Panel OKs Fines Against Chinese Banks in North Korea Probe

WASHINGTON (CN) – The D.C. Circuit on Tuesday upheld a federal judge’s order imposing $50,000-per-day fines on three Chinese banks that refused to turn over records the U.S. government subpoenaed as part of an investigation into how North Korea funds its nuclear weapons program.

Women walk by a bank window panel displaying the security markers on the latest 100 Yuan notes in Beijing on Feb. 18, 2019. (AP Photo/Andy Wong)

The banks were caught up in the investigation into North Korea’s alleged use of a front company to get around strict financial sanctions that lock North Korea out of U.S. markets. The U.S. government says North Korea used the Chinese front company to facilitate hundreds of millions of dollars of coal sales that would have been impossible for it to conduct on its own under the sanctions regime.

The U.S. government says that money went directly into North Korea’s weapons program.

As part of its probe into the now-defunct company, the federal government subpoenaed three banks seeking records it says would help detail how Pyongyang used the company to skirt the sanctions.

While the banks remain unidentified in court documents, multiple media reports have tied the facts of the case to a 2017 civil forfeiture action brought against the Bank of Communications, China Merchants Bank and Shanghai Pudong Development Bank. The Washington Post reported in June that the case could cost Shanghai Pudong Development Bank access to U.S. markets.

According to a 44-page redacted opinion unsealed Tuesday in the D.C. Circuit, the United States does not currently believe the banks have broken any laws, but was looking for the records to determine if the front company or another entity had.

But the banks and the Chinese government resisted the subpoenas, saying they would be breaking a Chinese law that bars turning over records to investigators from other countries unless the request comes as part of a legal assistance agreement between the country and China. The U.S. government resisted bringing the action under such an agreement, citing China’s slow response to other document requests in the past.

In November, the U.S. government asked a federal court in Washington, D.C., to intervene. In response, the banks argued the federal court did not have jurisdiction over the case and that enforcing the subpoenas would violate international legal norms.

U.S. District Judge Beryl Howell ruled in March that two of the banks had agreed to face claims in U.S. courts when they set up branches in the country, while the third bank had enough contact with the United States to give the court jurisdiction over the dispute. Howell also found the subpoenas did not need to be set aside simply because they would require the banks to violate Chinese laws.

Despite the ruling, however, the banks refused to hand over the records. As a result, Howell in April imposed a $50,000 fine on each bank for each day it refused to comply with the subpoena, though she allowed the banks to appeal her decision before the fines started racking up.

In the opinion finalized last week but released to the public on Tuesday, the D.C. Circuit sided with the federal government, largely echoing Howell’s holding. Writing for a unanimous three-judge panel, U.S. Circuit Judge David Tatel found the two banks with branches in the United States had consented to facing claims in American courts through the agreement they signed with the Federal Reserve when they set up U.S. branches. The third bank, meanwhile, had sufficient contacts with the United States to give the court jurisdiction.

Tatel also found one of the subpoenas fell within the scope of the Patriot Act and that Howell properly found the U.S. national security interests outweighed concerns that the banks would have to violate Chinese law in order to comply with the subpoena.

After a lengthy discussion of the banks’ arguments, Tatel found no reason to upset Howell’s decision.

“Whether to enforce the subpoenas was a hard call, the district court made that call, and we have no reason to reverse its fact-bound conclusion,” Tatel wrote.

Tatel was joined on the panel by U.S. Circuit Judges Patricia Millett and Cornelia Pillard.

The Justice Department declined to comment on the decision.

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