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Current Developments in the Commercial Divisions of the
New York State Courts
Posted: November 24, 2016

Personal Jurisdiction Found Based on Use of New York Correspondent Banks to Launder Funds

On November 22, 2016, the Court of Appeals issued a decision in Rushaid v. Pictet & Cie, 2016 NY Slip Op. 07834, holding “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 court explained:

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. Contrary to the dissent’s assertion, in Licci, it was Hizbollah that directed the wire transfers through LCB’s correspondent bank and not defendant, LCB. A foreign bank with a correspondent account, therefore, 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.

Moreover, the jurisdictional inquiry at the first prong requires a close examination of defendant’s contacts. If those contacts are enough, the fact that others may also have contact with the correspondent bank is not dispositive. The facts here illustrate the point because the complaint alleges that defendants orchestrated the money laundering and that the New York account was integral to the scheme. It is precisely the fact that defendants chose New York, when other jurisdictions were available, that makes the New York connection volitional and not coincidental. The focus of the jurisdictional analysis is the foreign bank’s conduct vis-a-vis the correspondent bank, meaning how it uses the correspondent accounts — not whether some other bank could have been used instead.

Defendants’ use of the correspondent accounts is far from the unilateral payment in Amigo Foods where plaintiffs chose to deposit money in New York at their own discretion because here the vendors’ choice to deposit money in New York was precisely part of defendants’ design, and not a unilateral decision at all. Pictet was therefore actively engaged in a cycle of banking transactions wherein money went from the vendors to New York to Geneva, and then from Geneva to the employees. The use of the account was not adventitious because the account was used routinely to hold deposits which Pictet then credited to TSJ’s account in Geneva. Thus, the correspondent account was crucial to a course of repeated banking activity.

Defendants’ conduct is like that found sufficient in Licci, where the defendants actively used a correspondent bank to further a scheme that caused harm. As in Licci, the defendants’ use of the New York account to transfer money provided the employees with the laundered profits from the bribery and kickback scheme. Also, just as in Licci, defendants used the correspondent account in New York to move the necessary money.

. . .

The allegations in the complaint easily satisfy th[e] nexus requirement. Plaintiffs allege that defendants aided and abetted in the employees’ breach of their fiduciary duty to the plaintiffs, and defendants further conspired with each other and the employees by acting in concert to breach fiduciary duties, defraud plaintiffs, and convert plaintiffs’ property. These claims depend on the assertions that defendants established the banking structure in New York and Geneva through which they orchestrated the money laundering part of the bribery/kickback scheme. Defendants served as the employees’ bankers, without whom the employees could not launder and conceal millions in kickbacks and bribes. In Licci, the Court found the requisite nexus where the bank effected wire transfers which financed terrorist activities. Similarly, the complaint alleges that Pictet and defendants effected the transfers of money to the New York correspondent bank as part of the money-laundering scheme that put the bribes/kickbacks in the hands of the employees. Those allegations are enough to show the minimum level of relatedness to the Citibank transactions.

(Internal quotations and citations omitted).

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