Wultz et al v. Bank of China Limited

Filing 443

OPINION AND ORDER: For the foregoing reasons, Hapoalim's motion to quash or modify the subpoena is DENIED. If the parties agree to conduct the deposition via videoconference, BOC shall "pay the expense (including a reasonable counsel fee) o f the attendance of one attorney" for Hapoalim "at the place where the deposition is to be taken." This payment shall be made prior to the examination, pursuant to Local Civil Rule 30.1.. (Signed by Judge Shira A. Scheindlin on 2/13/2014) (tro)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

--------------------------------------------------------

USDCSDNY
DOClTMENT

)(

SHERYL WULTZ, individually, as personal
representative of the Estate of Daniel Wultz,
and as the natural guardian of plaintiff
Abraham Leonard Wultz; YEKUTIEL
WULTZ, individually, as personal
representative of the Estate of Daniel Wultz,
and as the natural guardian of plaintiff
Abraham Leonard Wultz; AMANDA
WULTZ; and ABRAHAM LEONARD
WULTZ, minor, by his next friends and
guardians Sheryl Wultz and Yekutiel Wultz,

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OPINION AND ORDER
11 Civ. 1266 (SAS)

Plaintiffs,
- againstBANK OF CHINA LIMITED,
Defendant.

-------------------------------------------------------- )(
SHIRA A. SCHEINDLIN, U.S.D.J.:
I.

INTRODUCTION
This case arises out of the death of Daniel Wultz and the injuries of

Yekutiel Wultz, suffered in a 2006 suicide bombing in Tel Aviv, Israel. Four
members of the Wultz family brought suit against Bank of China ("BOC"),
alleging that BOC provided material support and resources to the Palestinian

1

I
_

Islamic Jihad (“PIJ”) by executing millions of dollars worth of wire transfers to an
alleged PIJ leader, Said al-Shurafa (“Shurafa”). Plaintiffs’ sole remaining claim
against BOC is for acts of international terrorism under the Antiterrorism Act
(“ATA”).1 Plaintiffs allege that BOC had actual knowledge of the connection
between the wire transfers and the PIJ because Israeli counter-terrorism officials
met with the Chinese government and bank regulators in April 2005 and allegedly
warned them that Shurafa’s accounts were used to transfer money to terrorist
organizations.2
On September 28, 2012, BOC subpoenaed Bank Hapoalim
(“Hapoalim”), a non-party Israeli bank, requesting documents pertaining to any
transactions or wire transfers involving Shurafa. Hapoalim produced a number of
documents, including transaction records for sixteen wire transfers from a single
individual to Shurafa’s BOC accounts, originated at Hapoalim between August
2004 and November 2007.3 On June 30, 2013, BOC served Hapoalim with a
second subpoena pursuant to Federal Rule of Civil Procedure (“Rule”) 30(b)(6)
seeking testimony on a variety of topics, including the sixteen specific Shurafa

1

See 18 U.S.C. § 2333(a).

2

See First Amended Complaint ¶ 77.

3

See 8/26/13 Declaration of Elissa J. Glasband, Counsel for BOC, ¶ 3.
2

transactions, Hapoalim’s anti-money laundering and counter-terrorism financing
compliance policies and procedures, and communications between Hapoalim and
the Israeli government concerning Shurafa specifically and anti-money laundering
and counter-terrorism financing generally.4
Hapoalim filed a motion to quash or modify the subpoena on August
12, 2013, arguing that the subpoena violates Rule 45’s prohibition on compelling
an individual to travel more than 100 miles from where that person resides, is
employed or regularly transacts business in person in order to be deposed.5
Further, Hapoalim argued that the subpoena should be quashed on grounds of
international comity because complying with the subpoena would require
Hapoalim to violate a number of Israel’s confidentiality laws and potentially cause
Hapoalim to give self-incriminating testimony.6 Finally, Hapoalim argued that the
subpoena was cumulative, irrelevant and improper.7
I referred the dispute to Magistrate Judge Gabriel W. Gorenstein.

4

A Rule 30(b)(6) deposition notice is proper even though Hapoalim is
a non-party. See infra n. 15 and accompanying text.
5

See 8/12/13 Memorandum of Law in Support of Motion by Non-Party
Bank Hapoalim B.M. to Quash or Modify the Subpoena Dated June 20, 2013
(“Hapoalim Mem.”), at 6-9.
6

See id. at 9-24.

7

See id. at 25-26.
3

After extensive briefing, Judge Gorenstein issued a written decision on October 15,
2013 in which he granted Hapoalim’s motion to quash.8 While my ruling on
BOC’s timely Rule 72(a) objections was pending, BOC amended its subpoena,
significantly narrowing the deposition topics.9 Further, on December 1, 2013 –
while BOC’s Rule 72(a) objections were pending but before it revised the
subpoena – significant amendments to Rule 45 went into effect.
Because BOC amended its request and the governing rule has
changed, it is no longer proper to address this issue as a Rule 72(a) objection.
Rather, I rule on Hapoalim’s motion to quash or modify the amended subpoena de
novo.10 Thus, nothing in this Opinion and Order represents a finding with respect
to Judge Gorenstein’s October 15, 2013 ruling. Although the subpoena has been
significantly modified, the underlying issues of fact and law remain similar to
those presented to the Magistrate Judge. Accordingly, I have considered the record
and briefing on the original motion as updated by two teleconferences held on
January 7 and 16, 2014 and additional letters submitted by BOC and Hapoalim.

