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Patriot Act Subpoenas: Reinvigorated and Reaching Across Borders

The override of former President Trump's veto of the National Defense Authorization Act of 2021 resulted in the enactment of broad amendments to the US anti-money laundering regime. Among the amendments are provisions to bolster a seldom-used authority of the government to demand information from non-US banks with correspondent accounts in the United States. These amendments raise questions about applicability of the principle of comity and considerations of personal jurisdiction that have previously applied to the US government's attempts to compel information from a non-US bank without a physical presence in the United States. Non-US banks should understand the practical consequences of this expanded authority.

 

Background

Patriot Act Subpoenas

In 2001, under the USA PATRIOT Act, Congress granted the Secretary of the Treasury and the Attorney General sweeping new powers to demand information from non-US banks that maintain correspondent accounts in the United States.1 These new powers, commonly called Patriot Act subpoenas, gave the US government access to any records of the non-US bank related to correspondent accounts, including "records maintained outside of the United States relating to the deposit of funds into the foreign bank."2 It was an innovative attempt to leverage the centrality of the US financial system to gain access to information that would otherwise be beyond law enforcement's reach.

However, despite its innovativeness and broad reach, Patriot Act subpoenas were issued comparatively rarely. According to the Department of Justice ("DOJ"), despite the comparative strengths of Patriot Act subpoenas, obtaining information under those subpoenas in a manner that was legally admissible proved to be difficult, resulting in protracted negotiations in litigation. Ultimately, in some cases, law enforcement was unable to obtain the desired records.3 To address these issues, the DOJ proposed a series of amendments to enhance the ability of US investigators to obtain overseas records as a form of legally admissible evidence.

Anti-Money Laundering Amendments in the NDAA

On January 2, 2021, the Senate voted to override former President Trump's veto of the National Defense Authorization Act of 2021 ("NDAA"). As a result, some of the most significant amendments to the US anti-money laundering ("AML") regime in recent years became law.4 Among the amendments was the DOJ's proposal to amend the Patriot Act Subpoena authority, adopted almost entirely as originally proposed by the DOJ.

The amendments expand the scope of the Secretary of the Treasury and the Attorney General's authority to subpoena a non-US bank's records related to not only the bank's correspondent account in the United States, but to any records related to any account at the foreign bank that are the subject of certain enumerated types of enforcement actions. The amendments also provide the US government more expansive tools for enforcing compliance with subpoenas, including the ability to seek civil contempt findings and issue civil penalties.

 

Key Changes

The amendments to the Patriot Act subpoena authority contained in the NDAA greatly expand the scope of the authority and add more teeth to its enforcement.

  Pre-NDAA Post-NDAA
Scope Records related to a correspondent account in the United States, including records maintained outside of the United States relating to the deposit of funds into the non-US bank. Records relating to a correspondent account in the United States or any account at the non-US bank, including records maintained outside of the United States that are subject to certain enforcement actions (below).
Enumerated Enforcement Actions Did not specify that the records must be the subject of any enforcement actions.
  • Any investigation of a violation of a criminal law of the United States;
  • Any investigation of a violation of the Bank Secrecy Act;
  • A civil forfeiture action; or
  • Any investigation pursuant to a designation of primary money laundering concern under Section 311 of the USA PATRIOT Act.
Authentication Did not specify the form with which the requested records must be provided. Requires the non-US bank to produce and authenticate all requested records with testimony in the manner described under Rule 902(12)5 of the Federal Rules of Evidence or 18 USC §3505.6
Nondisclosure Did not specify any limits on disclosure. Prohibits any representative of the non-US bank from disclosing to the account holder involved or any person named in the subpoena about the existence or contents of the subpoena. Penalties include double the amount of the suspected criminal proceeds sent through the correspondent account or, if no such proceeds can be identified, not more than US$250,000.
Enforcement Relied on the threat of correspondent account closure to gain compliance. The Attorney General may invoke the aid of the relevant Federal district court to compel compliance with the subpoena with the threat of contempt of court for non-compliance.
Termination of Correspondent Accounts Authorized the Secretary of the Treasury or the Attorney General to order a covered financial institution to terminate its correspondent relationship with the non-US bank if the non-US bank fails to comply with the Patriot Act subpoena or fails to initiate proceedings in a US court to contest the subpoena. Authorizes the Secretary of the Treasury or the Attorney General to order a covered financial institution to terminate its correspondent relationship with the non-US bank if the non-US bank fails to comply with the Patriot Act subpoena or fails to prevail in proceedings in a US court to contest the subpoena.
Penalties

A covered financial institution that fails to terminate a correspondent relationship may be liable for a civil penalty of up to US$10,000 per day until the relationship is terminated.

  • A covered financial institution that fails to terminate a correspondent relationship may be liable for a civil penalty of up to US$25,000 per day until the relationship is terminated.
  • A non-US bank that fails to comply with the Patriot Act subpoena may be liable for a civil penalty of not more than US$50,000 per day for each day the non-US bank fails to comply; after 60 days, additional penalties may be sought.
  • The US government may seize funds from the correspondent account to satisfy civil penalties for violations of the non-disclosure order imposed by a court for contempt, or for failure to comply with the Patriot Act subpoena.

