In re Grand Jury Investigation of Possible Violations of 18 U.S.C. § 1956 and 50 U.S.C. § 1705

381 F.Supp.3d 37

IN RE GRAND JURY INVESTIGATION OF POSSIBLE VIOLATIONS OF 18 U.S.C. § 1956 AND 50 U.S.C. § 1705

Miscellaneous Case Nos. 18-175

18-176

18-177 (BAH)

United States District Court, District of Columbia.

Signed March 18, 2019

MEMORANDUM OPINION

Beryl A. Howell, Chief Judge

In December 2017, the United States Attorney for the District of Columbia served two Chinese banks—Bank One and Bank Two—with a grand jury subpoena, and a third Chinese bank—Bank Three—with an administrative subpoena.¹ All three subpoenas are for records of transactions for [REDACTED], a now-defunct Hong Kong based front company for North Korea's state-run [REDACTED]. Each bank refused to comply. Almost a year later, on November 29, 2018, the government moved to compel each bank's compliance with their respective subpoena. See Gov't's Mot. Compel. Produc. Docs. Req. Via Bank of Nova Scotia Subpoenas–Bank One ("Gov't's Mot.–Bank One"), ECF No. 1 (No. 18-175); See Gov't's Mot. Compel. Produc. Docs. Req. Via Bank of Nova Scotia Subpoenas–Bank Two ("Gov't's Mot.–Bank Two"), ECF No. 1 (No. 18-176); Mot. Compel. Produc. Doc. Req. Via Administrative Subpoena ("Gov't's Mot.–Bank Three"), ECF No. 1 (No. 18-177).

Consistent with the parties' agreed upon briefing schedule, on January 7, 2019, each bank filed an opposition, supported by voluminous attachments, to the government's motion. See Bank One's Opp'n to Gov't's Mot. Compel ("Bank One's Opp'n"), ECF No. 6 (No. 18-175); Bank Two's Opp'n to Gov't's Mot. Compel ("Bank Two's Opp'n"), ECF No. 3 (No. 18-176); Bank Three's Opp'n to Gov't's Mot. Compel ("Bank Three's Opp'n"), ECF No. 4 (No. 18-177). The government then filed a single omnibus reply, on February 4, 2019, with its own attachments. See Gov't's Omnibus Reply Supp. Mots. Compel Prod. ("Gov't's Reply"), ECF No. 14 (No. 18-175).² Each bank was permitted to file a sur-reply, and each of those, with more attachments, was submitted on February 26, 2019. See generally Bank One's Sur-Reply Opposing Mot. Compel ("Bank One's Sur-Reply"), ECF No. 18 (No. 18-175); Bank Two's Sur-Reply Opposing Mot. Compel ("Bank Two's Sur-Reply"); ECF No. 12 (No. 18-176); Bank Three's Sur-Reply Opposing Mot. Compel ("Bank Three's Sur-Reply"), ECF No. 12 (No. 18-177). In support of the banks, the Chinese Ministry of Justice ("MOJ") submitted two letters addressed to the Court. See, e.g. , Bank One's Opp'n, Ex. 3, Jan. 6, 2019 MOJ Ltr., ECF No. 6-3 (No. 18-175); Bank One's Sur-Reply, Ex. 3, Feb. 26, 2019 MOJ Ltr., ECF No. 18-4 (No. 18-175).

Following a March 5, 2019 hearing with the government and all three banks, the government and two of the banks—Bank One and Bank Two—were permitted to submit supplemental briefing on a personal jurisdiction issue specific to each bank. The government's supplemental briefs were filed on March 8, 2019, see Gov't's Suppl. Br. Personal Jurisdiction–Bank One ("Gov't's Suppl.–Bank One"), ECF No. 29 (No. 18-175); Gov't's Suppl. Br. Personal Jurisdiction–Bank Two ("Gov't's Suppl.–Bank Two"), ECF No. 25 (No. 18-176), and each bank's response was filed on March 12, 2019, see Bank One's Suppl. Br. Personal Jurisdiction ("Bank One's Suppl."), ECF No. 30 (No. 18-175); Bank Two's Suppl. Br. Personal Jurisdiction ("Bank Two's Suppl."), ECF No. 26 (No. 18-176).

Upon consideration of this weighty record, and for the following reasons, each of the government's three motions is granted.

I. BACKGROUND

The three subpoenas in this matter pertain to an investigation into [REDACTED]. See Gov't's Mot.–Bank One at 1³ ; Gov't's Mot.–Bank Three at 1. As noted, [REDACTED] was a Hong Kong based front company for North Korea's [REDACTED]. Gov't's Reply, Ex. 1, Decl. of Special Agent of the Federal Bureau of Investigation ("FBI Decl.") ¶ 9, ECF No. 14-1 (No. 18-175). The now-defunct front company purportedly was established by [REDACTED], a North Korean national, and [REDACTED], a Chinese national. Id.