8

See Wultz v. Bank of China, 293 F.R.D. 677, 680-81 (S.D.N.Y. 2013).

9

See 1/17/14 Letter from Mitchell R. Berger, Counsel for BOC, to the

Court, at 1.
10

I am addressing this matter in the first instance without remanding it
to the Magistrate Judge for reasons of judicial efficiency.
4

For the following reasons, Hapoalim’s motion to quash or modify BOC’s amended
subpoena is DENIED.
II.

BACKGROUND
A.

BOC’s Request
BOC’s explanation as to why it needs testimony from Hapoalim is as

follows:
Before and after the April 2005 Israeli-PRC meeting, and before
and after the April 2006 terrorist bombing at issue here, Hapoalim
originated in Israel at least 16 wire transfers to Shurafa’s BOC
accounts. Those transfers totaled $266,100 and comprised 10%
of the approximately 160 wire transfers to Shurafa’s BOC
accounts. The fact that Shurafa was the beneficiary was clearly
indicated on the wire transfer orders that Hapoalim originated.
The Israeli government had the jurisdiction, the authority, and the
ability to halt any of those Shurafa transfers originated by
Hapoalim. BOC seeks Hapoalim’s testimony to determine
whether the Israeli government made such efforts. Testimony
confirming the absence of Israeli government efforts, at home in
Israel, to block Hapoalim’s origination of transfers to Shurafa
would make it unreasonable to infer that the Israeli government at
the same time traveled thousands of miles to China in an effort to
block Shurafa’s receipt of such transfers.11
Hapoalim does not contest that this Court has jurisdiction to issue a

11

8/26/13 Memorandum of Law on Behalf of Bank of China Ltd. in
Opposition to Motion of Bank Hapoalim to Quash or Modify Subpoena for
Testimony (“BOC Opp.”), at 2.
5

subpoena.12 However, Hapoalim maintains that the court must quash the subpoena
in light of Rule 45(c)’s geographical limitation on compliance for the following
reasons. First, the Shurafa wire transactions “originated in Israel and have no
connection to Hapoalim’s New York office.” Second, “there are no employees
located in New York with any relevant knowledge of these topics.” Finally, “it is
not reasonable or even practical to ‘educate’ a New York employee concerning
transactions and policies in which they have no knowledge.”13 Further, Hapoalim
argues that even if the subpoena does not violate Rule 45, various Israeli
confidentiality and secrecy laws bar “much of the discovery sought in the
subpoena” and international comity analysis weighs in favor of quashal.14
III.

APPLICABLE LAW
A.

Non-Party Subpoenas Under Rules 30(b)(6) and 45
Rule 30(b)(6) provides, in relevant part, that a party’s subpoena for

deposition testimony

12

This Court has jurisdiction because Hapoalim does business in New
York and has a branch office in New York City.
13

Hapoalim Mem. at 6-7.

14

Id. at 18-24. In the briefing before Judge Gorenstein, Hapoalim also
contended that the subpoena was “overbroad, cumulative, irrelevant and
improper.” Now that BOC has substantially narrowed the deposition topics, this is
no longer an area of contention.
6

may name as the deponent a public or private corporation . . . and
must describe with reasonable particularity the matters for
examination. The named organization must then designate one or
more officers, directors, or managing agents, or designate other
persons who consent to testify on its behalf; and it may set out the
matters on which each person designated will testify. . . . The
persons designated must testify about information known or
reasonably available to the organization.
A Rule 30(b)(6) request for deposition can be served on a non-party
whose attendance can be “compelled by subpoena under Rule 45.” 15 Under Rule
45(c)(1)(A), a “subpoena may command a person to attend a . . . deposition only . .
. within 100 miles of where the person resides, is employed, or regularly transacts
business in person.”16 Rule 45(d)(1) further requires that a party issuing a
subpoena “must take reasonable steps to avoid imposing undue burden or expense
on a person subject to the subpoena.” Rule 45(d)(3)(A) instructs a district court to
quash or modify a subpoena that “[1] fails to allow a reasonable time to comply;
[2] requires a person to comply beyond the geographical limits specified in Rule
45(c); [3] requires disclosure of privileged or other protected matter, if no
exception or waiver applies; or [4] subjects a person to undue burden.”

15

Fed. R. Civ. P. 30(a)(1).

16

Rule 45 was significantly amended and renumbered on December 1,
2013. I use current section numbering, but note that the parties used older
numbering because their briefs were submitted prior to the amendment.
7

B.

