Petition for Writ of Certiorari — First National City Bank of New York v. Internal Revenue Service (No. 575)

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Othice- Supreme ap U.S.

Se ut ® FO on &

7 Ngee Sere ia DEC R 1059 |

IN THE DAMES R. Eros Clem |

“Bhpreme Court of the Buited States

. OCTOBER TERM, 1959°

No. 5 9 |

* THe First NATION ue ry B SaNK OF New Y oR K,

. Petitioner,

Vs,

INTrRNAL REVENCE Sieesbbess OF THE Unxiren States

Tre astry Depart MENT,

( we spoudent,

PETITION FOR A WRIT OF CERTIORARI TO. THE

UNITED STATES COURT OF APPEALS

FOR THE SECOND —

Joun cA. WILSON -

\ MacInpurne Van. VoorHtrs |

~ Micuarn J. DESANTIS

P90 Exchange Place

New ‘York 5, N.Y.

Counsel for Petitioner

. Rv

~SuearmMan & Srertinc & WRIGHT, ,

20 Exchange Place 2

New York 5, N.Y.

Of Counsel

—

: INDEX ;

ys PAGI

St aes ; et oe

I cea Siw elichx snes owas os 6%: roe ae bar ae

Questions Presented... 2... oa Se SEs SIO

Constitutional Provisions and Statutes lnbebved 4

Sun Vv Statement of ie kno sabe. a4

5 Panama. branch is operated indeperi-

dently of Head Office in New York City . 5

The Constitution and other Laws of the Re-

publie of Phnama i preser ‘ibe the rules relat--

ing to the produc tion and ipspection of ‘the

_ records of the Panama bre oS SSS 7

Ri ous for Granting the Writ)... beuteeeues

— J. The. decision of the Court of Neeii vio-

lates principles of comity between the |

United States and the Republic of Panama 9

IL. The. decision.of the Court of Appe ‘als is.

~ contrary to the: intent of Congress: that

foreign branches be treated asx independent

. busine By entities; and’ that their records”

he net Hh ject to production inthe United

™ States seuses lea eer ese sees "+e eS ee ae ee 2 ne ; 3

ee eS ig awdbs ooidaee oo

Appendix A—Dertinent constitutional ‘and statu-

ES EE Ee ree Saree T-A-138-A |

Appendix B—Opinion of . the” Court of Ap-

RN ha tar «5 ack DOOR EOE ETTN a a

“

é .

2 * \OPAGE

pon { —Jndginent of the ( ort: of ee

: peals iudiveeas teks ineeeas Leriteaykeee 1-C-2-€

Appendix oe of the Distr et € ‘ourt. .1-D-3-D

TABLE OF CASES CITED - P

pein Harris, In re. 27 F. Supp. 480. (S.D.N, y. 1939) °

“V4, 15, 16, 17,18

Mettrath v. ‘Age ney of Chartered Bank: of | India,

Ete., 104 F. Supp. 964 (S. D. N.-Y. 199),.

- affd. on appeal to Court of Appeals, Ond Cir,

‘on opihion of the Court below,’” sib .nom.

MeGranery v. Agency of Chartered Bank of °

». India, Ete.. 201 F, 20 868 (1953) ....22....17, 18

Octyen NV. Certtral Leather Co., ik te 8,207. - -

4 freee Se Peeee rhe Seer ee

: Republic of- China v. National C ity Bank of New

York, 208 F. ZL G27 ( 1955), (rev'd on other.

grounds, 348 U.S. een 2 are . 13,14.

a e ¢, v. Minas De Artemisa, 150 F° a 215 (9th .

aha = ee ee eer oe eee eee, oe oe

_ Enited States v. Kyle, 21 CF, R. D. 163 6E, D. ae"

yeas he: ere Seas Rds Nene a

eee PROVAIOSE AND STATUTES CITED.

"Constitution of the Republic of Panama, Article

eee Wer sea a 3.4. 7.8,10, 10, 1, TA

Code of inimerresof the Republic of Panama, .

Aiticles 88‘and 89 2... v1. 8, 4, 1.8, 10, 77A-B- A

e 4

- dil e

‘ ome ee - * , or

es : _ PAGE

Jindicial ¢ de of the Repnblie of Panama. “i

. rae va 399-407 _ a, Oe eT eee sy tt 4 Ack L-

Artic les. 916-926, Satis Cae A 4-A-T- A oy

-Natonal Bank Act Eyes Peng sees tes neo ge eo be. 20. J

-12-ULS, CA: a te fl. :

. Seetion re <oaes a Se 4.5, 18.11- A-12¢\

’ Section: G02 ...-++- Saenks< aed eon 4, 2, 2,42 A

‘Section 6033 Siete ne reef eae AG. i

Section os reer peer he 4,5 5,13, 14,1: 18, 1: SA

26°. S.C, Ae: i oe ae

Bection WOE si ilieeecisectfeersaberse (8 9

Section 7601 AEE :

‘Section 7602 ...5...+ ene aereee: 2,3, 4,)20, 9-A _

Section 7603 \..+..+-: ¥ ‘dans - ery ere 2,3.

Section. 7604 ee Fad 3.4, 9- A- 10-.A

28. Uv. S. « A. Section 12 ACT) eeeneetarunen® 3

Orne Avrionrries Crrep

Report Nod, “House of Representatives, 6: ra

C Ogres, Ist Se et | ee Se eee 20,: 20n

° . . ;

Rules of the U nited States Supre eme “( ‘out, Rule Ba

Te RA) eee a inepies ean e.7

ny . 4

a Forres

: - 3 ae

ix THE aoe. °

Super Court of the United States

| OCTOBER ‘TERM, 1 1959

. . ; No. -

THE Finsr } ATIONAL Crry Bank OF New York,

Petitioner,

vs.

INTERNAL REVENUE SERVICE OF THE U ‘NIE $h-Srares Abs

Treasury De PARTMENT,

Respondent.

—_*

ae P) _ aE *. a ¥ . ‘

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS .

- FOR THE SECOND. on :

To The pee The Chief Justice and the: Ase.

sociate Justices of the Supreme Court. of ‘the

United sage: eed

Your putitioner, The First National City Bank of

New York (City Bank), respectfully requests that a

writ of certiorari issue to review the decision and

judgment of the United States Court of Appeals for

the Second. Circuit, which reversed the order of. the

’ United States District Court for. the Southern. Dis-

trict of New York.

- 2 . ° . ease .

‘ ‘ . : v

d . eo at s . »

. 4 y . oe ah

e ? 9 . is . ‘ 2 , '

. 3 - > ° | . 2 ety

. ‘ - . ‘ 3

% - ¥ \ a .

The order of the District: Court modified a sum-

mons of the Internal Revenue Servieg (Revenue Serv- |

_ ive), served pursuant to 26-U. S. C. §§7601-7604 upon

Head Office of City Bank, in New York City, by ‘di-

_rectingy that City Bank’ need not produce,. in .New

York City, certain books and records of its Panama :

‘City branch, located. in the Republic of Panama, re-

lating to the account of Atlanta Corporation, Limited

(Atlanta),.a Panamanian corporation, with offices in

“New York City and in the Republic of Panama.*

nn =. . ‘ . é * m5

. Opinion Below

The opinion ‘ef the Court of Appeals is not. vet of-

ficially reported but is printed in Sppendix B to

this petition (pp: 1- B-7- “B). Diss

The open ‘of the District Court is reported in 166

F. Supp. 21 (S, D. N.Y: 1958, Dimoeck, D.. J.), and

is printed in Appendix D to this petition (pp.. 1-D-

DD), : ) ,

_ Jurisdiction

The judgment of the Court of Appeals was entered

on, November 10, 1959 and is printed in Appendix C >

to. ‘this petition (pp. 1-C-2-C) and in the Record. (R:

pp. 48a-49a).** The jurisdiction of this Court: is in- ¥

voked under 28°C. 8S, a A, $12! D419.

* It showld | be noted that the Painiase branch is loe shed in Me

tepublie of Panama and,not in the Canal Zone. ”

** Re fe orences to ‘the certified Record are designated * swe

GPL yr ene i CRAP ar arc

Ae ALLEL CIEE a. sr nats ti

, eee

a » -. ?

“eo . .

. The District. Kouri had juripdietion of the motion

to vacate or modify the summons under 26 US. G&A.

§7402 and: ies eee a |

Questions Presented | " Jy

"The questions presented are as follows:

qd) City Bank having established by wnsoutie:-

dicted proof that the production in’ New York

City of the records of City Bank’s: Panama

bratich would violate the*Constitution, the Judi- ~

cial Cod@ and: the Code of Commerce .of the

- Republie of Panama: did not the Court of Ap-

*peals violate the ‘principles of eomity which re-

quire our courts to respect the laws of a foreign

sovereign, and therefore err, when it directed |

City Bank to produce s said records in New Y ork.”

City? ‘ Sh. :

(2) Did not. ‘Denne intend be deny to the

_ Internal Revemtie Service the right to require the

production, in New York. City, of records of a~

foreign branch: in view of the. clearly expressed _

intention of Congress, founded upon sound bank-

ing practice’ and commercial necessity, that for-

. eign branches are to be operated independently

- and their records are to. be kept “independently

of Head Office ?

