Foreign Banks Subject to the Jurisdiction of New York Courts Based on Correspondent Accounts
On Tuesday, November 20, 2012, the highest court in New York State rendered a decision certain to send shockwaves through the international banking community. In Lícci v. American Express Bank Ltd. and Lebanese Canadian Bank, SAL, the New York Court of Appeals ruled that maintenance of a correspondent bank account at a financial institution in New York satisfies the "transacting business" requirement of the state's long-arm jurisdiction statute, NY CPLR 302(a)(1). The Court further found that international funds transfers processed through a New York correspondent institution constitute a sufficient nexus to satisfy the second prong of CPLR 302(a)(1) that plaintiff's cause of action arise from the NY-based transaction(s). In other words, a routine practice in which virtually every foreign financial institution engages to facilitate clearing U.S. dollar transactions for foreign customers has now been found to establish a sufficient jurisdictional basis to force foreign banks – even those with no U.S. branches – to answer civil claims in New York courts connected in even the most remote way to those international dollar transactions.
In Lícci, plaintiffs, who are victims of terrorist acts in Israel allegedly perpetrated by Hizballah, have claimed that transactions processed by Lebanese Canadian Bank ("LCB"), including dollar transactions processed through its correspondent institution in New York, were for the benefit of Hizballah. The underlying case was filed in federal court, but upon appeal, the Second Circuit Court of Appeals certified questions of New York law to be answered by the New York Court of Appeals. Lícci v. Lebanese Canadian Bank, SAL, 673 F.3d 50, 74-75 (2d Cir. 2012). On the questions certified by the Second Circuit relating to personal jurisdiction, the New York Court of Appeals ruled (1) allegations of repeated dollar transactions processed through a correspondent account in New York on behalf of a foreign customer demonstrates "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;" and (2) "repeated use of the correspondent account shows not only transaction of business, but an articulable nexus or substantial relationship between the transaction and the alleged breaches of statutory duties."
Moreover, the opinion arguably abrogates the recent holding in Tamam v. Fransabank, SAL, 677 F. Supp. 2d 720 (S.D.N.Y. 2010), in which the Southern District of New York ("SDNY") dismissed a similar lawsuit against five Lebanese banks (not including LCB) based on its interpretation of New York law on personal jurisdiction. There, the SDNY found that "missile attacks in Israel, not funds transferred in New York" gave rise to the injuries and deaths for which the Plaintiffs, also Israelis and Americans injured by alleged Hizballah attacks, sought redress, and thus found that no "substantial nexus" existed sufficient to establish personal jurisdiction. Although the plaintiffs in Tamam did not appeal the SDNY decision, the New York Court of Appeals opinion effectively eviscerates the holding as precedent, and opens the door to other similarly situated victims to bring like claims.
While the underlying allegations against LCB involve terrorist financing, the precedent established by the Lícci decision could apply to any course of international funds transfers processed through New York correspondent banks. Thus, for example, victims of financial fraud or any act of money laundering perpetrated by customers of foreign banks may now be able to establish personal jurisdiction in New York courts over any foreign bank that processed through New York correspondent accounts U.S. dollar transactions alleged to have some nexus with the fraud or money laundering scheme. Stated even more broadly, the decision in Lícci could mean that virtually any foreign bank can be sued in a New York court whenever foreign services for a foreign banking customer involve wire transfers that are cleared through a New York correspondent bank. Indeed, lawsuits against similarly situated foreign banks appear to be forthcoming: the plaintiffs in Lícci have already threatened to assert jurisdiction over at least two other Lebanese banks based on the same jurisdictional theory.
Accordingly, any foreign bank that processes U.S. dollar transactions through correspondent accounts in New York – which describes the vast majority of international banks without U.S. branches – now has to add civil lawsuits in the U.S. to its list of compliance-related concerns. Foreign banks may wish to consider the Court of Appeals decision and ensure that their internal control processes are sufficiently robust and operating effectively. Please do not hesitate to contact a member of the Crowell & Moring Litigation practice group if you would like to discuss updating and enhancing your compliance policies and procedures, or otherwise to discuss the implications of the Lícci decision for your own operations.
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