New York Courts Can Reach Foreign Banks Through Correspondent Accounts

The New York Court of Appeals has ruled that a plaintiff can sue a foreign bank in a New York court when the bank's only contact with New York is the deliberate use of a correspondent account in the state and there is an "articulable nexus" between the banking activity and the plaintiff's claims. The dissent, with a measure of hyperbole in our view, criticized the court for possibly "upending over forty years of precedent that holds the mere maintenance of a New York correspondent account is insufficient to assert personal jurisdiction over a foreign bank."

What You Need To Know

• New York’s highest state court recently held that a foreign bank's intentional and repeated use of a New York correspondent bank account on behalf and for the benefit of a customer constitutes the transaction of business sufficient to confer personal jurisdiction in New York courts. 
• Under such circumstances, a foreign bank with no other contacts with New York can be subject to liability in New York for facilitating its customer's misconduct.

The Al Rushaid Decision

The plaintiffs in Al Rushaid v. Pictet & Cie were two Saudi companies in the oil industry and their principal owner.  The plaintiffs sued the defendants, a Swiss private bank headquartered in Geneva, and the bank's general partners and an employee, in New York state court for laundering money from a bribery scheme orchestrated by three of the plaintiffs' employees.¹ The plaintiffs alleged that the defendants aided and abetted the employees' breach of fiduciary duty and were part of a civil conspiracy with the employees. Specifically, at the direction of the plaintiffs' employees, vendors wired bribes to Pictet & Cie's correspondent accounts with Citibank and others in New York. Pictet & Cie then credited the funds to the employees' Geneva accounts, which allowed the employees access to the laundered money. The appeal, from a motion to dismiss the pleadings, required the Court to accept the truth of the plaintiffs’ allegations.

The trial court dismissed the suit for lack of personal jurisdiction, concluding that the defendants' use of the correspondent accounts to receive funds in New York was passive, not deliberate. The intermediate appeals court affirmed the dismissal, emphasizing that the defendants simply carried out the instructions of their customers and did not purposefully avail themselves of conducting business in New York.

Reversing the lower courts, the Court of Appeals highlighted two facts to conclude that the defendants did "purposefully avail" themselves of the privilege of transacting business in New York:

1. Pictet & Cie repeatedly and deliberately used correspondent accounts in New York for its customers' transactions thereby establishing a "course of conduct" with New York. The Court distinguished such "volitional' use from "coincidental" or "adventitious" circumstances where a foreign bank's correspondent account is a passive and unilateral recipient of funds.

2. The Court dismissed the idea that foreign banks do not transact business in New York if they "merely carr[y] out their clients' instructions." The Court observed that a foreign bank need only "affirmatively act" on its customers' instructions to approve the movement of funds through a New York account.

The Al Rushaid decision did not overturn the long-standing principle that "mere maintenance" of a correspondent account in New York does not, alone, confer jurisdiction. Rather, the Court confirmed that there is a range of activities involving the use of a New York correspondent account, including the intentional receipt of funds on behalf of its customers, that can establish jurisdiction in New York over a foreign bank. 

A foreign bank, therefore, should be prepared to defend lawsuits in New York that arise from the bank's deliberate use of a New York correspondent account, even when the use of that account is directed by its customer or a third party acting at the customer’s direction.

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¹ N.E.3d –, 2016 WL 6837930 (N.Y. Nov. 22, 2016).

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