A. [REDACTED] Transactions for [REDACTED]

Between October 2012 and January 2015, [REDACTED] used [REDACTED] for United States dollar transactions totaling $ 105,339,483.59. Gov't's Mot.–Bank One at 2; accord Gov't's Mot.–Bank Three at 2. Of that money, $ 45,779,669.50 traveled through a United States correspondent bank account of Bank One, which is a Chinese bank with [REDACTED] United States branches. Gov't's Mot.–Bank One at 2–3; Bank One's Opp'n at 1.⁴ The Chinese government, or its affiliated enterprises, own [REDACTED] of Bank One. See Bank One's Opp'n at 17 n.13; see also Gov't's Reply, Ex. 2, Decl. of Professor of Law at George Washington University Law School ("Gov't's Expert Decl.") ¶ 99, ECF No. 14-2 (No. 18-175). Another $ 1,627,909.34 went through a correspondent bank account of Bank Two, which also is a Chinese Bank with a United States branch. Gov't's Mot.–Bank One at 2–3; Bank Two's Opp'n at 4. The Chinese government has a [REDACTED] ownership stake in Bank Two. Gov't's Expert Decl. ¶ 100. Finally, $ 57,931,904.75 was shuttled through a United States correspondent account of Bank Three, which is a Chinese bank without any United States branch, but which maintains [REDACTED] correspondent accounts in the United States. Gov't's Mot.–Bank Three at 2–3; Bank Three's Opp'n, Decl. of General Manager of [REDACTED] for Bank Three ("Bank Three GM Decl.") ¶¶ 7, 10, ECF No. 4-2 (No. 18-177). At least [REDACTED] of Bank Three's publicly traded shares are held by the Chinese government. Id. ¶ 9.

Many of these transactions were made after the Treasury Department's Office of Foreign Assets Control ("OFAC"), on [REDACTED], "designated" the [REDACTED] pursuant to Executive Order 13382. See Actions Taken Pursuant to Executive Order 13382, [REDACTED]. Executive Order 13382 authorizes the Secretary of State, the Secretary of Treasury, or "other relevant agencies," to designate, after consulting with their counterpart and the Attorney General, any individual or entity as having engaged "in activities or transactions that have materially contributed to, or pose a risk of materially contributing to, the proliferation of weapons of mass destruction or their means of delivery," as having "provided, or attempted to provide, financial, material, technological or other support for" any such transaction, or as being "owned or controlled by, or acting or purporting to act for or on behalf of" any already-designated individual or entity. See Blocking Property of Weapons of Mass Destruction Proliferators and Their Supporters, Exec. Order 13382, 70 Fed. Reg. 38567 (July 1, 2005). As a designated entity, the [REDACTED]'s property interests in the United States are blocked, meaning that the [REDACTED]'s property may not be "transferred, paid, exported, withdrawn, or otherwise dealt in." Id. ; see also 31 C.F.R. § 544.201.⁵ Designated entities may apply to OFAC for a license exempting certain property from being blocked. 31 C.F.R. §§ 501.801 – 808, 504.501–508.

Based on [REDACTED]'s transactions through the United States financial market, the government is investigating [REDACTED] for three crimes: (1) money laundering, in violation of 18 U.S.C. § 1956 ; (2) violating an order issued under the International Economic Emergency Powers Act, such as Executive Order 13382, which is a violation of 50 U.S.C. § 1705 ; and (3) violating the Bank Secrecy Act. See Gov't's Mot.–Bank One at 4–5; accord Gov't's Mot.–Bank Three at 5.

B. The Investigatory Subpoenas

In aid of that investigation, on December 26, 2017 the United States Attorney for the District of Columbia sent Bank Three a subpoena under 31 U.S.C. § 5318(k)(3). See Bank Three GM Decl., Ex. 1, Admin. Subpoena, ECF No. 4-2 (No. 18-177).⁶ That statutory provision authorizes the Secretary of the Treasury and the Attorney General to "issue a summons or subpoena to any foreign bank that maintains a correspondent account in the United States and request records related to such correspondent account, including records maintained outside of the United States relating to the deposit of funds into the foreign bank." 31 U.S.C. § 5318(k)(3)(A)(i). The subpoena sent to Bank Three sought all records, including "(a) signature cards; (b) documentation of account opening; (c) account ledger cards; (d) periodic account statements; (e) due diligence (including invoices); and (f) records (copied front and back) of all items deposited, withdrawn, or transferred," "from January 1, 2012, through the present," "relating to correspondent banking transactions for [REDACTED]" and "relating to correspondent banking transactions" for a specified account thought to be used by [REDACTED]. See Admin. Subpoena.

The next day, Bank One's and Bank Two's local branch each received identical grand jury subpoenas. See Gov't's Mot.–Bank One at 5; see also Bank One's Opp'n, Ex. 1, Grand Jury Subpoena, ECF No. 6-1 (No. 18-175). Those subpoenas commanded that a representative of each bank appear to testify before the grand jury, and bring before the grand jury records, including "(a) signature cards; (b) documentation of account opening; (c) account ledger cards; (d) account statements; (e) due diligence (including invoices); and (f) records (copied front and back) of all items deposited, withdrawn, or transferred," dated between January 1, 2012 and December 26, 2017, related to any account belonging to [REDACTED] or related to a specific account believed to be associated with [REDACTED]. See Grand Jury Subpoena.

C. Negotiating Alternatives to the Subpoenas

In January 2018, representatives from Bank Three met with the China Banking Regulatory Commission ("the Commission") and the People's Bank of China ("People's Bank"), which together regulate Chinese banking, about the subpoena and were told that the only way under Chinese law that the bank could comply was through the process established under the Agreement Between the Government of the United States of America and the Government of the People's Republic of China on Mutual Legal Assistance in Criminal Matters ("MLAA"), June 19,...