Multi-Factor Comity Analysis
In Société Nationale Industrielle Aérospatiale, the Supreme Court

established that the Hague Convention process does not deprive a District Court of
the jurisdiction it would otherwise possess “to order a foreign national party before
it to produce evidence physically located within a signatory nation.”17 The
Supreme Court emphasized that “the spirit of cooperation in which a domestic
tribunal approaches the resolution of cases touching the laws and interests of other
sovereign states,” or “international comity,” requires a “particularized analysis of
the respective interests of the foreign nation and the requesting nation.” 18
Courts in the Second Circuit consider the following five factors,
drawn from the Supreme Court’s analysis in Aérospatiale when evaluating the
propriety of an order directing the production of documents or testimony that may
be in contravention of foreign law:
(1) the importance to the investigation or litigation of the
documents or other information requested;
(2) the degree of specificity of the request;
(3) whether the information originated in the United States;

17

Société Nationale Industrielle Aérospatiale v. United States Dist. Ct.
for the Southern Dist. of Iowa, 482 U.S. 522, 539–40 (1987).
18

Id. at 543–44 & n.27.
8

(4) the availability of alternative means of securing the
information; and
(5) the extent to which noncompliance with the request would
undermine important interests of the United States, or compliance
with the request would undermine the important interests of the
state where the information is located.19
Courts in the Second Circuit also consider:
(6) the hardship of compliance on the party or witness from whom
discovery is sought; and
(7) the good faith of the party resisting discovery.20
C.

Israeli Law
The party objecting to a discovery motion based on foreign law bears

the burden “‘of demonstrating that such law actually bars the production or
testimony at issue.’”21 “‘In order to meet that burden, the party resisting discovery
must provide the Court with information of sufficient particularity and specificity
to allow the Court to determine whether the discovery sought is indeed prohibited

19

See Strauss v. Credit Lyonnais, S.A., 249 F.R.D. 429, 438–39
(E.D.N.Y. 2008) (citing Aérospatiale, 482 U.S. at 544 n.28; R ESTATEMENT
(T HIRD) OF F OREIGN R ELATIONS L AW OF THE U NITED S TATES § 442(1)(c)).
20

See id. (citing Minpeco S.A. v. Conticommodity Servs., Inc., 116
F.R.D. 517, 523 (S.D.N.Y. 1987)).
21

Strauss v. Credit Lyonnais, S.A., 242 F.R.D. 199, 207 (E.D.N.Y.
2007) (quoting Alfadda v. Fenn, 149 F.R.D. 28, 34 (S.D.N.Y. 1993)).
9

by foreign law.’”22 The party must describe, among other things, “‘the provisions
of the foreign law, the basis for its relevance, and the application of the foreign law
to the facts of the case.’” 23
“‘Foreign law, though formerly treated as an issue of fact, is now
recognized as an issue of law, to be established by any relevant source, including
testimony.’”24 Federal Rule of Civil Procedure 44.1 establishes that “[t]he court’s
determination [of foreign law] must be treated as a ruling on a question of law.”
Hapoalim submits two declarations on Israeli confidentiality and
privilege laws from Ehud Arzi, an Israeli lawyer with nearly twenty years of
experience in banking and regulatory practice. BOC has not submitted rebuttal
declarations or counter-statements of Israeli law.
1.

Bank-Client Confidentiality

Israel recognizes
“the right of a client to the confidentiality of information
concerning his accounts and business activities in his relations
with [a] banking corporation. The protection that is given to a
bank’s client against disclosure of the banking information stems

22

Id. (quoting Alfadda, 149 F.R.D. at 34).

23

Id. (quoting Rationis Enters. Inc. of Panama v. Hyundai Mipo
Dockyard Co., 426 F.3d 580, 586 (2d Cir. 2005)).
24

Wultz v. Bank of China Ltd., 860 F. Supp. 2d 225, 230 (S.D.N.Y.
2012) (quoting United States v. Peterson, 812 F.2d 486, 490 (9th Cir. 1987)).
10

either from the right to privacy that is granted in law or from
[fiduciary principles] and [the] general duty of trust that a bank
owes its clients.” 25
The bank-client privilege has been recognized by the Supreme Court of Israel,26
and is considered to be encompassed by the Protection of Privacy Law as well as
the “basic right” of privacy “incorporated into Israel’s quasi-constitutional Basic
Law: Human Dignity and Liberty.”27 “[T]he bank-client privilege is not an
absolute privilege but rather a relative one.”28 The privilege may “be waived under
the circumstances of a specific case,” but because Israel strongly disfavors nonparty discovery, “prevailing case law holds that the court must protect the
confidentiality of accounts belonging to one who is not a party to the dispute, and
that any deviation from this rule is permitted only in rare and extraordinary
situations.” 29
“[T]he disclosure of information relating to the bank’s clients may . . .
25

Agricultural Bank for Israel Ltd. v. Mordechai Dagani, District Court
for the Central Region, T-A (Central) 28621-11-10 (June 2013), quoted in 8/13/13
Declaration of Ehud Arzi (“Arzi Decl.”) ¶ 28.
26

See Skoler v. Jerbi, PD 47(5) 764 (1993).