(3) Did not the Court of Appeals err in re-

versing the District, Court, which held that- the

records at. the ‘Panama branch in the Republie

‘of Panama were not so within the control of City

- Bank’s Head Office in New York City/ as to be

subject to production under an Internal Revenue

“summons served on Head Office ?' | ,

Riou ges cee

Constitutional Provisions and Statutes Involved

- Pertinent constitutional and statutory provisions

are printed in Appendix A to. this petition (pp. 1 }-.\-"°

13-A), as follows: ;

(T) Artic le 29 of the Constitution of the Republic.

of Panama; (2) Articles 399- 407, 916-926 of-the-Judi-

cial Code of the Republic of Panama; (3) Articles 88

and 89 of the (ode of Commerce of the Republic of

Panama; (4) 26 U.S. CLA, SS 7608, 7602 and 7604; fr

cand 12: U2 8. CAL 88601, 602 and 604,

‘Summary Statement of Facts

On aad i] 28, 1958, a summons <(R p. 2: 3a) was served

on City Bank, in New York City, requiring a w itness

to appear to give testimony and to produce the Bank’s

entire and complete eredit file relating to Atlanta.

~On May 7, .1958, the Bank complied fully with that’

“summons and produced its entire New Lal tides q

» tile for the Revenue Service (R pe “—

Thereafter, the Revenue Service Serv ed upon Head

Office a new summons, dated June 5, 1958, requirings

2 Witness to- apie ar to give testimony and.to produce

‘numerous papers and records therein, itemized (Rp. -

23a). The Revenue Service demanded, moreover,

that any of such papers and records which might

be located in the Panama Brauch of City Bank also be -

produc ed (Rp. Ta). >

The reafter, C {> Banik mov ved to yacate or “modify ,

the summons so as to command the production only of

those records which were located in New York (R 1.

9a). After a hearing tHe Distriet Court modified the

stitminons accordingly.” ih

The Panama branch is operated independently of Head

Office in New York City. . aoe

City Bank is a national banking association organ-

ized under the laws of the United States. It has its

“ “Head Office in New York City, and at the time of the

‘motion to vacate or modify, maintained 59 branches in

foreign countries and 11 branches ‘in’ dependencies or

insular possessions of the United States (R pp. lda- «

15a). ‘Today the Bank has 68. foreign branches in 25 ~

foreign countries throughout the world, ineluding:

England, #rance, India, Japan, Egypt, ‘Republie of’

~Panania, Mexico, Philippines, Lebanon, Arggitina,

Brazil, Venezuela and others.* > ee 5) 7

The Panama branch of City Bank was.established

on March 26,, 1926, under the Fede ‘al Reserve Act,

12 U.S. CG. A. § 8601-604, and has since been operated

pursuant to $604 ‘asa distinct business entity, inde-

pendent of its Head Office in New York (R pp. Tae.

18a). The following are some of the Salient facts,

indicative of such independent operation (Ch pp. lha-

30a): :- |

(1) Before the anama-branch was permitted.

hy the Republic of Panama, to operate as a batik,

it was required to.obtain, a permit from the nile

manian Government. |

* (2) The branch ix subject to.the supervisiqn of

* It isa matter of common knowledge also that other American

Banks have numerous fofeign branches: tank of America; The

First Natidnal Bank of Boston; Morgan Guaranty Trust Com-

pany; The Chase Manhattan Bank: Bankers Trust Company; and

The Hanover Bank ;

‘seas branches, and also with other banks,

6 |

(3) The branch pays taxes and license -fees to

the Panamanian Gover nment.

(4) The branch is and hias been under the sepa-

rate management and administration of an offiecr

in Panama with the title of “Manacer”, ap-

pointed by the Board of Directors of the Bank in

New York, with full authority to operate. the

branch as a separate and independent. business -°

unit.

(5) No approval of Head Office is: required.

upon. the opening of any deposit account at the —

braneh. «

(6) No records of ‘deposits or withdrawals at

the Panama branch are kept.at Head Office ; they

are all maintained at Panama.

The Head Office keeps no list of depositors of

the branch and no reeords of transac tions in

deposit accounts of the branch,

(7) The branch maintains a “eurrent aceount’’

with Head Office; with seme of the Bank's over-

(8) The’ branch -keeps its-own reserves; and

makes its own loans without approval from Head -

Office, except with respect. to unsee ured loans in

excess: of. $10,000 and- secured loans in excess of

#80,000,

(9) ‘The. — h accepts deposits from other

banks in Panama and other countries. and also -

competes with other banks in Panama.

(10) In all essential respects the Panarin

“branch ix operated independently of Head Office.

gyn

qT “

(11) The records of. the: Panama } ‘anch are °

not so within the control of fhe Head Office of»

City Bank as to be subject to production in New

York City, by summons served upon Head Office.

These’ records are in the custody, -possession

and-control of the Manager of the Panama branch.

The Constitution and other Laws of the Republic of

, Panama prescribe the rules relating to the production

and inspection of the records of the Panama branch.

In support of its motion to: vacate or modify, City

-Bank submitted the affidavit of a distinguished expert

on Panamanian law, ‘arlos Teaza, among other things,

Chairman of the National Council of Foreign Affairs’

- of the Republie of Panama (R. pp. 27a-3ta). Teaza

is a graduate of the Yale Law School and has been

actively engaged in the practice of the law before all’

the. courts, government offices and bureaus in the

Republic of Panama for approximately 38 years, The

proof regarding Panamanian law, submitted through .

Ieaza, established, without any contradiction, the fol-

lowing: =

-» Article 29 of the Constitution of the Republic

of Panama declares that correspondence and other

_ private’ documents. in Panama are “inviolable”

and are not subject to seizure or examination

‘“exeept by provision of @ com petent authority

and by means of legal formalities.” (R pp. 29a-

30a; App. A, p. TA). to ;

‘The procedure. and. the conditions under which

papers and records of the Panama branch may

be inspected in the Republic of Panama are set

forth in the Judicial Code and the Code of Com-

. ° e

. . . .»

8 ;

nerece of the Republic of Panama (R-pp. d0a-

40a). ploy, hae ae )

In connection with the inspection of -papers.

fnd records in Panama, the Judicial Code pre-

scribes, among other conditions: .that a bond of.

indemnity must be given; that an application he

made to a Panamanian Court, and an order of

the Court obtained ;.and: that the discovery and _

inspection be conducted in the “presetive of the

Secretary of the Court and two witnesses ap-

pointed by the Court (R- pp. 30a-32a ; 3oa-39a).

The Code of Commerce of the Republie of

Panama also requires that an order of a Pana-

manian Court be dbtained before. an examination

of books and records of.a bank: in Panama will

he allowed (R pp. 32a-33a; 40a). .

Carlos Icaza unequivocally stated: (1) that pro-

duction of the records, by any one, without the con-

sent of Atlanta or the order of a Panamanian<court

would constitute a violation of the Constitution, Fudi-

cial Code and Code of Commerce of the Republic of

’anama; (2) that if the Courts of the United States.

should direct City Bank’ to produce the records of

its Panama branch that would, in effect, be a divec-

tion that the Bank ask the officers and. employees of

that branch to ‘violate the lrws of the Republic of

Paniama;* and (3) that such direction would com-

pletely Wisregard principles of comity: normally ob-

served between the courts of different nations (R pp.

29a; BBasBda)y ae Oa

* Obviously, if the Panama branch produced the documents in

Violation of the laws of Panama the branch would expose itself

to cpossible eceil ability in an action brought by Atlanta. This,

the Court of Appeals completely ignored and seenied to sucvest

that only if eriminal Sinefions might attach Would the duty of

production be aveided (App. Bopp. 6-B oth. 3! 7B),

Renssns for Granting the Writ

7 os

The Decision of the Court of Appeals. ‘violates

, principles of comity between the ‘United States. Siensncellenp ere

~— -gnd the Republic of ‘Panama.

-This case presents an issue of great’ publie im-

ortance, turning upon & ‘question ‘of federal: law.

which has not been, but- should be, settled by” this

eourt.””. (Rule 19(1)¢b) of this Conrt) With anti- -

Americanisy. sweeping over Latin America, and par-

ticularly strong in the Republic of Panama, the prin-

ciple of* comity is not an esoteric concept. The deci-,

sion of a United States court should not be permitted

to ‘imperil amicable relations” or ‘‘vex*the peace”’

between the United States and Panama.

