BoC appeals disclosure order in counterfeit case

Shanghai, December 3

The Bank of China (BoC) is appealing a decision by a New York court to fine it $50,000 a day for withholding information about counterfeiters’ bank accounts in China.

The appeal, filed on Tuesday, is the latest twist in a five-year legal saga that pits one of China’s largest state banks against western luxury brands seeking new, more powerful tools to fight rampant counterfeiting. BoC says it is fighting to maintain client privacy as a matter of national sovereignty.

Gucci, along with other Kering Group brands, is seeking $12 million from the bank to cover damages inflicted by a counterfeiting ring it says sold fake handbags and wallets to US consumers. Using records provided by JPMorganChase, Gucci traced $530,000 in transfers from US-based counterfeiters to BoC accounts in China.

The BoC has repeatedly refused to provide information about those accounts or freeze the counterfeiters’ funds for Gucci. Instead it secretly froze over $890,000 of the accused counterfeiters’ money to cover its own legal costs in the fight with Gucci, Chinese court documents show.

The case highlights the incompatibility between Chinese and US legal systems and could have far-reaching implications for the ability of US courts to extract information from Chinese banks operating in America. That legal firewall has helped Chinese banks serve as safe havens for counterfeiters, who use them to process credit card payments for fakes, often sold online, and move their money around the globe.

The BoC, and other Chinese banks embroiled in similar litigation in the US, argue that complying with US court orders to disclose client information would violate Chinese bank secrecy laws and subject them to civil and criminal penalties in China. They have so far failed to provide undisputed evidence that those penalties are, in practice, significant.

On September 29, New York District Court Judge Richard Sullivan ruled that the US has jurisdiction over the BoC, which has four US branches. He ordered the BoC to comply with subpoenas for documents related to the accused counterfeiters’ bank accounts, even though the accounts are in China. The bank refused, and Sullivan said if the bank did not provide the records by December 7, he would begin imposing a $50,000-a-day contempt fine.

The court ‘will not tolerate any further attempt by BoC to delay these proceedings and thwart Plaintiff’s efforts to access account information that is essential to the prosecution of Plaintiffs’ claims against rampant counterfeiters who have consciously used BoC to facilitate their illegal schemes’, Sullivan wrote in a November 30 order.

BoC USA’s Chief Executive, Xu Chen, told state-run Xinhua news, in an interview published on Wednesday, that the case has wide-ranging implications, which could discourage Chinese investment in the US.

“Many Chinese investors believe the US has an open and fair legal system, which is a key factor in good business environments,” Xu told Xinhua. “Now they might start to worry that they could also get caught in a legal dilemma because of the ‘unlimited jurisdiction’ sought by some US courts.”

Kering declined to comment. The BoC did not respond immediately to a request for comment.