27

5/21/07 Declaration of Ehud Arzi in Connection With Linde et al. v.
Arab Bank, PLC, No. 04 Civ. 2799 (E.D.N.Y.) (“Arzi Linde Decl.”) ¶ 25, Exhibit 3
to Arzi Decl.
28

Arzi Decl. ¶ 26.

29

Arzi Linde Decl. ¶¶ 26-27.
11

constitute a breach of the contractual duty owed by a bank to its client and lead to a
civil claim . . . for damages.”30 Civil damages are also available for violations of
the Protection of Privacy Law.31 A person who “maliciously infringes the privacy
of another” can be subject to the criminal penalties of the Protection of Privacy
Laws, which includes up to five years imprisonment.32 Arzi’s declarations do not
list or describe any cases in which a court imposed civil damages or criminal
penalties against a bank for violations of client confidentiality.
2.

Banking Ordinance

Israel’s Banking Ordinance governs communications between Israeli
banks and the Bank of Israel, the nation’s central banking regulatory authority.
Section 15A provides that “no person shall reveal any information delivered to him
or show any document submitted to him under this Ordinance or under the
Banking (Licensing) Law” and may face criminal penalties of up to one year
imprisonment or a fine of 10,000 Israeli pounds for violations.33 Interpreting this
provision, the Israeli Supreme Court has held that “information received from, or

30

Arzi Decl. ¶ 34.

31

Arzi Linde Decl. ¶ 39.

32

Id.

33

Id. ¶ 42.
12

delivered to, the Bank of Israel” is immune from discovery in judicial
proceedings.34 However, the immunity is “not absolute and a court is entitled to
lift [it] in the circumstances of a particular case.”35 Arzi’s declarations do not list
or describe any cases in which a court imposed civil or criminal penalties against a
bank for violations of Section 15A of the Banking Ordinance.
3.

Prohibition on Money Laundering and Prohibition on
Terror Financing Laws

The Prohibition on Money Laundering Law “creates an administrative
enforcement mechanism by obligating financial service providers to report the
activities of their clients [to] a supervisory and audit institution” which analyzes
the information and recommends further action to law enforcement, if necessary.36
The Prohibition on Terror Financing Law sets up the reporting mechanism and data
retention policy necessary to carry out the Prohibition on Money Laundering
Law.37 Section 31A of the Prohibition on Money Laundering Law requires a
person to maintain the confidentiality of any information received under the

34

Arzi Decl. ¶¶ 39-40 (citing Echo-Tech (Micro Parts) Ltd. v.
CreditsCards Company in Israel Ltd., 34200-06-11, District Court of Haifa).
35

Arzi Linde Decl. ¶ 48.

36

Id. ¶ 52.

37

See id. ¶ 60.
13

provisions of these laws, except as required by law or by a court order.38 Willful
violations of this law are punishable by up to three years imprisonment and
negligent violations are punishable by up to one year imprisonment.39 Arzi’s
declarations do not list or describe any cases in which a court imposed civil or
criminal penalties against a bank for violations of Section 31A.
4.

Privilege Against Self-Incrimination

Section 47(a) of the Evidence Ordinance establishes the privilege
against self-incrimination.40 “[T]he privilege against self-incrimination is not
absolute and courts will balance the damage that may be caused as a result of
revealing a document with the benefit that may result from its disclosure, under the
circumstances of each particular case.”41 Pursuant to section 37(b) of the Evidence
Ordinance, no incriminating information that is compelled to be disclosed by a
court order can be used against the producing party in a criminal proceeding.42

38

See id. ¶ 58. Accord Prohibition on Terror Financing Law § 48(b).

39

See Arzi Linde Decl. ¶ 58.

40

See id. ¶ 63 (“No person is under obligation to deliver any piece of
evidence if it includes the admission of a fact that is one of the elements of an
offense of which he stands accused or is liable to be accused.”).
41

Id. ¶ 66.

42

See id. ¶ 63.
14

IV.

DISCUSSION
A.

Rule 45 Does Not Bar Hapoalim’s Testimony
Hapoalim is subject to this Court’s subpoena jurisdiction by virtue of

having a branch office in New York. Because Rule 45’s geographic restriction
applies to Rule 30(b)(6) testimony, the Court cannot compel anyone to travel from
Jerusalem to New York to testify at a deposition. The only issue in question is
whether requiring Hapoalim to comply with its affirmative duty to prepare a
designee for Rule 30(b)(6) testimony constitutes an undue burden in light of its
assertion that all of the individuals with relevant information or knowledge about
the Shurafa wire transfers reside or work in Jerusalem. I conclude that it does not.
“Whether a subpoena imposes an ‘undue burden’ ‘depends on such
factors as relevance, the need of the party for the documents, the breadth of the
document, the time period covered by it, the particularity with which the
documents are described and the burden imposed.’”43 “‘The party issuing the
subpoena must demonstrate that the information sought is relevant and material to
the allegations and claims at issue in the proceedings’ [and] the status of a witness
as a non-party to the underlying litigation entitles [the witness] to consideration

