Case of the Day: SEC v. Stanford International Bank

The case of the day is SEC v. Stanford International Bank Ltd. (N.D. Tex. 2011). The court had earlier appointed a receiver to take control of the assets of R. Allen Stanford and various affiliates. In today’s case, the receiver sought to obtain information about the Stanford defendants’ accounts at Société Générale Private Banking (Suisse) S.A., which was a Swiss firm with its main office in Geneva but with one branch office in Miami. The receiver served a subpoena, apparently on SG’s office in Miami, but the documents were located in Switzerland. SG objected to the subpoena on the grounds that it could not comply with the subpoena without violating Swiss criminal law and that the receiver should have sought the evidence under the Hague Evidence Convention.

The judge conducted an Aerospatiale analysis to determine whether the receive could proceed under the Rules of Civil Procedure rather than under the Convention. While the judge noted that many decisions treated the Convention as a “permissive supplement” to the FRCP, he suggested that “that approach ignores Aerospatiale’s admonition to ‘exercise special vigilance’ in international discovery disputes.” He looked to the seven-factor test in Strauss v. Credit Lyonnais, 242 F.R.D. 1999 (E.D.N.Y. 2007), which combines the five Aerospatiale factors and adds two factors suggested by the Restatement. The seven-factor test, the judge wrote, “adequately addresses the complexity and the scope of interests” at stake. The Credit Lyonnais factors are: (1) the importance of the documents requested to the litigation; (2) the degree of specificity of the request; (3) whether the information originated in the United States; (4) whether there are alternate means of getting the information; (5) the competing interests of the two states; (6) the hardship of compliance on the foreign party; and (7) the good faith of the party resisting discovery.

The judge found that the information requested was important in the litigation and that the requests, while broad, were not inappropriate. The receiver stood in Stanford’s  shoes and was, in effect, SG’s customer. Thus a broad request for its own account records was acceptable. Thus the first two factors favored the receiver. The fourth factor favored the receiver as well: there was no alternate means of obtaining the information.

But the third factor, focusing on the origin of the information, favored SG. The judge agreed with the receiver that under what it called the “geographic fiction” found in the precedents, the documents sought did not “originate” in Switzerland merely because SG would have to take preparatory steps in Switzerland in order to produce the documents in Florida. But the judge found that the Swiss banking law actually criminalized taking such preparatory steps in Switzerland, and so he declined to apply the geographic fiction. Because of the potential for criminal sanctions, the court fond that the sixth factor (hardship of compliance) weighed in favor of SG. The seventh factor weighed in favor of SG because SG was simply pointing to laws that had been on the books in Switzerland for decades, and while SG had not yet sought an exemption to the bank secrecy rules from the Swiss government, its delay was brief, as the receiver had only recently served his subpoena.

The fifth factor—the competing interests of the U.S. and Switzerland—was neutral. The U.S. had a strong interest in fair adjudication of cases in its courts, and the court itself had a strong interest in seeing to it that its orders were enforced and that the litigation proceeded to a just, speedy, and inexpensive determination. On the other hand, the court found it significant that the SEC had not sought to compel production of the documents, though it could have done so using (unspecified) means unavailable to the receiver. On the Swiss side, the judge found that Switzerland had a longstanding interest in protecting the privacy of its banking customers and shared the civil law’s view of discovery as a domestic judicial function and been opposed to U.S. discovery requests that require collection of evidence in Switzerland. But the judge hesitated to weigh these interests against each other, citing Laker Airways, Ltd. v. Sabena, Belgian World Airlines, 731 F.2d 909 (D.C. Cir. 1984):

Despite the real obligation of courts to apply international law and foster comity, domestic courts do not sit as internationally constituted tribunals. Domestic courts are created by national constitutions and statutes to enforce primarily national laws. The courts of most developed countries follow international law only to the extent it is not overridden by national law. Thus, courts inherently find it difficult neutrally to balance competing foreign interests. When there is any doubt, national interests will tend to be favored over foreign interests. This partially explains why there have been few times when courts have found foreign interests to prevail.

On balance, the judge found that the factors favored SG. (How courts actually balance the factors when they do not all point in one direction has always seemed a little mysterious to me). His decision seems noteworthy to me on account of the unusual judicial modesty he displayed in weighing, or rather refusing to weigh, the United States’s interest against the interest of Switzerland. Indeed, given the outline of the battles about document discovery in Europe for use in U.S. cases—the Hague Evidence Convention, followed by Article 23 reservations, followed by Aerospatiale, followed by blocking statutes—I wonder whether the judge’s reticence isn’t a kind of unilateral disarmament!

The case is also noteworthy for its conclusion. The judge noted that he might revisit his balancing of the factors and permit resort to the Federal Rules of Civil Procedure if the Swiss authorities decided that Swiss law did not permit the receiver to obtain the records sought. This seems a gentle way of saying that one good turn deserves another.

2 responses to “Case of the Day: SEC v. Stanford International Bank”

  1. Alex Dalamdy

    Interesting analysis. However, in 2010 Swiss courts determined that Antigua and NOT the US was the Center of Main Interest of Stanford International Bank, the entity at the center of this controversy.

    Custody of the swiss accounts of SIB has been awarded to the Antiguan Liquidators, who have not been able to take possession of these funds due to a freeze requested by the US DOJ.

    Any idea how all that plays into this request going forward?


    1. Thank you for that, Alex. The impact of the Swiss decision you reference seems to turn on the Swiss banking secrecy law–is the Swiss government less likely to grant SG an exemption because the US receiver does not, from the Swiss perspective, stand in the bank’s shoes? I’m not sure I can hazard an educated guess. It may be that the receiver will be before the US court in the near future to take the judge up on his offer to reconsider his decision if the Swiss authorities don’t give the receiver access to the bank records.

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