Us Regulatory Efforts
Notable US orders of this nature have involved grand jury subpoenas issued in relation to investigations by enforcement bodies. The orders initially were made against US banks with foreign branches, because the US head office supposedly had control over its foreign branches. Later the orders were extended to foreign banks with branches in the United States. In a notable development, officers of foreign banks visiting the United States have been subpoenaed to produce information.
In deciding whether to give weight to foreign secrecy laws, the US courts examine the good faith of the bank and the nature of the relevant foreign lawGood faith will not necessarily guarantee the withdrawal or modification of an order, although bad faith will result in the imposition of sanctions for failure to comply. Good faith requires the bank to supply documents in the United States, and information not caught by the secrecy provisions, and to endeavour to comply with the production order if possible under the terms of the foreign law (for example, by applying for permission to the foreign court).
Foreign law is examined to ensure that the material falls within the secrecy protection and to determine whether there are comparable investigatory provisions to those in the United States. US courts have also found it significant that a foreign secrecy law is civil, rather than criminal, and that there may be a defence to a criminal prosecution under the foreign law if production is pursuant to the order of a US court.
An extension of case 7 is the extraterritorial asset transfer ordered in the Standard Chartered case. In this case the Securities and Exchange Commission brought an insider-trading action against Lee, a non United States national, resident in Hong Kong. Standard Chartered was not a party to the case, and it was not claimed to be involved in the scheme or in any wrongdoing.
No relief was sought against it. Its connection was that, at the time of the insider trading, Lee had bank accounts with one of its Hong Kong branches.
Nevertheless, a US District Court made orders against Standard Chartered in New York, requiring it to pay a sum into court equal to the balances in the Hong Kong accounts, which was to be paid over to the victims of Lee's insider trading and as a penalty. The court accepted that the amounts in the account were impressed with a constructive trust, but apparently there was virtually no evidence that they represented insider trading profits. Standard Chartered was still exposed in Hong Kong to liability for claims for repayment by the account-holders. The upshot is that a bank having a presence in the United States can be ordered to pay over an amount representing balances held by any one of its branches elsewhere, irrespective of the law of that jurisdiction and of the liability of the bank there.
What has been the reaction of other courts to such orders? Even if it is a US bank which is ordered by a US subpoena, other common law courts have applied traditional conflict-of-laws analysis.
If the proper law of the bank account is England, English courts have generally upheld bank confidentiality, despite the US order. Moreover, it seems to follow that the 'compulsion of law' qualification to the duty of confidentiality does not include an order directed at the bank from a foreign court. It is doubtful if this line can be maintained. 6 argued that bank confidentiality, properly analysed, always involves a weighing of the public interest, and that these days there is a strong public interest against using the banking system as a channel for wrongdoing or unlawful action. Bank confidentiality should have little weight in this balance; assisting foreign regulators must often outweigh it.
.