 

Implications on Comity Analysis and Personal Jurisdiction

The Courts' Comity Analysis

The enforcement of a US subpoena on a non-US bank necessarily involves a balancing of interests between those of the United States and those of the non-US bank's home jurisdiction. Traditionally, US courts have applied the principle of comity, or a "spirit of cooperation," to help balance those interests.7 Under comity, a court can consider a range of factors, including whether "compliance with the request would undermine important interests of the state where the information is located" or "the hardship of the party facing conflicting legal obligations."8

A key amendment to the Patriot Act subpoena authority potentially reshapes that analysis. In authorizing non-US banks to petition Federal courts to quash the Patriot Act subpoena or the prohibition on disclosure, Congress explicitly stated "An assertion that compliance with a subpoena […] would conflict with a provision of foreign secrecy or confidentiality law shall not be a sole basis for quashing or modifying the subpoena."9 However, Congress provides no further guidance on how courts should integrate this restriction into its comity analysis. Courts could continue to assess the impact of non-US secrecy or confidentiality laws as simply one among the "constellation of factors" it considers as part of its broader comity analysis. Perhaps the more likely result is that this new restriction swallows the courts' comity analysis. In re Sealed Case, a recent decision from the D.C. Circuit illustrates how deeply non-US secrecy or confidentiality laws are integrated into an analysis of comity factors, with those laws being considered as a central interest of the home state and the primary reason for the hardship faced by the subpoenaed entity.10 Absent other compelling state interests or concerns, Congress's new restriction in the NDAA may significantly restrict a non-US bank's ability to challenge a Patriot Act subpoena. Future judicial decisions may provide greater clarity as to what other factors justify relief from the burdens of subpoena compliance.

Personal Jurisdiction

It is hard to imagine how a non-US bank without a physical presence in the United States and no further nexus to the United States beyond a correspondent account with a US financial institution is subject to the jurisdiction of US courts. Such banks would not fall under the general or "all purpose" jurisdiction of a US court and, accordingly, the court must have a basis to assert specific jurisdiction over them. Under the Supreme Court's interpretation of the Due Process clauses of the Constitution, a US court may exercise specific personal jurisdiction over a non-US entity only where that entity has "[1] certain minimum contacts with [the forum] such that [2] the maintenance of the suit does not offend traditional notions of fair play and substantial justice."11 Additionally, courts may only exercise specific personal jurisdiction over an entity as to matters that "aris[e] out of or relat[e] to the defendant's contacts with the forum."12

With regard to non-US banks, courts have concluded the exercise of specific jurisdiction usually requires a connection between the non-US bank's in-forum contact and the underlying matter over which the court seeks jurisdiction. As such, correspondent banking activity could satisfy specific jurisdiction requirements if the bank's correspondent banking activity was related to the dispute at issue, as it did under the pre-NDAA Patriot Act subpoena authority. However, the NDAA expansion of the scope of the Patriot Act subpoena to "any account" of the non-US bank seemingly removes the requirement for a connection between the non-US bank's contact with the United States and the underlying matter.

It remains to be seen how courts will respond to the NDAA's expansion of jurisdiction and attendant due process concerns. However, even if a court finds that there are insufficient jurisdictional grounds to uphold a Patriot Act subpoena, that may not be sufficient to prevent the US government from taking other steps to enforce compliance, including the forced termination of the privilege of a correspondent account in the United States or the seizure of funds in that account to satisfy penalties for non-compliance. Legal challenges may be made to any such steps and it is too early to know how they will play out in the courts.

 

Key Takeaways for Banks

With the threat of an expanded and re-invigorated Patriot Act subpoena authority, a non-US bank with correspondent accounts should re-evaluate the risk profile of its account base. While a spate of enforcement actions and de-risking of US correspondent accounts over the last two decades has caused non-US respondent banks to exercise greater oversight and control over the transactions that flow through their US-based correspondent accounts, such banks may want to expand that oversight and control to any account that may find it subject to investigation by US law enforcement and regulatory authorities. Accordingly, respondent banks may also want to consider whether the threat of a Patriot Act subpoena changes its business and risk decisions to maintain a correspondent account in the United States.

If a non-US bank were to receive a Patriot Act subpoena, it should carefully evaluate its decision to challenge the subpoena, factoring into its decision the courts' precedents and the practical consequences of non-compliance.

 

1 Section 319(b) of the USA PATRIOT Act, codified at 31 USC § 5318(k).
2 31 USC § 5318(k)(3)(A)(i).
3 Justice Department Proposes Legislation to Advance Anti-Corruption Efforts, US Dep't Justice (May 5, 2016).
4 For further analysis of other provisions of the AMLA, including new beneficial ownership reporting requirements under the Corporate Transparency Act, please see White & Case's Corporate Transparency Act and New Implications for US Special Purpose Vehicles, Wealth Structuring and Other Arrangements (January 26, 2021).
5 Requires certification in a manner that, if falsely made, would subject the maker to a criminal penalty in the country where the certification was signed.
6 Describes when a non-US record of regularly conducted activity may be admitted as evidence and not considered hearsay.
7 Societe Nationale Industrielle Aerospatiale v. United States Dist. Ct. for S. Dist., 482 US 522, 543 n. 27 (1987).
8 Id at 544 n. 28; Linde v. Arab Bank, PLC, 706 F.3d 92, 110 (2d Cir. 2013).
9 31 USC § 5318(k)(3)(A)(iv).
10 932 F.3d 915 (D.C. Cir. 2019).
11 Daimler AG v. Bauman, 571 US 17, 126 (2014).
12 Bristol-Myers Squibb Co. v. Superior Court of Cal., S.F. Cty., 137 S. Ct. 1773, 1780 (2017).

 

Tom Enering (White & Case, Associate, New York) and John Hannon (White & Case, Law Clerk, Washington, DC) contributed to the development of this publication.

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