43

Koch v. Pechota, No. 10 Civ. 9152, 2013 WL 3892827 at *1
(S.D.N.Y. Jul. 25, 2013) (quoting Night Hawk Ltd. v. Briarpatch Ltd., L.P., No. 03
Civ. 1382, 2003 WL 23018833, at *8 (S.D.N.Y. Dec. 23, 2003)).
15

regarding expense and inconvenience.” 44
BOC’s amended subpoena has significantly narrowed the deposition
topics and described them with sufficient particularity. Further, BOC has
sufficiently established the relevance of the sought testimony to its defense against
the ATA claim. Plaintiffs’ theory of actual knowledge is premised on alleged
warnings from the Israeli government to Chinese regulators in April 2005 about
BOC’s Shurafa accounts, approximately one year before the terrorist attack that
killed Daniel Wultz and injured Yekutiel Wultz. There is no dispute that Hapoalim
originated sixteen wire transfers to Shurafa’s BOC accounts between 2004 and
2007, a time period which includes both the meeting between Israeli and Chinese
officials and the terrorist attack. If BOC can establish through Hapoalim’s
testimony that the Israeli government did not warn its own bank about Shurafa, a
jury could reasonably infer that Israel did not provide such a warning to Chinese
regulators.
Despite its non-party status, Hapoalim has “an affirmative duty to
prepare the designee to the extent matters are reasonably available, whether from
documents, past employees, or other sources.”45 However, Hapoalim maintains that
44

Id. (quoting Night Hawk, 2003 WL 23018833, at *8).

45

Rahman v. Smith & Wollensky Rest. Group, Inc., No. 06 Civ. 6198,
2009 WL 773344, at *1 (S.D.N.Y. Mar. 18, 2009) (quotations omitted).
16

it is “simply not reasonable or practical” to educate an employee in New York
when the “knowledgeable employees are located in Israel,” and that requiring
Hapoalim to do so would “encroach[] upon Hapoalim’s right to select its own
designee.”46 In support of this position, Hapoalim cites a recent case from this
Court, which held that there is “no binding authority permitting the court to compel
a corporation deponent to designate a specific person to be its Rule 30(b)(6)
witness.”47
Of course the court cannot compel Hapoalim to designate a specific
person. But a court can compel Hapoalim to select a designee and educate her in
accordance with its duty under Rule 30(b)(6). “‘The testimony elicited at the Rule
30(b)(6) deposition represents the knowledge of the corporation, not of the
individual deponents.’”48 “If the persons designated by the corporation do not
possess personal knowledge of the matters set out in the deposition notice, the
corporation is obligated to prepare the designees so that they may give

46

9/4/13 Reply Memorandum of Law by Non-Party Bank Hapoalim
B.M. to Quash or Modify the Subpoena Dated June 20, 2013 (“Hapoalim Rep.”), at
6.
47

Id. (quoting MPD Accessories, B.V. v. Urban Outfitters, Inc., No. 12
Civ. 6501, 2013 WL 4399199, at *12 (S.D.N.Y. Aug. 13, 2013)).
48

Twentieth Century Fox Film Corp., v. Marvel Enter., Inc., No. 01 Civ.
3016, 2002 WL 1835439, at *2 (S.D.N.Y. Aug. 8, 2002) (quoting United States v.
Taylor, 166 F.R.D. 356, 361-62 (M.D.N.C. 1996)).
17

knowledgeable and binding answers for the corporation.”49 “The duty to present
and prepare a Rule 30(b)(6) designee goes beyond matters personally known to
that designee or to matters in which that designee was personally involved.” 50
Hapoalim presents no compelling arguments or evidence as to why it
should not comply with this duty. Even if Hapoalim is a non-party witness and all
of the documents or knowledgeable persons are in Jerusalem, compliance with the
30(b)(6) subpoena is not an undue burden when weighed against BOC’s need for
the testimony. A person in New York can easily be educated by a person in Israel
by telephone, email or videoconference and relevant documents can easily be
transmitted on a single flash drive or CD-ROM. Further, in the age of
videoconferencing, Hapoalim can avoid the burden of educating a New York
employee altogether by agreeing to a deposition by video, to which BOC has
consented.51

49

Id.

50

Id.

51

See Transcript of 1/7/14 Teleconference. This arrangement is
permissible under amended Rule 45, which no longer requires a subpoena to issue
from the court for the district where the deposition is taken, but rather, “the court
where the action is pending.” Fed. R. Civ. P. 45(a)(2).
18

B.

Multi-Factor Comity Analysis
1.

Israeli Confidentiality Laws and Privileges

BOC’s amended subpoena seeks testimony on the following topics:
!

Topics 1, 2 and 5: information about the sixteen Shurafa wire
transfers, including whether those transfers were executed in
the ordinary course of business;

!

