Wultz v. Bank of China Ltd., No. 11 Civ. 1266 (S.D.N.Y. May 1, 2013) [click for opinion]

In 2006, Daniel Wultz was killed, and Yekutiel Wultz injured, by a suicide bombing in Tel Aviv, Israel.  Four members of the Wultz family ("Plaintiffs") brought suit in U.S. district court against Defendant Bank of China ("BOC") alleging that BOC had provided material support and resources to the alleged terrorist organizations responsible for the Tel Aviv suicide attacks, in violation of the Antiterrorism Act ("ATA") and other laws.  To prove their claims, Plaintiffs sought various documents from BOC located in China.

On October 29, 2012, the district court issued a discovery order (the "October 29 Order") which required BOC to produce various categories of documents in contravention of Chinese law, subject to certain exceptions.  In the months that followed, however, BOC refused to produce any documents.  BOC justified its refusal to produce based on its construction of the scope of the "exceptions" set forth in the October 29 Order, and based on its assertion that producing the documents would violate certain Chinese anti-money laundering ("AML"), counter-terrorism financing ("CTF"), and state secret laws.  The court rejected BOC's argument regarding the scope of the exceptions, but invited the parties to submit further briefing as to whether the AML and CTF laws cited by BOC, which the court had not considered when it issued the October 29 Order, provided a basis for BOC to withhold documents it was otherwise required to produce.  Specifically, the documents at issue consisted of internal BOC communications and communications with the Chinese government about certain suspect bank accounts allegedly connected to the Tel Aviv bombing, visits of foreign officials asking that those accounts be closed, and money-laundering and terrorist financing generally. 

After considering the further submissions, the court issued a second order (the "May 1 Order") in which it ordered BOC to produce the documents at issue, subject again to certain exceptions. 

In reaching this conclusion, the court first considered whether the AML and CTF laws cited by BOC did, in fact, prohibit BOC from disclosing the documents.  To carry its burden on this point, BOC presented the declaration of an expert in Chinese law, who argued that PRC laws and regulations impose broad confidentiality obligations on PRC banks and financial institutions.  Although it recognized the witness's general expertise, the court was concerned that BOC's witness provided little or no empirical evidence of how the Chinese laws he discussed have been implemented in practice, particularly given the expert's admission that black letter law in the PRC is often "at odds" with reality and practice.  Nevertheless, the court concluded that BOC had carried its burden in showing that BOC more likely than not was prohibited from disclosing the documents at issue.  The court cited, in particular, Article 15(2) of the People's Bank of China ("PBOC") AML Provisions, which requires financial institutions to, among other things, keep confidential "information related to anti-money laundering activities."  In addition, the court found no basis in the parties' briefing to distinguish between AML activities and CTL activities, and thus concluded that disclosure of documents relating to CTL activities would be prohibited to the same extent as disclosure of documents related to AML activities. 

Having determined that the AML and CTF laws prohibited disclosure of the documents at issue, the court then applied the multi-factor comity test set forth by the Supreme Court in Sociéte Nationale Industrielle Aérospatiale v. United States District Court for the Southern District of Iowa, to determine whether BOC should be required to produce documents in contravention of Chinese law.  Under the first Aérospatiale factor, the court considered the importance to the litigation of the documents that Plaintiffs requested.  Here, the court determined that Plaintiffs' requests were specifically tailored to their claims, and highly important to the success of their claims insofar as BOC's internal communications and communications with the Chinese government about the suspect accounts and about visits of foreign officials were crucial to establishing whether BOC was put on notice that the accounts were being used to fund terrorism (if in fact they were), and how BOC responded to any such notice. 

The court likewise found that the fourth and fifth factors of the Aérospatiale test—the availability of alternative means of securing the information, and the extent to which noncompliance with the request would undermine important interests of the United States (or compliance with the request would undermine the important interests of the state where information is located)—favored Plaintiffs' position.  The court explained that if BOC was not ordered to produce the requested materials, Plaintiffs might have no alternative means of establishing that BOC had notice that the suspect accounts were being used to fund terrorist organizations responsible for the 2006 Tel Aviv attack.  Further, if BOC did, in fact, have such notice, and was otherwise liable under the ATA, then not ordering BOC to produce the requested materials would, in the court's view, allow a bank that recklessly or knowingly funded terrorists who murdered an American citizen to operate with impunity in the United States, with the benefit and protections of U.S. laws.  This result, the court concluded, would undermine important U.S. interests that Congress sought to vindicate through passage of the ATA.

The court acknowledged the possibility that requiring BOC to produce the documents might also undermine important Chinese interests.  As one example, the court observed that ordering BOC to produce the documents could have a chilling effect on future communications by Chinese banks, leading suspicious transactions to go unreported and thus undermining the stated goal of the Chinese AML/CTF laws to "depriv[e] international terrorist and other criminal organizations of funding."  The court found, however, that this potential chilling effect did not outweigh the important U.S. concerns that favored ordering BOC to produce the documents. 

Finally, the court considered two additional factors required by applicable law—BOC's hardship in complying with the discovery requests, and the good faith of BOC—and determined that these factors also favored Plaintiffs' position.  The court found that BOC had produced no evidence of a Chinese bank or its employees being meaningfully punished for disclosing confidential information to a U.S. court in contravention of Chinese law, citing BOC's expert's admission that the Chinese authorities had never sanctioned a bank for disclosing such information, and noting that it was unlikely BOC would be meaningfully punished because of its status as a PRC-controlled entity.  Further, the court found sufficient evidence that BOC had shown bad faith toward its discovery obligations, citing among other things BOC's failure to comply with prior orders and its unreasonable interpretation of the October 29 Order.

Accordingly, the court ordered BOC to produce the documents at issue, subject to two exceptions: BOC would not be required to produce (1) any so-called Suspicious Transaction Reports and Large-value Transaction Reports that it transmitted to Chinese regulators, as these documents were considered to be analogous to U.S. Suspicious Activity Reports, which U.S. regulations prohibit banks from producing in discovery; and (2) materials subject to the attorney-client or work product privileges.