U.K. Court’s KBR Ruling Suggests a Path to Challenge AMLA’s Broad Subpoena Power

The recently enacted Anti-Money Laundering Act of 2020 (AMLA) grants the Treasury and Justice departments far-reaching subpoena power that allows U.S. prosecutors to circumvent the traditional method for obtaining overseas evidence—a process negotiated with various foreign countries and memorialized in a series of Mutual Legal Assistance Treaties (MLATs). By installing a workaround to the MLAT process, Congress opted for efficiency over international comity.

Under Section 6308, U.S. prosecutors can serve a subpoena on a foreign bank with a U.S. correspondent account (the AMLA subpoena) to obtain “any records” related to “any account” held at the bank, even if: (1) the bank has no U.S. offices; (2) the account belongs to a non-U.S. citizen; (3) the records are held outside the country; (4) the records are located in a country whose local laws would block the disclosure of the requested information; and (5) the records sought are unrelated to the wire transfer that touched the U.S.

But a recent ruling by the U.K. Supreme Court—KBR Inc. v. Director of the Serious Fraud Office (KBR)—may provide banks with the impetus to challenge the legality of the AMLA subpoena.

Wither the MLAT Process?

For decades, MLATs have been the primary avenue used by U.S. prosecutors to obtain overseas evidence. Their use has increased substantially as the reach of U.S. law enforcement has extended far beyond U.S. borders, as cases like FIFA (see, e.g., United States v. Webb (E.D.N.Y.)), and 1MDB (see, e.g., United States v. Goldman Sachs (Malaysia) Sdn. Bhd. (E.D.N.Y.)) have shown.

Although MLATs have been a valuable tool for U.S. prosecutors, they have some significant drawbacks: Notably, the U.S. does not have MLATs with a number of countries, many of which are the focus of U.S. law enforcement. Also, there is no universal MLAT, leading to a lack of consistency in evidence gathering and—perhaps most frustrating to prosecutors—the MLAT process is invariably cumbersome and lengthy.

The AMLA subpoena provides prosecutors with an avenue to circumvent the valuable but burdensome MLAT process. For a foreign bank with a U.S. correspondent account (or a U.S. bank with a foreign branch), U.S. prosecutors can now bypass their foreign counterparts and request documents directly from the bank.

And the law is clear that foreign banks cannot object solely on the ground that compliance with the subpoena would conflict with foreign secrecy or confidentiality laws. For many foreign banks, this presents an unenviable choice: violate local laws or be held in contempt for failure to comply with the AMLA subpoena and risk losing your access to the U.S. banking system.

Rep. Blaine Luetkemeyer (R-Mo.) highlighted this problem in the AMLA’s legislative record and encouraged the Treasury and Justice departments to maintain “respect for home country requirements” when exercising this broad subpoena power.

Notwithstanding the benefits to U.S. prosecutors, broad use of the AMLA subpoena is likely to bring unintended consequences. Beyond evidence gathering, U.S. prosecutors rely heavily on their overseas law enforcement partners to help investigate their cases, including conducting surveillance and interviewing witnesses. When it comes to banks located in countries with which the U.S. lacks an MLAT, the AMLA subpoena is a boon.

But for banks located in countries with MLATs with the U.S. and whose law enforcement have cooperated extensively with the U.S. in combating fraud and corruption, the AMLA subpoena, if not carefully exercised, is likely to damage long-standing relationships and severely diminish cooperation. Compelling foreign banks in friendly countries to violate local client confidentiality and data protection laws could ultimately undermine—rather than enhance—U.S. investigations and prosecutions.

Possible Challenges to the AMLA Subpoena

In KBR, the U.K. Supreme Court ruled unanimously that U.K. prosecutors cannot require a foreign company with no U.K. presence to produce evidence held abroad pursuant to a notice issued under the U.K.’s Criminal Justice Act 1987.

It explained that there is a presumption against U.K. criminal law having extra-territorial effect—a presumption that embodies the international legal principle that one state should not “infringe the sovereignty of another” by passing legislation that compels conduct that “would be in breach of the laws of that State.”

The court also reasoned that U.K. prosecutors should not be allowed to issue an evidentiary notice that evades the “safeguards put in place under the scheme of mutual legal assistance,” thereby expressing faith in the MLAT framework.

Although the KBR decision has no legal impact on U.S. laws, and notwithstanding that the U.K. Supreme Court interpreted a pre-existing statutory provision, the principles of international law and comity relied on by the U.K. court provide a framework for banks who seek to challenge the enforcement of a broad AMLA subpoena.

The Treasury and Justice Departments would be wise to proceed cautiously and wield the AMLA subpoena as a scalpel rather than a sledgehammer.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

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Winston Paes is a litigation partner and a member of the White Collar & Regulatory Defense group at Debevoise, based in the New York office. Previously, he served as chief of the Business and Securities Fraud Section for the U.S. Attorney’s Office for the Eastern District of New York.

Karolos Seeger is a partner in Debevoise’s White Collar & Regulatory Defense Group and International Dispute Resolution group, based in the London office. He is also a member of the firm’s management committee. He focuses on white collar crime and internal investigations, in particular regarding compliance with corrupt practices legislation, conducting compliance assessments, and creating and implementing compliance programs.

Eric Silverberg is an associate in the Litigation Department in the New York office.