’Yet the Court of Appeals has ‘brushed aside fhe

uncontradicted evidence of Panamanian law expert,

~ Carlos Icaza, establishing a violation of thie Constitu-

tion and ‘laws of Panama, and has resolved the ques-

tions presented as ‘though wholly controlled by the

sovereign: power of the United States, shying, among —

other things /(App. B, p. 6-B, fn. 38): iy

“The Bank's expert also’ points to the diselo-

sure provisions of the Panamanian Code of Civil

on eeture, But-cettainty these procedural provi-

sions do not controkdiselosare pursuant to a xub-

‘poena of the United States pursuant to federal

statute.” * ie a

-~—

As to the provision of Article 29 of the Panama

Constitution that ‘Correspondence and other private:

documents are inviolable and may not. be seized ur

examined except by provision of a eomprtent au-

thority and_by means of Te yal formalities . . 2” the

— © Court of Appeals erronéously held, among other

. things:

That ‘‘no showing has been made that either

the constitution or the laws-of Panama or inter-

age comity pr event prediction’ (App. B,

. 3-B);

That the exception in the Panamanian Consti-

tution with respect to ‘ta eqmpetent authority and

-by means of legal formalities” covers a subpoena

issued by ‘tan officer of the United Statés Treas-

ury ——. under the control of a United

— States cour . (App. B, p. 6-B) ;

That the Constitution did not specify, furthe rT,

that the erception was. Jimited fo a Panamanian

anthority or Panamanian legal formalities ( App.

. oe B, p. 6O-B); and -°.

That the Pananuinian. ‘onstitution did- not

specify that the prohibition against, violation of

_ correspondence and private documents “extended

to the sovercign,’ either Panama or a foreign

sovereign’? (App. B, p. 6-B).*

* Oby iously, the - Aiidicial Code and the Code of Commerce of

@ Panama indicate, specifically. the meaning of the exception econ-

(a) Le ae tained in Article 29 of the Panama Constitution with respect fo

‘a competent authority and by means of legal formalities 2.

. And neither of those Statutes furnish any basis whatsoever for’

aoe eae the conclusion of the Court of Appedjs that the Courts aid the

Internal Revenue Service of the U nited” States are comprehended

Within that exception. See supra, pp 7-3; anfra. po VD.

> ha eet’ nce a

Tliese cone ‘lusions,, we submit, were wholly unwar-

rauted for,.as we have shown, supra, the un ‘onitra-—

dieted proof set forth i in® ‘the affidavit: of ¢ ‘arlys Ieaza,

‘ established : pare P

*. ..° Weer the above provisio#s, , . the

‘Peneian branch of the Bank cantot produce the

books, records and papers of any of-its depositors

without the consent of the depositor, Anyone

re gecking the production of such books, records: and

‘papers, Without, the depositor’ s consent, must peti-

tien the lecal. courts an Panama, Tenge aL. |.

shebat Y ,

e+ s production: in New York of any

books; reeerds and papers... (except purstanit

to judicial order issued ina lv gal proceeding tit

the Be public of Panama), would constitute a

direct violation of Artic Je 29 of the ¢ ‘oustitution

and alse would violate the rules of proce: dure for

obtaining an inspection of such books, ree cords: anil

papers Pes ee pp vebst ad bat).

“Of the Courts. of the United States shoul

-direet the Head Office . 2. to produce and dis-

close the books, papers ane precmte . . . i Wotekd,.

° ‘in effect. be a direction. that* the Bank's Plead.

Offiee .oo.. ask the officers: and eniplovees: of its

Panama branch to violate the laws of the Republic

soof Prnanes. Sueh a diree tion further would com--

pletely dist: egard the prineiple cof, ‘comity’ ob-

served ee

CIE p. ofa).

. Ouir courts have haley refrained from direeting

a person or a corporation to perform anoaect contrary

to the Jaws of a foreign state to whie ‘h the ye are asthe

—v

ject. The gencral rule is stated if*S. E. C.v. Mi inas

“De Artemisa, 150 F. 2d 215, 217 vn Cir. eat as

- follows’ (p. 217):

; “The Restatement. of Confiet of Laws ( §94)

» summarizes the applicable general rule thus: ‘A .

o State can exercise jurisdiction through: its courts :

-‘to. make a decree directing a party subject to the

‘Sean jurisdiction of the court to do.an agt in another

<State, provided such act is not contrary to the law |

ae of. the state in which it is to be performed.’ ‘The.

proposition thus stated has ample support in the

uuthorities .. 2” (Italies supplied)

. rod

‘i Spsaking of the deappoe t which a sovereign state must

give to the acts of other sov ereign states, Mr. Justice

Clark, in Octjen v. Central Leather Co., 246 U.S S. 297 |

(1917), said (pp. 303-304) :

Every sovereign State is bound to respect.

thie independene eof every other sovereign State,

“The principle . 0. . re sts at last upon the

highest considerations of international gomity and

expediency, To permit the Validity of the acts

of one soy ereign gtate to be reexamined and per-.

haps condemned. 6¥ the courts of another would

very certainly ‘imperil the amicable relations be-

btween governments and vex the peace of* na-

tiofis.” *’

a a eae > <

And we submit. that this principle applies just as

certainly when the Constitution and laws of the small

Republie of Panama have been violated as it would

_ if the Constitution and laws: of Great Britain had

heen Vielated.,

fee ae

When a bank qualifies a branehy to do business in a

foreign country it submits to the laws of that country.

“When the laws of that country prescribe the terms -

and conditions wider hich records of the branch may

be subpoenaed, head office has yo control ever sue ‘h

records except as it acts within the framework of the

foreign law. If the Internal Revenue Service wishes

to examine the Panama records, it should, like City:

Bank, respect the Constitution and the. Jaws of Pan-

ama, and mike application as therein provided,

> > ie ata

-. .

The decision of the Court of Appeals is contrary «

to the intent of Congress: “that foreign branches

be treated as’ independent business entities; and

that their records be not subject to proqueie in

the: United States.

Section 104 of Titlert2 ©. -(. Ac was adopted so

that a national bank and eae Py 2 its foreign branches —

would be treated as , separate entities... as if they

were unrelated banks’’. As the € ourt of Appeals, See- |

ond Circuit, itself said im Republic of China. Na-

tional City Bank of New York, 208 FB, 2d 627 (1993),

(rev'd on-other® grounds, 348 U.S. 556), at pages

630-1: § e ee |

gat teh The. eres ition of such a -braneh hank

finds its athorizittion ae a the Bed-_ =

eral Reserve Act, 12 0. WAL § 8001-604, which

provides: ‘Every sent banking association

operating foreign branches shyll conduct, the ae-

". counts of each fore ign braneh indepe ndent of the

accounts of other foreign branches éstablished by

See goon

@ « i 1 4

it and of its home office, . . .’ This provision.

has been interpreted to mean that a national bank

and each of its foreign branches are- separate en-

tities, to be treated as if-they were unrelated

banks with respect to business done between then,

and for many other purposes. . . . See also In!

re Harris, D.C. 8. D. N. Y., 27-F. Supp. 480; °

Bluebird Undergarment Corporation vy. Gomez,

139 Mise, 742, 249 N.Y. S. 319; ¢f: Marlboro -

Trust Co. vz. Elliott, 4 Gir. 86 F. 2d 315; 315-

O17... .”* (Italies supplicil.)

T he. heitbine case; In re Harris, 2 27_ I. Supp. 480

(S. D. N. Y. 1939), decided hy Judge Patterson, then

a District Court Judge, later elevated to the Court of

Appeals, Second Cireuit, is in every, substantial: re-.

spect on, all fours with the instant case, as the Dis-

trict Court held.

“Thee a subpoena duces tecum was scrved’on The

Chase National _Bank, in New York, requiring it to

Te a transeript of an account at the foreign

ranch of that bank I6eated at London, E ngland. 4A

rar ree in bankruptey had ordered the bank to pro-’

_ duce thé transeript; and it was,-in faet, actually pro-—

duced: in New York.* Upon reconsideration of his

order, however, the referee ruled that the bank was.

not, required, as.a matter of law to. produce the tran-

seript of this foreign branch account. He eertificd

the question raised by his, ruling to the District Court. .

* Judge Dimock stated in his’ District Court opinion (App. D,

DD) ae

eee is those words’ [seetion G04 | date that give the immunity.

“| cannot see that they have aiy less strong tendency to immun.ze

papers whe no Senght ‘by the. Government than when, soucht by a

tren tee dn ‘bankruptey, Nor is the®e any other stalute which pur-

ports tegire the Government any arcater power of dise wren than

uo priate eiticon armed with a such por wa duces tecum.”” Citalies

= plies a . :

a udge Patterson pointed out that the business con-

ducted by the London branch was separate and dis- |.

tinct from that of. the home office of. the Chase Bank,

stating (p. 481) :- 0°

“There was testimony, before the. refereg, that

the London brancly conducts busi:ess under, regu-

lations laid down by the British banking authori-

ties; that the branch is in charge of a’ vice- presi-

dent appointed by the board of, directors here;

that it-keeps a checking account with the main

office here, keeps its own reserves and makes its

own investments ; that it dees not ordinarily re- |

port to ‘the main Waive on details of operations; —

that the only information concerning its:ace ounts 6

with depositors which is on hand at thre main office.

is a list of tlie names of depositors.” ;

Judge Patterson oy held that under the F edeval .

