A Chinese counterfeiting ring, with accounts in US-based Bank of China branches, has allegedly sold millions of dollars of fake Gucci handbags and wallets in the US. Photo: SCMP Pictures

Gucci counterfeiting ring about to crack as US judge orders Bank of China to hand over details

Landmark ruling on accounts used by Gucci counterfeiters threatens sovereignty, lenders say

A New York judge has ordered the Bank of China to hand over detailed information about Chinese bank accounts used by a counterfeiting ring that allegedly sold millions of dollars of fake Gucci handbags and wallets in the United States.

The decision could have far-reaching impact on the ability of US courts to extract information about criminal activity from Chinese banks, which serve as safe havens for counterfeiters and money laundering on a large scale, investigations and lawsuits in the US and Europe show.

Chinese banks have put up a fierce fight, claiming that such disclosures would be an affront to China’s sovereignty.

The case has drawn political attention from both sides, prompting inputs from both the Chinese Embassy in Washington and the US Justice Department.

At stake are fundamental questions about whose rules the Chinese banks in the US should be following.

[The ruling] gets you over the initial hump, but there are still going to be challenges, particularly in actually collecting a damages award
Dan Plane, Hong Kong intellectual property lawyer

Major state-run Chinese banks are frequently used by counterfeiters to move their ill-gotten gains beyond the reach of Western law enforcement, the Associated Press showed in an article this year.

China’s financial system is also used to launder money – both by members of the Chinese diaspora and criminal groups of other nationalities, lawsuits and investigations in Europe and the US show.

However, under China’s legal system, it is difficult to get detailed banking records that can help investigators trace the flow of criminal profits and to freeze illicit funds.

In the Gucci case, US District Judge Richard Sullivan ruled that US courts have jurisdiction over the Bank of China, which has four branches in the US and claims to be the top choice for US dollar wire transfers to and from China.

Underlying his decision was a stinging dismissal of China’s legal system and existing international mechanisms for judicial information sharing.

“Forcing Gucci to initiate this process in China would be significantly less efficient, extremely time consuming, and potentially fruitless,” he wrote in the September 29 order.

Chinese banks had been facilitating payments for Chinese counterfeiters, said Geoffrey Potter, a New York intellectual property lawyer.

If the banks could be compelled to reveal details about client accounts, it would be more difficult for counterfeiters to do business, Potter said.

“Counterfeiting is a crime committed in order to make money,” he said. “In order to get paid you need to be part of the banking system.”

Dan Plane, an intellectual property lawyer in Hong Kong, said the judge’s decision, which could be appealed against, might “be helpful to other plaintiffs that want this type of information from the Bank of China in the future”.

However, he cautioned that any victory – should the judgment stand – could prove hollow. The Bank of China was likely to disclose as little information as it could, while comforting its own customers with information about how to mitigate risks that may arise from disclosure, he said.

“It gets you over the initial hump, but there are still going to be challenges, particularly in actually collecting a damages award,” he said.

“The biggest question of all is: are you ever going to be able get your hands on counterfeiters’ funds in the control of Chinese banks?”

Even if Gucci ultimately gets the information it wants from the Bank of China, it is likely to hit a legal firewall when it tries to collect damages, should any be awarded.

Tiffany & Co, which has been mired in litigation of its own against Chinese counterfeiters, offers an instructive lesson.

In two recent cases, Tiffany won large default judgments – one in June for US$52.3 million and the other in September, for U$26.5 million.

Now Tiffany faces the tricky task of actually collecting the funds from the defendants, none of whom bothered to show up in court.

Most are believed to be beyond reach, in China, where US court judgments have no sway.

Tiffany and Gucci declined to comment.

Liu Junhai, a law professor at Renmin University, said the case showed the difficulties financial institutions faced when expanding overseas.

"On one hand Chinese banks have to protect privacy of consumers, on the other hand they need to follow the rules of the local court," Liu said.

Bank of China lawyer Andrew Rhys Davies did not respond to requests for comment.

Additional reporting by Kwong Man-ki

This article appeared in the South China Morning Post print edition as: US judge orders Bank of China to hand over details