Judge holds Chinese banks in contempt, fines them $50K a day for failing to comply with North Korea subpoenas

If you haven’t already read my post about Chief Judge Beryl Howell’s order directing three Chinese banks to comply with federal grand jury and statutory subpoenas of their North Korea-related records, you should probably start there. Although the docket in this case is still sealed, I speculated in that post that the banks would likely appeal to the D.C. Circuit and seek a stay of the court’s order. And so they have, according to an order Judge Howell unsealed today. It did not go well for them.

In re Grand Jury subpoenas, Contempt Order, 18mc175_176_177 redacted

The money quote begins with two words no lawyer ever wants to see:

After initially crediting the banks with being cooperative, Judge Howell is now punishing them for their defiance. What follows is entirely my speculation. The banks must be horrified of what the FBI is going to find in their records to be willing to eat not only the cost of this litigation, but the reputational cost of being held in contempt by the Chief District Judge for failing to turn over records in a grand jury investigation into money laundering and sanctions violations. They have to be worried about what their shareholders will think about their legal exposure and expenses, credit ratings, borrowing costs, the tenures of their directors, and what all of those risks will mean for their share values.

The banks’ lawyers must also be worried about what their clients aren’t telling them. Any competent white collar defense lawyer has to know that the FBI might have an informant or evidence obtained through a Title III warrant that could implicate their clients if they try to withhold evidence from the grand jury. That’s why it’s so unusual for proceedings to get this far. Ordinarily, the banks’ lawyers would already have offered to turn over evidence and implicate their customers in exchange for either a DOJ statement that they did nothing wrong (see, e.g., the Dandong Hongxiang case) or agreeing to modest civil penalties and improvements to their anti-money laundering compliance.

That things have proceeded this far suggests higher stakes for either side, or both. If the records show that one or more of these banks knowingly processed transactions for North Korean money launderers or blocked persons, they could find themselves in the same awful predicament as BNP Paribas, which paid a combined $9 billion in fines, penalties, and forfeitures, or ZTE, which swallowed a deferred prosecution deal that included a $1 billion fine, a $400 million escrow deposit, and ten years of monitoring by U.S. compliance officers.

Journalists, pay attention to this litigation. It’s the most important North Korea story you aren’t writing about. This makes Banco Delta Asia look like a speed camera ticket.