Reserve Act (12 U. S. €. A. Section 604) the head

: office of a national sk has no le gal control over the

records of its foreign branches, ‘and upheld the ‘ref-

eree’s ruling, saving (p. 481):

oo , The question then is whe the vavbank with

‘its’ main offie ‘e’ here may. fairly be said to have’

control of -papers kept at a foreign branch con-

cerning a custamer’s account with ‘the brane ‘+h. .

The authority for inaintenanee of foreign. |

branches by national banks comes fromthe Na-

tional Banking Act. 12 UL S.C. AL §§601-604,

le Aet pro jon 604 thatabank with

a foreign branches ‘shall conduct the accounts ‘of

each foreign braneli. inylepende thy of the accounts *

** * of its home “office.” This enaclanent recog-

nized and reinforcod what had already been the

—~—

16. Ms

‘rule by Sih practice and commercial: néces-

sity. In many respects a foreign branch, while in

last. analysis.an agéncy of the bank is treated, in

the words of- Judge Hough, as ‘a separate business

entity.” Pan American Bank & Trust Co. v. N t-t.

tional City Bank, 2: Cir., 6 F. 2d 762,767, See’

also Chrzanowska v. Corn Eechange Bank, V73

App. Div. 285,291, 1) 59°N. Y. S..385; Rew v.

Lovitt [1912] A. C, 212, 219. The account of a

customer of: a foreign branch has been he ld, prop*.

erly it would seem, not subject to attac hment or 4

garnishment by process served:on the bank at the

home office. Bluebird U ndergarinent Corporation

v. Gomez , 139 Mise. 742, 249 N. Y.S. “gas Richara-

son Vv. Bichardeon, "(1927] P. 228. Under the

Uniform Bank, Collection Code, enacted by many

states including New York, a -branch-is deemed

-an_ independent bank for ‘collection: purposes.

Marlboro Trust Co. v. Elliott, 4 Cir., 86 I. 2d 315.

While of- course the ultimate power as well as

responsibility in’ respect to operations ofe the

* branch must rest with the bank itself, the fact that . .

by section 604 the accounts of a” foreign branch: .

are tosbe conducted * ‘independently’ of the home.

office leads to the conclusion that the records of

a depositor’s account with a foreign branch, net

kept here, are “not so within the.control of: the.

main office Were as to be subject to production by

subpocna duces te cum served here.” (Italies sup-

plied) |

SE ee ae ny = ee ne

The Panama br anch of City Bank, as has already:

been ° established (supra, pp. 5-7); is and has | been

a ‘rated in practically the same manner as the Lon-

* 197 | Law Rep. Probate se... 288... <

li. |

< e C2]

don ‘branch of the hase’ National “Bank: We sub-

mit, therefore, that the law enunciated by Judge Pat- ?

terson in the Harris case should ‘control here.

Moreover, tecently, in United States vo Kyle, n:

F. Re D. 163 (ELD. Ne ¥. 1997), the United States

served subpoenas duces tecum upon. the Royal Bank

of Canada, in New York, éalling-for the prodtetion of

certain records of the, Royal Bank in one of? its

branches at Halifax, Canada. _ Following the //arris

‘ease, the Court there held (p. 164): >

thatbranch banks are ecee pted from the

rule that ascorporation, properly served with va. /

subpoena, mist produce, its hooks and records

* pursuant thereto, even if the said books and ree-

~-ords are located outside the jurisdiction, the rea-

con for such eacéplion being that each brangh is

oan independent entity. and has control of ts own

_ records.’ (Etalies ‘supplied )

Further, in MeGrath vo Agency of Chartered Bank

of India, Ete., 4 -F. Supp. 964 OS. D. N. ¥..1952),

affd. on appeal to Court of Appeals, 2nd Cir. on the

opinion of the Court below,” sub nom, MeGranery V.

— Ageney of Chartered Banke of India, Ete, 201 FP. 2d°

. B68, 369, (1953). J ndge Kaufman held: that there is 00°

nothing innately wnitary. about the organization oft.

international hanks and pointed out a variety of pur-

_poses fur whieh branches have been held) toshe inde-

‘pendent’ entities, including’ service npoen head. office

mae Sofcaacstthpoenaditees teeny calling for the production

~of records of one of its foreign hragiches, He Wrote

(pp. 9GT-O8)2.

tank have been held’ ta be independent entities

i) branches or agenéies of an international

; ae eee ones

for a variety of purposes . . . (ec) sulpocna duces

tectum on foreign branch bank’s records bafred ;

In re Harris; D.C. S..D. N.Y. 1939, 27 F. Supp.

a ee aa .

re are ee _

+ Further, it will be noted that Judge Pattérson in

Iwore Harris (suprat yp. 14) realistically reeognized

that” business wand commercial necessity require that

aecouhts of foreign branches be kept independent of:

Mead Office and be not subject te subpoena served on

Head Office,” Referring to 12 U. S: Ce A: Section 604,

Judge Patterson said (p. 481): 2

*... . This enactment recognized and reinforced

What had already béen the rule by business prae-

tice and commercial necessity...”

The Federal Reserve Act (12 U.S. C. AL Seetion

601) under which -the.Panama b ‘anch was establistied,

expressly states that the purpose of Congress in al-

lowing establishment of foreigh branches was *‘for the

“furtherance of the foreign commerce of the United

States."’ | ‘

But if the 68 branches of City Bank, located in 25

foreigue countries throughout South America, Europe

and the Far East, and the foreign branches of all

‘other American banksy be made subjeet to subpoenas

served on Head Office ‘an onerous and costly burden

Will be placed upon the operation of all foreign

branches.* Each, time a summons or subpoena duces

of foreivn branches,-a/subpoena duces tecum issued JN .any action,

* Obviously if an ratte Revenue summons can reach records

the same-effeet. “See footnote supra p. 14.

ine Gath urt, will havé

‘See , acta :

‘

:..:

tecum is served upon Head Office with respect to a

depositor’s account, City Bank, for example, will be

compelled, in the absence of a specifie limitation, in

the summons or subpoena, to check the -reeords not

only of its 76 doinestie branches, but also by cable’

communication and otherwise, the records of its 68

foreign branches. And if any of City Bank’s foreign

branches has such account, that .braneh will be ecom-

pelled to assemble and transmit to New York, the re-

quested records. — ; .

~ Further, the Government has mone it abundantly

elear that" what it demands is the enforcement of a y

“summons requiring a witness to appear and bring

[to New York] books .and-records physically located

outside the United States.”” If such summonses and

subpoenas. were ‘to be enforced representatives of.

City. Bank’s forei ign branches, located. perhaps in

‘India, or Japan, or other distant places, would: obvi-

_ ously have to accompany the-books and records to the

United States in order to identify: them. This would,

be highly disruptive of normal banking operations,

and would impose a most unreasonable and expensive,

- burden upow a brancli operations. * ‘

Moreover; the inte ‘nt of Congress to further the.

“foreign commerce of the United States’ -will suffer

~a.serious defeat if foreign branches should be forced

to close their doors in conformity with the f following

adimonition of the Court of Appeals (App. B, p. 7- I):

“35 the ha ank cannot, as it were, serve two

* Yet the ( ‘ourt of Appeals stated that City Bank" s contention

that power: to: enforce. the subpoena would confliet) with sound

banking policy was so lacking in substance as to deserve no «lis:

cussion (App. B. p, 5-B. fn. 2).

» masters and comply with the lawful requirements

both of the United States and of Panama,. per-

haps it should surrender to one sovereign or the

other the privileges received therefrom.”

Prior to 1913, the banking authorities did not have

adequate power under the provisions of the National

‘Bank, Act to examine into the banking affairs of

national banks. ‘The House Committee on Banking

and Currency, accorMugly felt impelled to urge more

rigid examination requirements for national banks and

their branches (House Report, p. 31).*.

With the establishment of branches of national

hanks in foreign countries, Congress, therefore, pro-

vided in 12 U. S. C. A. Section 602 that the cohdition

of-such branches should be under -the examination

and’ close supervision of the Comptroller of the Cur-

reney and the. Federal Reserve authorities, - That

~ section provides in part: : :

‘Every national banking assoeiation operating

foreign branches shall -be required -to furnish’ in-

Aormation concerning the: condition - of such

branches to the Comptroller of the Curreney upon

demand, . . . and the Board of Governors of the

Federal Reserve System nay order “special ex-

aminations’ of the said branches . - . at suth

time or times as it may deem best.’’ - '

s *

But Congress never granted, either expressly or by

implication, to the Revenue Service, by summons

: ° : Tw, } : a ‘SC Qeea

* Report No. 69, House “of Representatives, 63rd Congress,

Ist Session, hereinafter referred to as the ‘Louse Report.”

oT *

° “ee ™

| .

. oe ‘ . , A

‘issued in aid of an investigation of alleged income

tax_violations by a third party, power to compel pro-

duction in New York of- the records of a foreign

branch,* Certainly such power is not to be implied

from the fact that Congress’ did provide for close

examination and supervision of: the condition of

foreign branches by the Comptroller of the Currency

and the Federal Reserve Board. .

