Chinese Bank Expansion Challenging U.S. Laws

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As Chinese banks expand in the U.S., they seem to be bringing with them their secrecy laws and challenging how far U.S. judges can go in accessing records stored in China.

In case closely being watched by legal experts, Kering SA’s Gucci and its other luxury brands have issued subpoenas demanding information about transactions made by a few Bank of China account holders, whom the company claims are some of their biggest counterfeiters. Bank of China is fighting that request arguing that releasing such information would violate Chinese law.

U.S. District Judge Richard Sullivan in Manhattan has ordered Bank of China to comply with court orders, but the bank has released only portions of the information sought.

On Tuesday, the two parties will meet in court to determine whether the lender should be held in contempt of court and ordered to pay a multi-million dollar fine.

Bank of China maintains its records at home are unrelated to its business in the U.S. and suggests Gucci should litigate the case in China. Gucci argues that U.S. courts should have jurisdiction in the case due to Bank of China’s New York branch and wire transfers from Bank of China’s own accounts, known as correspondent bank accounts, at Chase Bank in the U.S.

China’s top banks have sought overseas expansion as a means to offset slowing profit growth and smaller lending margins at home. Overseas assets at China’s top-four banks are up almost 10% from the end of last year, totaling $1.3 trillion.

This expansion is bringing Chinese banks into conflict with laws in the U.S.

In recent years, U.S. lawmakers have accused China of failing to comply with legal proceedings.

In a May report, a congressional commission that monitors U.S.-China economic issues wrote that Chinese businesses in the U.S. use “the shroud of Chinese law, including official secrecy laws” to keep themselves “largely immune from the jurisdiction of U.S. courts.”

The Gucci case spans back to 2010, when the SA Kering brands sued a group of people it accused of counterfeiting products including Gucci handbags and selling them to U.S customers online. Gucci claimed these counterfeiters wired the illegal proceeds to Bank of China accounts, making bank records vital for figuring out how much money the counterfeiters made and whether anyone else was involved.

Gucci has asked Judge Sullivan to demand the bank pay $12 million in cash as compensation for what the counterfeiters would have owed the brands in damages.

Bank of China has called the $12 million request baseless.




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