Topics 3, 4, 6, 7 and 13: whether Hapoalim communicated with
the Israeli government and its central banking regulators about
the Shurafa transfers; whether the government took any steps to
block or restrict the Shurafa transfers; whether Hapoalim
regularly communicated with the government about anti-money
laundering and counter-terrorist financing issues during this
time period;

!

Topics 8, 9, 10 and 11: whether Hapoalim had anti-money
laundering and counter-terrorist financing policies in place at
the time of the wire transfers; whether Hapoalim conducted any
inquiries, noticed any red flags, or warned its constituent banks
in connection with the Shurafa transfers;

!

Topic 12: whether Hapoalim provided clearing services for

19

Palestinian banks making wire transfers to Shurafa; and
!

Topics 14 and 15: information and clarification about certain
public statements made by Hapoalim in 2005 and 2006
pertaining to anti-money laundering and counter-terrorist
financing efforts.

Hapoalim does not claim that all of the information sought in the
subpoena is protected from disclosure by Israeli law.52 For example, none of the
stated privileges or laws appear to apply to Topic 12. Further, because Section
15A of the Banking Ordinance establishes a duty of confidentiality only as to
communications with the Bank of Israel, Hapoalim cannot withhold testimony
about other communications with the Israeli government based solely on that law.
Similarly, because Section 31A of the Prohibition on Money Laundering Law
establishes a duty of confidentiality only as to communications and disclosures
made to the regulatory authority established by that law, Hapoalim may invoke the
provision only as to those specific communications.
According to Hapoalim, some or most of the remaining testimony is

52

Hapoalim’s briefing responds to the June 30, 2013 subpoena. The
June 30 subpoena was significantly broader in scope but covered many of the same
basic topic areas. In deciding this motion, I evaluated the parties’ briefing and
arguments, as well as the Arzi declarations, as they apply to the amended
subpoena, which renumbered and rephrased certain of the requests.
20

protected as follows: (1) Israel’s bank-client confidentiality laws prevent
Hapoalim from disclosing information pertaining to the Shurafa wire transfers
(Topics 1-2, 5); (2) Section 15A of Israel’s Banking Ordinance forbids it from
disclosing any information exchanged with the Bank of Israel, Israel’s banking
regulatory authority (Topics 3-4, 6, 13) ; (3) Israel’s Prohibition on Money
Laundering and Prohibition on Terror Financing Laws forbid it from disclosing
any information collected and reported to the regulatory agency established by
those laws (Topics 1-11, 13); and (4) Israel’s privilege against self-incrimination
bars Hapoalim from testifying about certain public statements concerning its
capacity to block transactions involving terrorist organizations (Topics 14-15).
2.

Determining Whether There Is True Conflict

The threshold question in any comity analysis is to determine whether
there is a “true conflict” between domestic and foreign law – that is, whether
“compliance with the regulatory laws of both countries would be impossible.” 53
Israel’s self-incrimination privilege does not establish a true conflict with U.S.
laws and cannot serve as the basis for denying a motion to compel testimony
because the privilege can be waived and “Israeli courts can guarantee that
documents as to which the privilege has been waived will not be used against the
53

Filetech S.A. v. France Telecom S.A., 157 F.3d 922, 932 (2d Cir.
1998) (quoting In re Maxwell Comm’n Corp., 93 F.3d 1036, 1050 (2d Cir. 1996)).
21

person in any criminal proceeding.” 54
In this case, I also find that there is no true conflict with U.S. law
based on Israel’s bank-client confidentiality provisions. Hapoalim has already
produced various transaction records pertaining to the wire transfers with redacted
customer information. Further, plaintiffs, BOC and Hapoalim all know the
customer’s identity based on other productions and records. The Israeli bankclient privilege pertains to customer information and transaction history. BOC has
amended its document request to eliminate specific questions about the originating
customer, so there is no risk that further customer information will be revealed.
Hapoalim’s own document production has already revealed the transaction history.
Hapoalim cannot now argue that the bank-client privilege precludes it from
answering questions about the allegedly privileged documents it has already
produced. Because Hapoalim has already disclosed the transactional information,
it may now be questioned about how Hapoalim executed the transfers (Topics 1, 2
and 5).
As to the Banking Ordinance and Prohibition on Money Laundering
and Terror Financing Laws, BOC contends that there is no “true conflict” because
54

Linde v. Arab Bank, PLC, 262 F.R.D. 136, 147-48 (E.D.N.Y. 2009).
The Linde court rejected Hapoalim’s assertion that the self-incrimination privilege
served as a bar to production or testimony about the same public statements at
issue in this case.
22

the Israeli laws do not preclude “non-event” testimony – that is, testimony that
certain communications or reports did not happen. I disagree, at least as to the
Prohibition on Money Laundering and Terror Financing Laws. Section 12 of the
Bank of Israel’s Order Prohibiting Money Laundering (Identification Obligations,
Reporting and Managing Registries of Banking Corporations) clearly bars the
“disclosure of the fact of the crystallization, inexistence or content of [a] report [on
various financial activities performed by a client] . . . as well as the fact of the
existence of a supplementary report.”55 Further, there is no evidence that
Hapoalim’s testimony will, in fact, be “non-event” testimony. Thus, for reasons of
judicial efficiency, I conclude that there is a true conflict between American
discovery laws and Israel’s Banking Ordinance and Prohibition on Money
Laundering and Terror Financing Laws regardless of whether the testimony is
affirmative or negative.
3.