“©

The Court of Appeals obviously erred, therefore,

when it concluded that such power of examination

and inspection of the condition of foreign branches :

automatically extended ‘‘to examinations by, and dis-

closures to, fully authorized officers’ of the Uni “dl

States “Government”, such as Internal Revenje

Agents investigating an alleged income tax violation

by a third party (App. B, p. 7-B).

ioe ; |

Conclusion

The decision of the Court of Appeals is in deroga-

tion of the sovereignty of the Republic of Panama,

and if allowed to stand may well further aggravate

already disturbed relations between the United States

and Panama. Moreover, the decision is coutrary oto

the express intent of Congress to further the foreign

commerce of.the United States, in that it places an

unreasonable and‘highly onerous burden upon foreign

branch operations. Clearly, questions of great public

* See Judge Dimock’s opinion (App. D. p. 3-D) in whieh he

said: **The Government makes much of section 7602 of title 26 un-

der which it proceeds but that section does no mére than give to

_ the Government during the course of its investigation rights to the

production of papers similar to the rights possessed by the Marres

case's trustee in bankreptey armed with a subpoena duces tecum.”? |

eee oe

importance, never before determined by this Court,

are here peeenied. We submit: that the writ should

_be granted, ;

- Respectfully submitted,

JOHN A. WILSON

MacI-purne Van Voorutrs

Micuarn J. DeSantis >

* Counsel for Petitioner

SHEARMAN & SPERLING & W lugar we

20 Exchange Place © . “ait

New York 5, N.Y. ,

Of Counsel.

Diiniedine 8, 1959

-1-A

APPENDIX A.

Pertinent Constitutional and Statutory Provisions

(1) English Translation ef Article 29 of the Constitution

of the Republic of Panama

(Published in Pamphlet Forni [Oficial nome, March 1

° 1946) p. m)

“Correspondence and other hie documents are+in-

violable and may not be seized or examined except by

provision of a competent authority and by means of legal!

- formalities. “In all cases discretion shall be observed

about matters foreign to the object of the seizure Or ex-

amination,

- Jrispection 6f papers shall always be performed in

the presence of the interested party or of a member

of his ‘family or, in their absence, of? two reputable

neighbors of the same place.” é;

- --——

(2) English. Translation of Articles 399 to 407 of the:

Judicial Code of the Republic of Panama

‘

“SECTION THIRD

Discovery AND IXspection Procrrprxc”

“Article 899.—A_ diseovery and inspection proceeding

is that which a party to a court action, brings, asking the _-

tribunal to carry out, either. iy suit or prior to a suit,.an

inspection of the subject matter of the suit, or of the books,

documents or other things whieh may be in possession of.

the actual or presumptiv e defendant, of the plaintiff, or of

third parties, and which ‘the petitioner deems conducive to

2A,

2)—Euaglish translation of Articles 399 to 407 of the

Judicial Code of the Republic of Panama

proving or to make effective his rights, actions or exeep-

_ tions.”

“Article 400,—When the discovery and inspection pron

eceding is granted the inspection must be deereed, and it *

_» must take, place on tle Same date without hearing the

“opponent or the holder of the subjeet. matter of the suit,

“provided that the petitioner gives guarantee or bond to

the satisfaction -of-the-tribunal 4anorder. to indemnify. for.

‘all of the damages which fmay be caused through the

discovery and inspection proceeding.”

“Article -401.—The court order providing for the in-

spection tacitly bears with~it the order of entry to earry*

out the inspection; but the inspection shall not extend in

any case to the searching of the domicile of the person

who denies that he has the thing o: document, the inkpee-

tion of which is asked.” ; en es

- “Article 402.— After | the inspection has - been or-

dered, the court shall carry it out in the. presence of the

Secretary (ef the court®) and tWo- witnesses and of the

interested party if he wishes to be present. Upon arrival

at the place where the thing or document, the inspection of

‘which is asked, is located, the holder shali be demanded to

* present them under penalty that if he should net do so and

it he subsequently proven that he actially had them, he |

shall be sanetioned under Article 407 of this Code,

. Tt, for the cartying out of the inspection, expert knowl-

edge is required, the Court must bring along experts in

plact of witnesses.* | ss

“

* Matter in parentheses supplied by udiant,

2)—-English translation of Articles 399 to 407 of the

Judicial Code of the Republic of Panama

“Article 402.—When the thing to be inspected be mixed

with other or others in such a manner that the discovery

and inspeetion proceeding cannot be carried out without -

exhibiting all-of these things, the holder thereof may be

compelled to exhibit all of them.”

“Article 404.—If the thing which must be inspected

were real estate and the petitioner should ask that the

hilder ‘permit entry. toe take measurements, examine

boundaries or any other object favorable to the, petitioner,

the Court shat™xrant the petition with the necessary di-

rections aml warnings conducive to avoiding damages to

the holder.’ °

“Article 406.—Tlie person who not being a party to

the action to which the discovery .and inspection pro-

ceeding is an ace vessory, may have been obligated to pro-

duce any thing er document and to make them available

_to take copies, drawings or dese riptions, has the right to-

claim compensation or indemmnifieation from = the party

who may have asked for. the inspection, unless the thing

exhibited -be commercial hooks. me

The compensation, or indemnifieatoin anust be propor.

tionate to the benefit obtained by the petitioner and‘to the

more or less intluence which the exhibitory action may

have on the outcome of the suit.

pom

The indepmnifieation shall be demanded by the interested

party and evaluated by the court at the time of the inspees

tion with the assistance of two experts appointed, one by

each party. But the party or interested person who may

claim to have been*prejudiced in this connection, may ask

in an ordinary court action for reparations of the injustice.

4-A:

(2) English frauslation of Articles 916 to 926 of the

buectic ial Code of the Republic of Panama

“Article 407.—In all eases mentioned in this ‘Seetion,

the person refusing an inspection judicially ordered, or

evading the same, shall be punished for disobedience and

shall in addition be responsible for damages caused to the

person who may have asked for the inspection if the holder

were not a party to the action.’ But if the holder were a

party thereto, upon refusing the inspection or evading it,

he shall be declared convicted of the fact which the inspee-

tion was intended to prove, provided that it be fully

proved in both cases that the thing, the inspection of which’

was refused; was in possession of said individuals.”

(2) English Translation of Articles 916 to 926 of the.

Judicial Code of the Republic of Panama

“CHAPTER TENTH

INSPECTION”

“Article 916. The inispeetion. is the examination and

recomiaissance of the thing which is the subject matter of -

the suit or of things relating to the suit, whieh the court

inakes by itself or by: meats of experts, in order to judge

‘with more ce rtainty."

“Article O17. — Inspection may be: asked in all cases,

where it is necessary to- juake the examination in order. to

dee idle on the controversy."

“Article Y1s8.—The evidence. consisting in Inspection

shall be effective only insofar as it may clearly permit the

court to determine the fact, which is the subject of proof,

—_———,

nn ube temreton om, s

(2) English translation of Articles 916 to 926 of the

‘Judicial Code of the Republic of Panama

by external condition of the thing that is the subject of

inspection.”

“Article 919.—The party holding the documents or other

things which the petitioner may deem conducive to proving

his actions or exceptions, is under obligation to: present

them before the court and to allow that copy, drawings or

descriptions be taker n therefrom if; the interested party

sO asks, |

{

If the party holding the document or the thing, the

inspection of which is asked, should not present it as afore-

said, he shall ineur liability equal to that established by

Article 407 of this Code.

What has been said in the two preceding paragraphs

‘shall ‘not apply to the case of copieS of authentic docu-

ments or public instruments, the originals of which may -

‘have not been lost. -The proof of the loss is the burden

of he who offers the ev igene e, if he claims that the originals

do not exist.”

“Article 920,.—The inspection must be made upon peti-

tion by a ‘party, or ex parte by the Court having jurisdic-

“tion, Tf the Jnspeetion be asked by the party before the

Supreme Court, the inspection shall be made by the Jus-

tice acting on the case, unless, upon petition for the inspec-

tion, yt be expressly asked: that the inspection be made -by

all tha Justices who are to decide the controversy.

If the inspection is ordered ex parte by the (Supreme =):

. Court, whenever it deems it necessary for the greater

oe -

® Matter in paretitheses supplied by ailant.

ee!

Nee

“

6-A¢

(2) English translation of dotides 916 to. 926 of the

Judic tal ( ‘ode of the Republic of Panama

clarification of the truth, the Justices who must issue “the

decision must be present.

When this inspeetion is ordered ex parte, it may be

made at any time — the litigation.” . :

. “Article 921.—In ev ery case-of inspection the tribunal,

“upon granting or ordering it, shall fix ‘the day and the

hour in whieh it’ ust be made.” :

“Article 929, ~The’ Court shall appoint two witnesses

“to be present at the proceedings, if there be no need for

experts, but when the casé should require a special, prac-

tical oF scientific knowledge, experts shall be appointed

in the manner - provided in Chapter VI ‘of this Title,

with notice to the parties and other intere sted ‘persons,

unless otherwise provided expressly in’ this Code.”.

