Terror Funding Case and the Limits of Foreign Privacy Laws
The Litigation Daily
Last year the American Bar Association reported that global companies in U.S. court increasingly face a "Hobson's choice": to offend a foreign privacy law, or to defy a U.S. discovery obligation. Don't look now, but Mr. Hobson is going to Washington.
Arab Bank plc on Monday filed a U.S. Supreme Court cert petition citing the ABA report, and asking the court to remove the "Hobson's choice" it purportedly faces: to "either violate foreign laws and face criminal prosecution or accept sanctions that threaten its existence."
Jordan's Arab Bank is one of four banks that plaintiffs have sought to sue in Brooklyn federal court under the Anti-Terrorism Act or the Alien Tort Statute for allegedly funding terrorist attacks against Israeli targets. In February Judge Dora Irizarry cleared a case against Credit Lyonnais for trial, while the U.S. Court of Appeals for the Second Circuit upheld the dismissal of claims against UBS. Irizarry granted summary judgment in favor of NatWest in May, pending appeal. Judge Jack Weinstein dismissed the relatively small case of Gill v. Arab Bank last November.
It's the consolidated case of Linde v. Arab Bank, filed before Judge Nina Gershon, that presents the historic clash between the imperatives of justice and secrecy. The plaintiffs maintain that Arab Bank funneled "martyr payments" from a Saudi charity to the families of suicide bombers during the second Palestinian intifada. The bank refused to produce many of the bank records requested on the grounds that doing so would violate secrecy laws in Jordan, Lebanon, and the Palestinian Authority. In July 2010 Gershon ruled that this was no excuse, authorized the jury to infer that the bank knowingly and purposefully supported terrorism, and barred the bank from showing otherwise. Arab Bank has protested ever since that Gershon's sanctions violate due process and comity, and virtually doom it to a terrorism show trial that would destroy its business by scaring away correspondent banks. In April Gershon cleared most of the Anti-Terrorism Act claims for trial. In January the Second Circuit rejected the bank's request for a writ of mandamus or relief under the collateral order doctrine—and that is the decision Arab Bank is asking the Supreme Court to review.
Under the two old Supreme Court cases on point—Societe Internationale v. Rogers (1958) and Societe Nationale Industrielle Aerospatiale v. U.S. Dist. Court (1987)—judges must consider the importance and specificity of the discovery request, whether the data originated in the U.S., whether it would be possible to get it in other ways, U.S. policy interests, and the interests of the state with competing laws.
In practice, the ABA report said that the crucial factor tends to be whether U.S. judges believe that the foreign nation will actually penalize the party for complying with U.S. discovery. Perhaps because U.S. courts usually perceive the party's dilemma to be false, they rarely respect the competing law. Perhaps because the ABA report accepted the dilemma to be real, the House of Delegates called in a resolution for greater respect of foreign privacy laws.
In Monday's cert petition, Arab Bank argues that the Second Circuit misapplied Rogers. To make amends, the bank's lawyers at DLA Piper and Mayer Brown invites the Supreme Court to "harmonize Rogers with more recent comity jurisprudence," so that parties may avert the Hobson's choice identified by the ABA.
Secondarily, Arab Bank asks the court to clarify that the 6,000-plus foreign plaintiffs who are suing it under the Alien Tort Statute must fail as a result of rulings in Kiobel v. Royal Dutch Petroleum. In Kiobel the Second Circuit held that corporations may not be liable under customary international law, and the Supreme Court concluded that the ATS does not apply to conduct occurring in other nations. No one argues that Kiobel affects the roughly 500 American plaintiffs who are suing Arab Bank under the Anti-Terrorism Act, because the Anti-Terrorism Act expressly applies to extraterritorial conduct injuring U.S. victims, and does not rely on customary international law for its content. The question of Kiobel's effect on the Arab Bank alien tort claims is currently being briefed before Judge Gershon.
Whatever the merits of Arab Bank's petition, it and the ABA are surely correct that—in a world of globalizing commerce and burgeoning data—the U.S. courts have seen a surge of conflicts with foreign privacy laws. If there is one area of law that never goes global, it may be data regulation. The chasm between different countries' philosophies of informational privacy was dramatized most recently by the German privacy czar's labeling of the U.S. National Security Agency's PRISM surveillance program as " monstrous."
Since the ABA report was written early last year, legal examples have continued to proliferate in novel contexts. In May 2012 the Securities and Exchange Commission filed an administrative action against Deloitte Touche Tohmatsu for defying the SEC's subpoena of its Chinese audit records in the fraud investigation of China's Longtop Financial Technologies. It should comes as no surprise that in justifying its subpoena the SEC asked the D.C. district court to ignore Chinese secrecy laws under an analysis of the Aerospatiale factors. This particular conflict may be edging toward a diplomatic solution, though it seems likely to recur.
The same conflict may arise in U.S. regulatory regimes that require broad disclosure. Thus, the American Petroleum Institute is arguing before a D.C. federal court that the SEC should have exempted nations with strict secrecy laws from the new "publish what you pay" rule of Dodd-Frank Act Section 1504, which requires U.S.-listed energy and mining companies to disclose all payments to governments. Specifically, API argues that the 51 covered companies doing business in China, Angola, Cameroon, and Qatar may be forced to forfeit their local projects to companies with no scruples about transparency. Royal Dutch Shell alone says that it has $20 billion in jeopardized projects. Transparency advocates dispute both the API's characterization of these nations' laws, and their speculated consequences.
One way to state the trend is that broad U.S. discovery or disclosure regimes are increasingly bumping up against narrow privacy laws in the more liberal parts of Europe and Latin America, and against narrow secrecy laws in the less liberal parts of Asia, Africa, and the Middle East. A court with a pro-business and anti-imperialist bent may be tempted to mediate the conflict.
This article originally appeared in The Am Law Litigation Daily.