subpoenas can apply to transactions outside of country, court rules in case against three Chinese banks facing sanctions scrutiny
Foreign banks that have US correspondent accounts and are involved in schemes to obtain American currency can be legally obligated to turn over transactional data to federal investigators, even when the payments are processed abroad, according to an appellate court opinion published Tuesday.
The ruling, which reviews recent US Justice Department efforts to compel three Chinese banks to turn over payment records linked to North Korea, concludes that a foreign financial institution can be subject to Patriot Act subpoenas “related to” its access to US correspondent accounts, including in instances when the payments in question did not pass through US-based accounts, the court said.
“Records ‘related to’ to a US correspondent account include records of transactions that do not themselves pass through a correspondent account when those transactions are in service of an enterprise entirely dedicated to obtaining access to US currency and markets,” according to the opinion by three appellate judges in the District of Columbia.
The decision comes as part of a broader US investigation into the alleged role of the Chinese banks in North Korea’s efforts to finance its nuclear weapons program. Prosecutors have alleged in court documents that a North Korean bank used a Chinese front company, Mingzheng International Trading, to export commodities in exchange for revenue based in US dollars.
The US dollars obtained by the North Korean bank went toward developing the nation’s nuclear weapons program, according to prosecutors, who haven’t accused the Chinese banks of wrongdoing.
Although unnamed in court records, the three Chinese banks are believed to be Bank of Communications, China Merchants Bank and Shanghai Pudong Development Bank, according to multiple media reports. Of those, only Shanghai Pudong Development Bank does not have a US office, though it has had a correspondent bank account, according to the reports.
US officials previously issued grand jury subpoenas to Bank of Communications and China Merchants Bank and a Patriot Act subpoena to Shanghai Pudong Development Bank, according to the Financial Times, which reported on the appellate court’s opinion on Tuesday.
The three banks have claimed that the subpoenas are not valid because they would require the lenders to violate Chinese law.
American officials, who are seeking banking records from 2012 to 2017, could impose billions of dollars in fines against the financial institutions if they are deemed to have willfully helped North Korea skirt US sanctions, a former CIA and Treasury Department official told Bloomberg, (via KYC 360).