‘ ‘

“Article 923.—When the Court or the Justice arrive at

the place where the inspection is to be m ade, together with

his ¢ Clerk*and the. witnesses or experts, as th le case may be,

he shall hear -the interested parties, and shall cause -the

experts to examine the thing and to.render: their reasoned

opinion ; pes a, a ra

“Article $24.—The' peitticn present at the proce lings |

may make the oral observations which the ‘'y may deen)eon-

venient, which shall be recorded in the minutes upon ‘re-

(dest by the party, if such observations be peerine nt.”

“Article 025,—Minutes shall be prepared of whatever. \

transpired at the oe and they shall be signed by

those who attended. which minutes will constitute evider-

hrore or less! complete according to the nature of its con-

tents and according te the kind of aflirmations which tie

on nhalime « Yoerts or WitMesses me iv mutke.”

: » i

.t \/

aA el Be pier

(3) English Translation of Articles 88 and 89 of the Code

of Commerce of the Republic of Panama ~

“Article 926.—After taking ‘the minutes of the inspec-

tion steps, the Court shall orde? that they be added to the >

— docket. Butw hen the inspection. should bear upon a new

construetion, Or upon a construction on the verge ef col-

lapse, the proceedings shall be held in tlie manner pto-

vided in Seetions 4th and Sth, Chapter V, Title VIII of

this Book.” |

(3) English Translation of Articles 88 and 89 of the Code

of Commerce of the Republic = Panama

“Article 88.--No authority, judge or tribunal may. make

or order any inquiry or steps for the purpose. of finding

out whether or not the merchant. keeps his commercial

accounting books in due form, ner make any general in-

Yestigation or examination of the bookkeeping in’ the’

@fices or bureaus of the merchants.”

“Article SO. Neither shall it be ordeted to comniuni-

cate, deliver or examine in general the books,.correspond-

enee and other papers and decuments of merchants and

Brokers, exeept invcases of decedent estates or -bankruptey,

or in case of liquidation,

Outside of these cases, inspection of specifie entries in’

the books and documents rglating thereto Inay be ordered

only upon petizion by an interested party or ex parteorde r,

When the person to whem, the records belong, may have

interest or responsibility in the matter in question,

The examination “must. be made in the office of the

merchant or broker in his presence or in that of ore of

- this agents, and it must be limited to taking copy of the

dnvolved,’

: 8-A

(4). T oe United States Code 8 7601, 7602 and 7604

entries or pape rs W fasta may bear relation to the matter

hs the books are located outside of the place of residence |

‘the judge ordering the exhibition, the ‘latter must. be

fount av the place where the books are located, and in ne

case the removal of the records to the place where the

proceedings are being held may In demanded.

When a merchant ‘keeps auyiliary: hooks, hie may. be

compelled to exhibit. them-in the sume manner and in the

Saune Cases as aforesaid.”

(4) Title 26 United States Code §§ 7601, 7602 and | 7604

(G8 A. Stat, 901 and 68 dt. Stat. “90 2)

*<7T60R, Canvass of districts fuk taxable persons and

obj ets

* 8

(a) General rule. _The Secretary or his delegate shall,

te the extent he deems. it. practicable, catise officers or

employees of the Treasury Department to proceed, from

time to time, ‘through each internal revenue distriet and

_ inquire after and concerning: all persons therein who may

be liable to pay any internal revenue tax, and all persons

owning or having the care and Iainaement of any objec ts:

with respect to which. ay taxtis imposed,

{ I) Penalties,—

for penalties applic alte to forcible ‘obstruction or

hindrance of Treasury offieers “or eMnplovees in the

performance of their duties, see section ie

°°

ON tito

(4) Title 26 United States Code §& 7601, 7602 and 7604

“57602, Examination of books and. witnesses

For. the purpose of ascertaining the correctness of any

return, making: a return where none has been made, deter-

mining the liability of any person for any internal revenue —

tax or the liability at law or in equity of any transferee

or fiduciary of any person+in respect of any internal

revenue tax, or collecting any such liability, the Secre t wy

_ or his delegate is authorized—

(1) To examine any books, papers, records, of other

data which may be relevant or material to such inquiry ; ale

(2) To summon \ the person liable for tax or required to

performi the act,.or any officer or employee of such person,

or any person having possession, custody, or care of books

of account containing. entries relating to the business of

the person liable for tax or required to perform thevact,

or any other person ‘the, § Scéeretary or his delegate may

deem proper, to appear ‘heYord&the Sceret ary or his dele-

gate at a time and place named in the summons and to

produce sueh- books, papers, records or other data, and

to give such testimony, under oath, as may be relevant or

material. to such inquiry; and

(3) To take sneh testimony of the person coneerned,

undgr oath, as may be relevant or material to such in-

quiry.” :

“7604, Tnforcement of summMoONnsS .

(a) Jurisdiction of district court.—Tf any person is

summoned under the internal revenue laws to appear, to

testify, or ft produce hooks, papers, records,. or other

data, the United States district court for the district in

which such person resides or is found shall hiave jurisdic

‘tion by appropriate process to campel suedi attendances,

testimony, or produgtion or hooks, putprers, records, of

other data,

9S .

ne ra (*) Penaltir ‘—

“IOLA

(4) Title 26 United States Code * o§ 7601, 7602 and 7604

“a

(hb) eee —Whenevey any - person summoned

under section 7602 neglects or refuses to obey such sum-

ons, or to produce books, papers, records, or” other data,

‘or to give testimony,. as required, the Seeretay y or his

TH Bate may apply to the judge of the distriet*court. ér

toa U nited Stafire commissioner for the distriet within

“Which the person so summoned resides or is found for an

attuelment against him as fora contempt. It shall: be the

duty of the judge or commissioner ty hear the applien-

tion, and, if: siltistactory proof is made, to issue am at.

tachment, directed to some proper Officer, Tor the arrest of.

vsach person, and upon his: being brought before him to

wroceed’ tua hearing of the case; and fipon such hearing

“Ye judge or the United States commissioner shall have

Lower to make such order. as he shall deem proper, not

‘inconsistent with the law for the punishment of contempts,

to enforce obedience to the requirements of the swumons

“and to punish such‘ person for Ais default or disobedience,

(«) Cross: rele rene Cs

~ . . —_

femcah

(1) Authority to issue orders, processes, and judg-.

meends,— a ' .

F or authority of district. courts eeher: ally to enforee’

Chie Provisions of this title, see Section 7402,

For penalties: applicable tu Violation of section 7602,

arr “a>. sige Hon 7210), "i

“er

ae ee

(4) Title 12 United States Code §§ 601, 602 and 604

(49 Stat. 704 and 39 Stat, 753)

“601, A uthorization; cox litions and regulations

: “a | il

Any ‘national banking association possessing a capital

and surplus of $1,000,000 or more may file application, with

the Board of Governors of the Federal Reserve System for

permission to exereise, upon such conditions and wander

such regulations as may be preseribed by the said board,

either or both of the following powers:

. ‘ ®

First...To establish branches in foreign countries or

dependencies or insular possessions of the United States —

for the furtherance of the foreign commerce of the United

‘States, and to aet if required to do sO as fiscal agents of

the United States,

Seeond. »To invest an aniount not exceéding in “the agere-:

gate 10 per centuin of its paid-in capital stock and surplus |

in the stock of one or more banks or corporations chart-

or incorporated under the laws of the Mnited States °

“or of any-State thereof, and principally engaged in inter-

national or foreign banking, or banking in a dependeney

vorinsular possession of the United States either direétly

or through the ageney, ownership, or control of local insti-

“tutions in foreign countries, or in such dependencies ar

insular satis ae

me ntl Jane iry 1, 1921, any national banking association,

without’ regard to the amountoof its capital and surplus.

“may file application with the Board of Governors of the

. Federal Reserve System for permission, upon-such condi-

tions and under such regulation as may be prescribed ‘hy

said bowdrd, to invest an amount not exeeeding in the agere-

‘gate 5 per centum*of its paid-in-eapital and surplus in the

12-A

(4) Title 12 United States:Code $) 601, 602 and 604

s 7 . .

stock of one or more corporations chartered or_incorpo-

rated under the laws of the United States or of any State

thereof and, regardle-. of its location, principally engagy|

in such phases of international or foreign financi:l opera-

tions as may be necessary to facilitate the export of goods,

wares, or merchandise from the United States or any of its

dependencies or insular possessions to ahy foreign COUNETY :

- Provided, however, That in no event shall the total ilivest-

ments authorized by this seetion by any one national bank

exceed 10 per centum of its capital and surplus, :

Such application shall specify the name and capital of

the banking association filing it, the powers applied for,

andthe place or places Where the banking or financial

operations proposed. aré to be carried on. The Board ‘of

Governors of the Federal Reserve System shall have power

to approve -or to reject. sueli application in whole or. in

part if for any reason thie granting of such application is

deemed inexpedient, and shill alse have power from’time

to time to INCreat sy or decrease the number of plaees where

such hevnkine operations may be earried on.”

oF (pr Reports ad erauvinations

Every national Lankine tssoctition operating foreign

britnehes shall be recired to furnish information coneern-

ing the condition of steh branches to the Comptroller of

the Curreney pon demand, ane every member bank in-

Vesting in the capital stoek of banks. or ‘corporations de-

scribed ino stubscetion second of section GOL of this title

shitll be required to furnish information concerning the

condifion of such banks or corporations to the Board: of

Governors of the Federal Reserve System upon demand,

end the Board of Governors of the Federal Reserve Sy s-

tenn any order special exiaminations of the said branches,

hanks, or corporations at suet time or times as it mity

thee bie’ !.

