In Rasheed Al Rushaid v. Pictet & Cie, the New York Court of Appeals ruled in a November 22, 2016 decision that a foreign bank’s allegedly intentional and repeated use of correspondent bank accounts in New York was sufficient to subject the bank to personal jurisdiction. The Court concluded in a 4-3 decision that the bank’s use of correspondent accounts as part of an alleged conspiracy to launder looted funds was “purposeful” under the transacting business prong of New York’s long-arm statute. In reaching this conclusion, the Court rejected the Appellate Division’s finding that the bank and its client manager were not subject to jurisdiction because they “merely carried out their clients’ instructions.”
Plaintiff Rasheed Al Rushaid (“Rushaid” or “Plaintiff”) filed suit against Swiss bank Pictet & Cie (“Pictet”), its general partners, and one of its client relationship managers, Pierre-Alain Chambaz (“Chambaz”) in New York state court, alleging that they assisted three employees in concealing money in connection with a kickback scheme relating to an oil rig project operated by Al Rushaid Petroleum Investment Corporation (“ARPD”), a Saudi company owned by Plaintiff. The three ARPD employees allegedly received kickbacks and bribes from vendors located around the world in exchange for purchasing products at inflated prices and ignoring deficiencies in the vendors’ services.
Plaintiff alleged that Defendants aided the scheme by laundering and concealing the funds. Specifically, Plaintiff alleged that Chambaz, a Pictet client relationship manager, created a sham company in the British Virgin Islands – TSJ Engineering Consulting Co., Ltd. (“TSJ”) – and then opened and managed accounts for TSJ, as well as individual accounts for the ARPD employees. According to the amended complaint, the vendors wired bribes in favor of “Pictet and Co. Bankers Geneva” to Pictet’s New York correspondent bank accounts and then Pictet credited the funds to TSJ’s Geneva-based account. The money was later divided up and transferred in Geneva to the ARPD employees’ individual accounts at Pictet.
The Supreme Court granted Defendants’ motion to dismiss for lack of personal jurisdiction under CPLR 3211(a), concluding that Defendants’ alleged use of the correspondent accounts was passive not purposeful. The Appellate Division affirmed.
In Al Rushaid, the Court of Appeals considered the question whether Pictet and the other Defendants were subject to personal jurisdiction in the State of New York. This question required the Court to consider whether Defendants were subject to jurisdiction under New York’s long-arm statute and whether the exercise of personal jurisdiction was proper under federal constitutional standards. The section of the long-arm statute at issue in Al Rushaid, CPLR 302(a)(1), provides in relevant part:
As to a cause of action arising from any of the acts enumerated in this section, a court may exercise personal jurisdiction over any non-domiciliary . . . who in person or through an agent . . . transacts any business within the state or contracts anywhere to supply goods or services in the state.
The Court began its analysis of long-arm jurisdiction with two prior decisions involving correspondent accounts. In the first decision, Amigo Foods Corp. v. Marine Midland Bank-N.Y., 39 N.Y.2d 391 (1976), the Court of Appeals considered whether a bank located in Maine that was allegedly due to receive payment on behalf of a customer in a breach of contract dispute was subject to personal jurisdiction. The Court observed that “a correspondent bank relationship, without any other indicia or evidence to explain its essence, may not form the basis for long-arm jurisdiction under CPLR 302,” and, citing a limited record, remanded for further factual development. On remand, discovery revealed that another party requested that the funds be wired to the Maine bank’s correspondent account in New York, but the bank rejected the funds. The Appellate Division dismissed for lack of jurisdiction because the bank had acted only passively, and the Court of Appeals affirmed.
In Rushaid, the Court of Appeals also analyzed its prior decision in Licci v. Lebanese Can. Bank, SAL, 20 N.Y.3d 327 (2012). In Licci, the Court, answering a certified question from the Second Circuit, ruled that a foreign bank’s maintenance of a correspondent bank account in New York and use of that account to effect “dozens” of wire transfers on behalf of a foreign customer linked to terrorist activity was sufficient to constitute transacting business under CPLR 302(a)(1). The Court recognized that the question of whether a foreign bank’s maintenance and use of a correspondent account constitutes transacting business may not always be a straightforward inquiry, but concluded that the defendant’s use of the New York account to make dozens of wire transfers on behalf of the Shahid Foundation – an organization that the defendant allegedly knew was part of the terrorist group Hizbollah – satisfied New York’s long-arm statute.
