United States: Rushaid v. Pictet & Cie.: New York Court of Appeals Decision Has Important Implications For Foreign Banks With New York "Correspondent" Accounts

Background

On November 22, 2016, the New York Court of Appeals handed down a decision in Rushaid v. Pictet & Cie.1, which will have important implications for foreign banks with New York "correspondent" accounts. The plaintiffs had alleged that some of plaintiffs' faithless employees, located in Saudi Arabia, had accepted bribes and kickbacks – totaling many millions of dollars – from vendors, in exchange for paying inflated prices, and ignoring various deficiencies in the vendors' products and services.

In this action, plaintiffs sued Pictet & Cie., a private bank located in Geneva, Switzerland, and Pierre-Alain Chambaz, Pictet's Vice President, claiming that defendants aided and abetted the employees' fraud, by knowingly laundering the money paid by the vendors through Pictet's New York correspondent account with Citibank. The  complaint, which on a motion to dismiss must be assumed to be accurate, alleges that Chambaz was an active participant in the scheme, setting up an off-shore "bogus" company to receive the bribes, and setting up accounts for the miscreants in Pictet's Geneva office. The vendors – at the direction of the employees – wired the bribe money to Pictet's New York correspondent account in favor of "Pictet and Co. Bankers Geneva." Pictet then credited the funds to the off-shore company's account in Geneva, and the money was then divided up into the faithless employees' individual accounts there.

Pictet moved to dismiss the complaint, contending that the New York courts lacked personal jurisdiction over it under CPLR 302(a)(1). Supreme Court, affirmed by the Appellate Division, granted the motion to dismiss. The Appellate Division distinguished the Court of Appeals decision in Licci v. Lebanese Canadian Bank, SAL.2 There, the Court had found jurisdiction over the Lebanese Canadian Bank, which had, the complaint alleged, used its New York correspondent account to help fund Hezbollah terrorism in Israel. The Licci Court held that the bank's regular use of its New York account for that particular purpose constituted a sufficient "transaction of business" here to justify long arm jurisdiction under CPLR 302(a)(1).

Here, the Appellate Division held that:

Unlike the Lebanese Canadian Bank (LCD), however, which was alleged to have "deliberately used a New York account again and again to effect its support" of a foundation through which money was funneled to a terrorist organization [citation omitted], defendants are alleged to have been "directed" by plaintiffs' former employees "to wire the bribe/kickback money to Citibank NA, New York, in favor of Pictet & Co. Bankers Geneva, for the credit of" an account they controlled. Thus, unlike LCD, defendants merely carried out their clients' instructions and have not been shown to have "purposefully availed themselves of the privilege of conducting activities in New York."

Court of Appeals Decision in Rushaid

A closely-divided Court of Appeals has reversed. The majority concluded that "defendants' intentional and repeated use of New York correspondent bank accounts to launder their customers' illegally obtained funds constitutes purposeful transaction of business substantially related to plaintiffs' claims, thus conferring personal jurisdiction within the meaning of CPLR 302(a)(1)." 

The majority relied upon its Licci decision, and distinguished Amigo Foods Corp. v. Marine Midland Bank-NY3 – in which it held that the mere existence of a foreign bank's correspondent account in New York was, in itself, insufficient to impose jurisdiction over that bank. For,

Unintended and unapproved use of a correspondent bank account, where the non-domiciliary bank is a passive and unilateral recipient of funds later rejected – as in Amigo Foods – does not constitute purposeful availment for personal jurisdiction under CPLR 302(a)(1). Repeated, deliberate use that is approved by the foreign bank on behalf and for the benefit of a customer – as in Licci – demonstrate volitional activity constituting transaction of business. In other words, the quantity and quality of a foreign bank's contacts with the correspondent bank must demonstrate more than banking by happenstance.

The Court of Appeals noted that in this case, the complaint alleged that defendant Pictet's "Citibank, New York account was used to wire the bribes to a Pictet account in Geneva, after which point, the money was divided up and distributed amongst the 'corrupted employees' by deposit to their individual Pictet accounts. Chambaz knew the large sums of money being wired were proceeds of an illegal scheme but never questioned them, and continued to aid and abet the fraud."

Thus, the Court of Appeals concluded that "the Appellate Division erroneously concluded that plaintiffs failed to establish purposeful availment because defendants 'merely carried out their clients' instructions.' Our cases do not require that the foreign bank itself direct the deposits, only that the bank affirmatively act on them." And, "a foreign bank with a correspondent account, therefore, that repeatedly approves deposits and the movement of funds through the 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."

The Dissenting Opinion

The dissent argued that "CPLR 302(a)(1) does not confer personal jurisdiction over a foreign bank when, as in this case, the bank's only connection to New York is the maintenance of a New York correspondent account and the passive receipt of payments into that account, at the unilateral direction of third parties." Rather, "a foreign entity must initiate purposeful contact with New York, beyond the mere maintenance of a correspondent account, in order for its relationship with a New York bank to form the basis for the exercise of personal jurisdiction."

The dissent argued that "defendants' sole connection to New York was the maintenance of a correspondent account at Citibank, N.A., into which third party vendors deposited funds that were alleged to be the proceeds of bribes and kickbacks obtained by foreign 'corrupt employees' in connection with a Saudi Arabian construction project," and "plaintiffs have not identified any volitional act on the part of defendants that was directed at New York. Indeed, the only intentional conduct alleged in the complaint that relates in any way to New York was carried out by the foreign employees – who directed the vendors to wire the bribes and kickbacks to 'Citibank, N.A., New York, in favour of "Pictet and Co. Bankers Geneva," for the credit of the employees' overseas account – and the vendors, who followed that direction."

Potential Implications

The Rushaid decision may have serious implications for foreign banks that maintain such correspondent accounts in New York. Although the Court was careful to re-affirm its holding in Amigo Foods – over a claim by the dissent that it was "upending over forty years of precedent" – that the mere existence of such an account is not enough, in and of itself, to confer in personam jurisdiction, this decision strongly suggests that when the cause of action is related to the bank's use of that account, jurisdiction will be found to exist.

The decision also seems to be an expansion of the Court's holding in Banco Ambrosiano v. Artoc Bank & Trust (in which plaintiff was successfully represented by Stroock lawyers)4. There, the parties, an Italian bank and a Bahamian bank, entered into a loan agreement using their correspondent accounts in New York to make the loan in dollars, and to agree to a re-payment in dollars. The Court found that while there was no in personam jurisdiction over defendant under CPLR 302(a)(1), there was sufficient connection between the transaction and the New York accounts to permit quasi-in rem jurisdiction.

The language of the Rushaid majority – including the statement that Banco Ambrosiano is "an example of this Court's consideration of when a party may be subject to jurisdiction based on the use of a correspondent bank account, albeit in a different context" – suggests that a foreign bank's use of a New York correspondent account in a transaction might well result in in personam long arm jurisdiction when the lawsuit relates to that transaction.


1 Rushaid v. Pictet & Cie., ___ N Y 3d ___, 2016 WL 6837930 (2016).

Licci v. Lebanese Canadian Bank, SAL, 20 N Y 3d 327 (2012).

Amigo Foods Corp. v. Marine Midland Bank-NY, 39 N Y 2d 391 (1976).

4 Banco Ambrosiano v. Artoc Bank & Trust, 62 N Y 2d 65 (1984). 

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