Applying International Comity Analysis

Having found a true conflict between the laws, I now apply the
Second Circuit’s multi-factor international comity analysis to determine whether
Hapoalim can be compelled to provide deposition testimony in light of conflicting
foreign law. Hapoalim argues that I should follow a recent decision from the

55

Arzi Decl. ¶ 47 (emphasis added).
23

Eastern District of New York, where the court, in similar circumstances, granted a
motion to quash a subpoena with respect to information that “fall[s] within the
confidentiality provisions of [Israeli] laws.”56
In Linde v. Arab Bank, PLC, Arab Bank sought discovery from
Hapoalim about Hapoalim’s efforts to identify terrorist organizations and
transactions. Arab Bank argued that documents showing Hapoalim’s failure to
identify certain terrorist organizations or transactions supported Arab Bank’s
defense that its own failure was in good faith.
“In other words, if the documents discovered pursuant to the
requests relating to customer accounts and transactions and to
compliance protocols reveal that Hapoalim performed banking
services for terrorist front organizations and employed similar
compliance procedures as Arab Bank, they will be useful in
refuting the plaintiffs’ allegations that Arab Bank exercised
insufficient caution in dealing with entities that it should have
known were terrorist fronts.” 57
The court concluded that this information was not critical enough to Arab Bank’s
case to compel disclosure. “The documents sought by Arab Bank here would not
be direct evidence of a claim or defense; at best, they would serve as circumstantial
evidence of Arab Bank’s lack of knowledge.”58 BOC argues that Linde is

56

Linde, 262 F.R.D. at 152.

57

Id. at 150.

58

Id.
24

inapposite, because unlike the defendant in Linde, “BOC seeks [testimony] from
Hapoalim [that] is critically important in testing the veracity and plausibility of
plaintiffs’ actual knowledge allegation.” 59
In this case, as in Linde, several of the international comity factors are
easy to resolve. Two of these factors weigh in favor of non-disclosure. First, it is
undisputed that the information sought originated in Israel. Second, BOC concedes
that Hapoalim’s status as a non-party status may weigh the hardship of compliance
factor in its favor.60 On the other side, the specificity of BOC’s amended request
weighs in favor of compelling discovery, while the evidence as to Hapoalim’s
good faith in resisting discovery is, at best, neutral. Although Hapoalim’s desire to
comply with Israeli confidentiality laws is reasonable, there is no evidence that it
tried to balance that desire with its obligation to respond to BOC’s subpoena by,
for example, seeking consent from its client or from the Israeli government.61 For
the following reasons, I conclude that the remaining three factors weigh in favor of

59

BOC Opp. at 8.

60

See id. at 7, 20.

61

See Strauss, 242 F.R.D. at 226 (finding that a bank asserting French
bank secrecy laws as a bar to discovery made “good faith, diligent” efforts to
secure discovery by making “at least two efforts to contact [its client] for its
consent . . . and at least three efforts to contact the French Ministry of Justice for
guidance.”).
25

compelling discovery.
a.

Importance of the Testimony

BOC cites to my previous opinions in this case, in which I ordered
BOC to produce documents that were otherwise protected by Chinese bank secrecy
laws because I concluded that “discovery regarding ‘the scienter element of
plaintiffs’ claim’ is ‘highly important’ to the case and ‘crucial to establishing
whether BOC was put on notice that the Shurafa accounts were being used to fund
terrorism (if, in fact, they were).’”62 Hapoalim responds that my “prior rulings are
not relevant to, nor binding on, Hapoalim.”63 This response misconstrues BOC’s
argument. My previous rulings in this case are obviously not binding on
Hapoalim, a non-party to this litigation. But my analysis in those rulings,
including my conclusion that the issue of BOC’s scienter is critical to this case, is
highly relevant to determining whether the discovery sought is important to the
litigation.
In Linde, Arab Bank sought evidence of Hapoalim’s anti-money
laundering and counter-terrorism financing policies and procedures to show that its
own policies and procedures were reasonable and that its failure to identify and
62

BOC Opp. at 13-14 (quoting Wultz v. Bank of China, No. 11 Civ.
1266, 2013 WL1832186, at *8 (S.D.N.Y. May 1. 2013)).
63

Hapoalim Rep. at 12.
26

block transfers to certain terrorist organizations was in good faith. The Linde court
concluded that this testimony would only be tangentially relevant to Arab Bank’s
defense. But in this case, Hapoalim’s documents and testimony are directly
relevant to the claims and defenses. Hapoalim originated sixteen wire transfers to
Shurafa’s accounts during the time period in question. The existence of these
specific transactions alone is sufficient to distinguish Linde. Further, a key
allegation in this case is that Israeli government officials were concerned about
Shurafa and warned Chinese regulators about his financial activity. Hapoalim, an
Israeli bank ostensibly in constant communication with its government about antimoney laundering and terrorist financing issues, originated certain transactions
with the Shurafa accounts at BOC. While Hapoalim is certainly not accused of any
wrongdoing, its role in the chronology of events is much more relevant to the
various fact issues in this case than in Linde.
b.

