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Bank of China faces daily contempt fines in US: court ruling

Wednesday, December 2, 2015 - 08:03
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A US judge will impose a daily fine of US$50,000 against Bank of China Ltd starting next week after holding it in contempt for refusing to turn over account information on Chinese customers accused of selling counterfeit luxury goods.

[NEW YORK] A US judge will impose a daily fine of US$50,000 against Bank of China Ltd starting next week after holding it in contempt for refusing to turn over account information on Chinese customers accused of selling counterfeit luxury goods.

In a decision made public on Tuesday, US District Judge Richard Sullivan in Manhattan said the "coercive fine" will be imposed starting on Dec 8 unless the state-run bank complies with subpoena requests for the records.

Bank of China is appealing the civil contempt order and fine.

The records come from Chinese entities that were sued in 2010 by Gucci, Yves Saint Laurent, Bottega Veneta and other units of Paris-based Kering SA for trademark infringement over their sales of knockoff handbags, briefcases and other products.

Bank of China, which is not a defendant, said it could not turn over the records without violating Chinese privacy law and that the judge lacked jurisdiction to force compliance.

Judge Sullivan said, however, the bank's "manifest determination"to ignore the subpoenas and his orders has made it hard for the Kering plaintiffs to pursue their claims against "rampant counterfeiters," and could harm consumers who fall victim.

"BOC's refusal to comply with US law, while it continues to receive the benefits attendant to its banking activity in the United States, has inflicted a significant harm on plaintiffs and the general public," Judge Sullivan wrote. "Only a large fine will have a coercive effect on BOC at this stage."

Judge Sullivan also ordered the bank to cover the plaintiffs'costs of litigating the contempt issue.

He noted that the fine represents a tiny fraction of Bank of China's roughly US$27.8 billion of profit in 2014.

The dispute is part of a larger conflict over financial transparency between China and the United States, which employs a disclosure-based regulatory regime. Clashes have grown more frequent as Chinese companies expand beyond their country's borders and raise more capital internationally.

Allen & Overy, the law firm representing Bank of China, in a statement called the contempt order and sanctions unwarranted.

It also said Judge Sullivan should have invoked the multilateral Hague Evidence Convention to resolve the dispute, and respect the bank's "responsibility" not to violate Chinese law by turning over the account information.

Gucci and the other plaintiffs had asked Judge Sullivan to order Bank of China to reimburse US$12 million to cover their losses from the counterfeiting, or else to impose a fine.

Judge Sullivan initially ordered Bank of China to turn over customer records in 2011. He renewed his order in September, after a federal appeals court told him to revisit the matter in light of a recent US Supreme Court decision.

REUTERS