Guided by these decisions, the Court of Appeals concluded that Plaintiff’s allegations showed that Defendants transacted business under CPLR 302(a)(1). Specifically, the Court found that Pictet’s allegedly repeated and intentional use of correspondent accounts as part of a money laundering scheme where funds moved from vendors to New York to Geneva, and then from Geneva to ARPD employees satisfied the long-arm statute. The Court also concluded that Plaintiff’s claims arose from Pictet’s and the other Defendants’ contacts with New York. It found that there was an “articulable nexus” between Plaintiff’s aiding and abetting and conspiracy claims and Defendants’ alleged role in the money laundering scheme.
Notably, the Court of Appeals rejected the argument that Pictet was not subject to jurisdiction because it merely carried out its clients’ instructions in accepting and transferring funds. According to the Court, a foreign bank that “repeatedly approves deposits and the movement of funds through that account for the benefit of its customer is no less ‘transacting business in New York’ because the customer, or a third party at the customer’s direction, actually deposits or transfers the funds to New York.” Slip Op. at 15-16.
As to the constitutional analysis, the Court concluded that it would not violate federal due process standards to subject Defendants to personal jurisdiction. The Court held that the Defendants’ maintenance and use of correspondent bank accounts as part of an alleged money laundering conspiracy satisfied the minimum contacts component of the due process inquiry. It also found that it would not violate “notions of fair play and substantial justice” to subject Defendants to jurisdiction.
Judge Pigott wrote a dissenting opinion, which was joined by two other judges, arguing that Plaintiff failed to show that Defendants transacted business in New York for purposes of the long-arm statute.
The Al Rushaid decision is noteworthy because it reflects the Court of Appeals’ latest ruling on when a non-domiciliary bank transacts business under the CPLR based on use of a correspondent bank account in New York. The decision also merits discussion because one might argue, given the strong dissent and the Court’s rejection of the argument that Pictet was not subject to jurisdiction because its customers directed the movement of the relevant funds, that the decision means that a non-domiciliary bank transacts business for purposes of New York’s long-arm statute whenever a bank maintains and uses a correspondent account in New York. A fair review of the Al Rushaid opinion, however, suggests that such an argument likely overstates the impact of the opinion.
Plaintiff’s allegations that Pictet and the other Defendants knew that the ARPD employees had received bribes and kickbacks and knowingly laundered the funds for these employees were critical to the Court’s ruling. The Court’s majority opinion repeatedly emphasized that Defendants acted “knowingly,” including by establishing a shell company in the British Virgin Islands to help launder the funds. Slip Op. at 3; see also id. at 14 (client manager “knew the large sums of money being wired were proceeds of an illegal scheme but never questioned them”); id. at 16 (alleging that “defendants orchestrated the money laundering” and “that the New York account was integral to the scheme”). Additionally, Judge Garcia, who authored a separate concurrence to respond to the dissent’s argument that the decision broke with precedent, emphasized that “Pictet was not a passive banking establishment providing commercial services to the ARPD employees. Rather the bank, through its executive Chambaz, knew of, and affirmatively assisted in, the kickback arrangement between the ARPD employees and the vendors.” (Concurring Op. at 3.) He also stressed that Chambaz knew one of the alleged conspirators personally and knew the employees were accepting bribes, see id., and characterized Pictet as a “knowing” participant, see id. at 10. Thus, the Court placed heavy emphasis on Pictet’s alleged knowledge regarding the scheme and its intentional action in furtherance of the scheme, and did not rely simply on the existence and use of the correspondent accounts. As a result, even after Al-Rushaid, a non-domiciliary bank that maintains and receives funds into a New York correspondent account may still be able to contest personal jurisdiction under the long-arm statute, provided that the relevant pleading does not allege additional facts to show purposeful action by the bank.