United States: Rasheed Al Rushaid v. Pictet & Cie – New York Court Of Appeals Rules In A 4-3 Decision That Foreign Bank Is Subject To Personal Jurisdiction Based On Allegedly Repeated And Intentional Use Of Correspondent Accounts

Last Updated: December 21 2016
Article by Seth Kean

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."

Background

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.

Discussion

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.

(emphasis added).

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.

Conclusion

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.

This article is presented for informational purposes only and is not intended to constitute legal advice.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.