-——---- «=p

“604. Accounts of foreign branches; profit and loss

> Every national banking association operating foreign

branches shall conduct the accounts of each f3reign branch

independently of the accounts of other foreign branches

established by it and of its home offige, and shall at the

end of Gach fiseal period transfer to,its general ledger the

profit or loss aecrued at each branch as a_ separate

item.” any |

1-B.

APPENDIX B.

- Opinion

UNITED STATES COURT OF APPEALS

For tHe Skeoxnp Cirever

No. 315--October Term, 1958,

(Argued June 8, 1959 Decided November 10, 1959.)

Docket No. Spo 2g

Tue First Navtonay. Crry Baxx or New York, |

Petitioner-A ppellee,

— Vi—

Internat. Revenve ‘Service or tar Usirep States

Treasctry DepartMeEnt, :

— Respondent-A ppellant.

Before:

Hlinecks “and Lv MBAR pb, Circuit Judges “,

and Saati, District: Judge. "

Appeal from the United States District Court for the |

~ Southern, District of New York, Kdward J. Dimock, Jie.

The Internal Revenue Service appeals from an order,

D.C. 8S. DN.Y. 166 F. Supp. 21, modifying a summons,

of the Internal-Revenue Service issued pursuant to Section

eee of the Internak Revenue ¢ — of 194 (26 UL S.C,

‘7602), Re versed and remande d, j

Opinicu

Roperr J. Warp, Asst. U.S. Attorney for the

Southern District of New York, N. Y. (Ar-

thur I. Christy, U.S. Attorney, 8. D.N.Y.,

New York, N. Y,, on the vend ief), for re er

ent-appellant,

Jonx’ A. Winsos, New York, N.Y. (Shearuian &

Sterling & Wright, ‘Michael J. DeSantis,

Sand Macliburne Van Voorhies, New York,

N.Y., on the brief), for petitioner-appellee,

ee . ty

Hixens, Circuit Judge:

In: this proceeding the First National City Bank of

New York (hereinafter called the “Bank") applied to the

District Court to vaeate or modify a summons to appear,

testify, and produce books served on ‘it by the Internal

Revenue Service (hereinafter referred to asthe “Service”) |

under 26 U. S.C. 67602. Phe summons called for the

production before the Serviee in New York City of certain

bank records relating to: the account of Atlanta Corp. Ltd.

(hereinafter called’ “Atlanta’), a Panamanian corporation

with offices in New York City and Panama, Republie of

Panama, whose fax Habilitvy was under investigation. Cer-

‘tain records in the Bank's New York City files were’ pro-

duced; but the’ Bank declined ‘to ‘produce other records,

contending that they were ‘physically loeated at its branch

bank in the Republie of Panama; and hence beyond the

reach of the, subpoena. Nonproduetion Was justified, said:

the Bank, first, heeanse the records were not ki its pos.

session, custody, or control; seéond, becanse the production

of such records without Atlanta's consent or an order

of a Panama court would violate sound natjonal bankine

practiée; and third, beeause sneh prodnetion wonld alse

violate the constitution and laws of the Republie of Pana:

and established principles of international comity,

Opinion

The District ¢ Court, relying on In re Harris, D. C.S. D.

N. Y., 27 F. Supp. 480, modified the summons so as to

require the production of local records only. 166 FL Supa

21. On this appeal the Service argues that the Harris

cause was erroneously decided; that the Bank's control ov er

the subject reeords has been sufticiently shown; that ho.

showing has been made that either the constitution or-the '

laws of Panama or international comity prevent produe-

tion; and that compliance with the summons should be

ordered upon reversal of the decision below. These con:

tentions we sustain.

It has long been held that‘there is a presumption that

a corporation is in the possession and control of its own

Looks and records, la re lronclad Mia. Co... 2 Cir, 201

F. 66. Clear proof of lack of possession and control is

necessary fo rebut the presumption. A national bank,

incorporated under the laws of the United States, would

seem to be just as subject to the stated rule as any other

corporation, unless there is something in the federal law

regulating the conduct of such banks which either negatives

the existence of any such’ pre sumption or rebuts it, The

Bank insists that the presumption of control is negatived

by 12-0. S.C. 604, whieh we set forth in the margin!

_ The “control” over its records upon whieh is founded the

obligation of a corporation to produce them upen summons

or subpoena duces fecim i8 not an esoteric congept. Any

officer or agent af the corporation who has power to eause

the branch records to be sent from a branch to the home

Pt. S. Code, Vol. 12. See. G04. reads as follows -

— Accounts of forcign branches: profit and loss

“Kvery national banking | asseciation operating foreien.

branches shall conduet- the accounts of each foreign branch

independently [of the aecounts “of other foreign branches

- «tablished by it amd of its hompe. offiee and shall at the end’

oof each tiseal period transfer tecits veneral ledver the protit

or toss acerned at each braneh as a separ: ite: item.

= Opinion

office for any corporate purpose, sureiy has sufficient con--

trol te eduse then: te be sent ou When dosired for a vovern-

mental purpose properly implemented hy a subpoena under

VATS OL aH Tn thes ease. the District Court recoy-

nized the existence of actual, practical control by the: Bank

over its Panamanian branch records and we think that

finding was right.” Jn re Rivera, DLS. DON, YY. 79

F.Supp. 510: dlopson ve United States, 2 Cir. 7 F.2d So,

See also SLE. Cl. Minas De Artemisia, Sul. 9 Cir, 10

P: 3a 203. : ;

‘The Bank's contention that the effeet of 12 UL S.C. 604,

especially as interpfeted in Jn re Harris, supra, was to’

deprive it of sufficient control over records cin’ Panama

to be subject to the subpoena, was accepted by the court

below. This ruling, however, we think was erroneous.

Section 604, in terms and in intent, does not) support

the Bank's conclusion. As argued by tlie Service,» 604

is nothing more than a “bookkeeping” statute, designed to.

toake examination into the finabeial condition of national

banks, particularly the forvign operations of such banks,

as simple as possible, Reduced to its simplest terms, it

is an instruction to the national banks operating foreign

branches to keep separate accowms for each sueh branch:

wth neteto lita the aeocowets together or to inelude there

in the accounts of the home office. a oe

Moreover, tid with the companion Sections GOT to GOS,

of Tithe 12, all stem from Section 25 of the Federal Reserve

Act of TOTS. SS Stat. 271, whieh under the caption of

“Poreign Branches” shows not an initent to insulate the

records: of foreign branches from official scrutinys but. +

on the contrary, unmistakable intent that) the: branehes

shall report to the Comptrotier of the Curreney and shal!

at all titnes be» subject: to examination by the Pederal

Reserve Board. Indeed, Report HO, Hlouse of Represen

‘ tatives, 6lfd Congress, 1st Session. aceompunying TL, =

»B -

Opinion

837 which became the Federal Reserve Act of 1913, stated

as the legislative objective that branch banks “shall be

closely controlled by bome institutions” even though the -

“branches should: conduet “their affairs separate from. those

of the home office i in order that there may be no difficulty

in ascertaining at any moment the distribution of the busi-

hess of the institution.’

It is true that relying in putrt on “604 vourts haye held

th: afin various commercial transactions ‘between a branch

bank gad its home office ‘the rights involved are to be

determined gs though the bratich was acting at arm's

leneth as an page an nt entitv. See Pan-. Imerican Bank

al Trust Co, tye City Bank, 2 Cire 6 F.2d Tbe,

cert. denied o- Ul S.5554. But from such doctrine it

does not .follow that | in other situations hot: ‘involving an

arms leneth relationship the: ‘manager of a foreign braneh

“ary more than the manager of a domestic brane ‘h or, in- -

‘deed, an officer of the homie: offie, is hevond the control

of the Board of Directors who appointed him. To the

extent that dn re Harris.is in-contlict with this conclusion,

it is overruled,

Finally? the Bank argues that production of the branch's

records located in Pancina would require action by per-

sonnel in Panama in iolation of the constitution and laws

ef Panama. Tf suely were the fact we should agree that

the eye the Panama records should not be or-

sdered. S. ELC. v. Minas De. Artemisia, supra, However,

_ the only evidence of that fact was contained in the affidavit

of the Bank's expert in Panamanian law whieh in our view

constituted insuficient basis for ‘nonenforcement of the

subpoena, His conclusion of constitutional violation was

a With sound banking policy we think se lacking in substance

~ Jo tle serve ne (Lisetission

based on Article 29 of the Constitution Which, provided.