Availability from Other Sources

The Israeli government has asserted state privilege in a collateral
proceeding and would likely do so in response to any subpoena from BOC.64 On
January 29, 2014, over seven months after the submission of the parties’ Hague
Convention request, Israel replied that the request cannot be considered until the
64

See State of Israel v. Wultz, Motion to Quash Subpoena, 13 Misc.
1282 (Dkt. No. 1) (D.D.C. Nov. 15, 2013).
27

resolution of the collateral proceeding and further indicated that it considers much
of the request to be “subject to non-disclosure under Israeli law and under the
Hague Convention (Article 12(b)) for reasons relating to prejudice to the
‘sovereignty or security’ of the State of Israel.”65 At this time, BOC can only
obtain this information from Hapoalim.
c.

Balance Between U.S. and Israeli Interests

Hapoalim argues that the Banking Ordinance and Prohibition on
Money Laundering and Terror Financing Laws protect Israeli interests “in the
confidentiality of communications with Israel’s central bank and the strict
enforcement of anti-money laundering and anti-terror laws, while preventing their
abuse in the form of leaked confidential data.”66 Hapoalim points to the
“substantial civil and criminal penalties that attach to violations” of these laws as
evidence of Israel’s strong interest.67 BOC argues that “[s]hielding Hapoalim from
discovery would . . . undermine important interests of the United States in fostering
full and fair litigation [and] would also undercut important interests of both the
United States and Israel in ensuring that their efforts to combat terrorism-financing

65

1/29/14 Letter from Judge Michael Spitzer, Director of Courts of the
State of Israel, to Mitchell Berger, at 2.
66

Hapoalim Mem. at 20.

67

Id.
28

are aligned.” 68
I find Hapoalim’s argument as to Israel’s interests not entirely
persuasive. Hapoalim fails to cite even one example of a civil or criminal penalty
that was ever actually enforced in connection with these laws. Further, as per
Hapoalim’s own expert, Section 15A of the Banking Ordinance and Section 31A
of the Prohibition on Money Laundering Law both permit disclosure by court order
upon weighing the factors of a case.
At the same time, the “United States has a substantial interest in fully
and fairly adjudicating matters before its courts. When that interest is combined
with the United States’s goals of combating terrorism, it is elevated to nearly its
highest point.”69 A complete and fair reading of Israel’s laws shows that Israel’s
interest in confidentiality, while significant, can be mitigated by the countervailing
factors present in this case. Courts applying international comity analysis as to
other nations’ bank secrecy laws have reached the same conclusion and compelled
disclosure in similar cases.70

68

BOC Opp. at 20 (quotation omitted).

69

Weiss v. National Westminster Bank, PLC, 242 F.R.D. 33, 45
(E.D.N.Y 2007) (quotations omitted).
70

Id. (holding that “the interests of the United States and United
Kingdom in combating terrorism outweigh the British interest in preserving bank
customer secrecy” and recognizing that “even if comity analysis weighed in favor
29

VI.

CONCLUSION
For the foregoing reasons, Hapoalim's motion to quash or modify the

subpoena is DENIED. If the parties agree to conduct the deposition via
videoconference, BOC shall "pay the expense (including a reasonable counsel fee)
of the attendance of one attorney" for Hapoalim "at the place where the deposition
is to be taken.,,71 This payment shall be made prior to the examination, pursuant to
Local Civil Rule 30.1.

SO ORDERED:

Dated:

New York, New York
February 13,2014

of' non-disclosure, production would be appropriate "based on an exception to
English bank secrecy").
71

Local Civil Rule 30.1.
30

- Appearances For Plaintiffs:

For Bank Hapoalim:

David Boies, Esq.
Lee S. Wolosky, Esq.
Steven I. Froot, Esq.
Marilyn C. Kunstler, Esq.
Jaime Sneider, Esq.
Boies, Schiller & Flexner LLP
575 Lexington Avenue
New York, NY 10022
[phone]

Carol M. Goodman, Esq.
Janice I. Goldberg, Esq.
Herrick, Feinstein LLP
2 Park Avenue
New York, NY 10016
[phone]

For Defendant:
Mitchell R. Berger, Esq.
Patton Boggs LLP (DC)
2550 M Street, N.W.
Washington, D.C. 20037
[phone]
Lanier Saperstein, Esq.
William G. Primps, Esq.
Neil McDonell, Esq.
Eric Epstein, Esq.
Daniel Goldberger, Esq.
H. Alex Iliff, Esq.
Geoffrey Sant, Esq.
Dorsey & Whitney LLP
51 West 52nd Street
New York, NY 10019
[phone]

31