: The « contention that power to-enforce the subpoena would) eon-

_>-------—

i ee ee ee

constitutional privilege as it seeks to

. the other hand, that thi< provision alfords a) privilege

Opinion

that “Correspondence and othe private documents are in-

violable and may not be’ seized dr dxamined except by

provision of a competent authority ynd by means of legal

his \provision affords

privilege against dis¢losine in favor of those whose affairs

are the subject-matfer ef ‘the disclosuye, stielr as Atlanta,”

there is no showing that the Bank may invoke Atlanta’s

lo. Assuming, on

against disclosure to bystanders, such as the Bank, who

have information relating to the affalrs of others, there

ix no showing that eriminal sanetions\ will attséeh if the

Bank waives its) privilege either volut arily or at. the’

* sparently falling within the stated exception—a subpoena

issued by an officer of the United States t ‘asury. Depart-

ment under-the control of a United States court and subject

to all the “legal formalities” and safeguards.of 26 U.S.C.

§<7602-7605, The Constitution did, not specify that the

prohibition extended to the sovereign, either Panama sr

a foreign sovereign, or that the exception was limiter ‘to

a Panamanian authority or Panamanian legal formalities.

Nor was tliere evidence that such was its effect.

The contention that compliance with the subpoera would

involve a violation of Panamanian stetutory law was based

largely? on Articles 88 and 89 of the Panamanian Code of

Commerce which banned “any general * * * examination

of the bookkeeping in the offices * * * of the merchants.”

When the Republic of Panama-granted its license for the

Panama branch it must have known that the Bank wa-

2 The Bank's expert alse points te the diselestire provisions of

the Panamanian Code of Civil Procedure. Bat certaaily these

procedmral provisions «lo not control diselostive puursuaut toa

sibpoena of the United States pursuant to federal stati@te. Move

over, Voluntary disclostre. not obtained through pursitines of

these procedural provisions, has diet been shown te Thee thie Sti ba genni

mnatter of any criminal sanetion . a

7-B °

Opinion

created under, and subject to, 25 of the Federal Reserve

Act of 1913, 38 Stat. 273, whereby it was required to fur-

nish inforination concerning the condition of the branch to

-the Comptroller of the Currency of the United States and

to submit to examination on order of the Governors of the

Federal ‘Réserve System. Thus the very fact that: the

Republic of Panama licensed an American bank, which

Was subject to this provision of American law, to carry

on a branch in Panama is some xround for inference that

the prohibitions of the Panamanian Constitution and ‘stat-

ute on Which the Bank relies did not extend to examina-

tions by, and“diselosures to, duly authorized officers of

the United States government. -If the Bank cannot, as it

were, serve two masters’ and comply with the lawful re-’

quirements both of the United States and af Panama, per-

haps it should surrender to. one sovereign or the other the

privileges received therefrom. We hold now. however, only

thiut the ex parte proots submitted by the Bank were in-

sufficient to excuse compliance. ‘ 7

We reverse and remand with a direction to-réinstate the

subpoena as it originally issued and’in the event of non-

compliance to explore in contempt proceedings under 26

U.S.C. $7604. the ability of the Bank to comply without

subjecting its personnel to-criminal sanctions under. Pana-

manian law. | a

Ordered accordingly.

ee. on.

APPENDIX C

: Judgment

UNITED STATES COURT OF APP EALS

For THE Secuxe % ieee IT

Ata Stated Term of the United States Court of Appeals,

in and for the Second Circuit, held at the United States

Courthouse in the ity of New York, onthe tenth «lay

of November one thousand nine hundred andl fifty-nine.

Present: + \

. ; \

Hox. Cancoorn €. Hixcts,

Hox. J. Kowa Lesnar, \

Corcut Judavs;

ny :

Hox. J. Joseru Swrrn,

In the Matter of --,

the Application of the «First. NAriovaL Ciry Bask or

New Yorn, a er

| Petitioner Apye Mi ¢,

To vaeate a SH mMOensS te appear, te testify and-to pre

duce books, ete. relating tothe Athinta Corporation,

Limited ~~ |

Ixreenan Revence Seavice oF tHe Usirep STATES

Thr astny Devaituest,

Re sponde ut Pa Mant,

Appeal from the United States Distriet Court for the

Southern District of New York:

This cause came on to be heard on the transeript of

record from the United States Distriet Court) for. the

_ District Jartac, \

2-¢'.

continued ' :

‘ | Judgment

Southern District of New York, and was argued by coun.

sel.

ON CONSIDERATION WHEREOR, it is new hereby ordered,

adjudged, and decreed that the Judgment ot said District

Court be and it hereby is reversed and the action ‘be and

it hereby is remanded, with a direction to reinstate the

~ubpoena as‘it originally issued and in the event of non-

compliance to explore in contempt proceedings under 26

USS. CL. 7604 the ability of the Bank to. comply without

subjecting its personnel to criminal sanctions under Pan-

ainanian law, in aecordance with the opinion ofthis court.

A. Dixunt. Frsano |

* as Clerk

—~ tri iF

APPENDIX 1 D°

rece ‘obeke District Court

srolo

SITE D ST ATES DISTRICT “Cou RT

SouTHERN Disrrier or New Youk

a. .

lise

Iu the Matter

s° of:

Tur Appricatton or Tik First Natiosar Crry Bask,

or New Yorn,

Petitions r

To Vacate A Suamoxs Too Arrears To Pestiry, axp To:

Propver Books, Bere, Renatixve to tue Ariaxta Cor-

ronstios, Liwerep , i:

ME IS=304

Ixtensa. Revence Servier op tue U NITED ‘States

Treasvey DepantMent,

Be aoe wl

. APEEARANCES: J .-

“Suranway & Stentine & Wirant, Bee

Attérneys for Petitioner >. :

The First National City Bank ¢ of: New York.

20 Exchange Place x

Vow York 9 F , 2 .

OLN @ A. ps TT . ; % -. is

Micnaki. J. DeSantis, leq. ie an :

Machiacese Vas Voortirs, Bee.

cof Counsel, ae

THoxorvene Arrucn TM. Curery

United States Attorney for the

Southern District of New York

Attorney for Respondent —

a, * . e

~Roserr J. Warp, Esq.

Assistant Unifed States Attorney,

of Coufisy 1. .

OPINION

Dimoer, D. J

This is a motion by The First. National City. Bank’ of

New. York, hereinafter’ petitioner; to vacate or modify a

summons of the Internal Revenue Service dated. June 5,

HOS. The. sunun0ons was, issued rian té section 7602"

of the dntemnmdl Revenue Code, 26 ULS, ‘T7602, and ealls

for production of certain bank niet relating -to the

account of a corporation. | that is ‘under investigation by the

Iifternal Revenue Service. ne

Petitioner cites Judge Patterson's Opinion in Jn re

Harrig DD. COS. DN.Y. 27°F. Supp. 480, in support of

its. contention. that the, records are not so within the con- .

trel of the main office-in. New York as to be- subject to

prodyetion ler the summons. T have no disposition to

depart oney: Sete case and itis on all fonrs with

the instant one except that there the command was that

of a suhpoena duces tecum in a bankruptey proceeding

while here the command is that of a Treasury Department

eae, Wom My question therefore” is whether the fact

that itis the Government rather. than a trustee-in bank-

reptes v who wants “the records ought to change the result.

While the cases spenk of “control” as the touchstone

that word. is not used literally, In the Harris case the

Chase National Bank was relieved of the command of

subpoen to produce records of its London branch on the

yronud p. 4s, that they were “not so within the control

af the main office here as-to be subject to production by

Opinion ®

subpoena duces tecum served here.” [cannot believe

‘that if the president of the bank had wanted those records’ ,

brought to the main office for the bank’s own purposes he

would not have had sufficient “control” of them toe get

them here. The Harris case represents instead a liberi!

construction of section 604 of Tithe 12 U.S. C. which pro-

vides that “[@]very national banking assocjation operating

foreign branches shall conduct the aecotnts .of each for-:

eign branch: independently of the accounts * * * of its

home oftice’, Judge Patte ‘rson said: that those words led

to'the conelusion that the foreign records were not. sufti-

ciently within the control of Ahe main oftice to be subject

to Subpoena. It is those words therefore that give the

immunity. T cannot see that they have any less strode

tendency to immunize papers when sought ‘by the Cov-

ernment than when sought by a trustee in) bankruptey.

Nor is there any other statute which purporgeto give the

- Government any greater power of discovgfy than a pri-

vate ¢itizen armed with a subpoena duced tecum. The

Government makes much of section 7602 of tithe 26 under

which it proceeds but that section does no more than give

to the Government during the course Of its investigation

rights to the production .of papers similar to the rights

possessed by the Jlarris case's trustee in’ bankruptey

armed with a subpeens duces tecnm. |

I hold therefore that section 604 ‘gives to records of a

foreign branch bank the same imnumity from discovery

whether discovery is sought by the Government. under a

Treasury - Department summons or by a private citizen

under a subpoena, “s

The summons ix modified so as to command the produe-

tion of only those records which are located in New York.

”

Dated: September 22. 1058,

- KE. J. Dimeck

United) States Dyitrict Sirdee

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.