BUSINESS LAW

Directions
Submit one MSWord document with clear labeling and distinctions for each response. To obtain full points you must apply the concepts we’ve studied to date and use the tools and skills studied in your response. Always cite any paraphrasing and quotes from your textbook, lecture, or other sources.

Answer: Chapter 7 – Questions 3, 7, 10.
Answer: Chapter 8 – Question 5; Brief Case 8.1 (see examples in prior lectures) and answer questions at the end.

Required Textbooks
jennings_textbook.jpgTitle: Business: Its Legal, Ethical, and Global Environment

ISBN-13: 9781337514392

Edition: 11

Author: Marianne M. Jennings

Publisher: South-Western, 2017

Binding: eBook

Adoption: Required

R 7

INTERNATIONAL LAW

LECTURE OUTLINE

7-1 Sources of International Law

7-1a International Law Systems

· Common law systems (See PowerPoint Slide 7-1)

§ England

§ United States

· Civil or code law

§ Statutes or codes are very detailed; little reliance on precedent

§ France, Germany, Spain

· Islamic law (See PowerPoint Slide 7-2)

§ Religious tenets integrated

§ Combination of Islamic law and colonizers’ laws

· Communism (prior to collapse)

§ Non-precedential

§ Non-religious

7-1b Nonstatutory Sources of International Law (See PowerPoint Slide 7-3)

· Language – some areas require certain language

· Environment and technology

§ How good are phone wires?

§ Means of communication

§ Reliability of communication

· Authority: role of lawyers and negotiators

· Nonverbal behavior

§ Silence and its role

§ Gestures

· Time concept

§ Monochronic nations: time is everything (U.S., Great Britain)

§ Polychronic – rest of the world

7-1c Statutory Sources of International Law

· Contracts for the International Sale of Goods (CISG) (See PowerPoint Slide 7-4)

§ 1980 Vienna Convention is another name

§ Adopted by 60 countries

§ Designed to provide an international UCC and its convenience

§ Voluntary use by parties to a contract, even in adopting countries

· Tax law: international business structures that reduce rates (See PowerPoint Slide 7-5)

7-1d Treaties, Trade Organizations, and Controls on International Trade

· Tariffs: costs of goods between countries (See PowerPoint Slide 7-6)

· Nontariff controls over trade

· The European Union (See PowerPoint Slide 7-7)

§ 15-member group and correspondent members

§ One currency in 1999 (Euro)

§ Created by the Maastricht Treaty

§ Established European Parliament and European Court of Justice (ECJ)

§ 300 directives in place for governance

§ Britain voted to exit in 2016 (Brexit)

FOR THE MANAGER’S DESK − FIGHTING AND WINNING: THE INTERNATIONAL THREAT OF PIRATES: Discuss the problems with pirates and their activities in international waters. Explain the difficulties in taking legal action against them. Discuss also the increasing number of pirate attacks and what shipping companies, cruise lines, and even private yachts should do. “Just pay the ransom.” Terribly morally sycophantic, eh?

I hope after you read what appears below that you will understand there really is very little subjectivity in what is expected from you. You are developing a practical set of skills for analyzing tough questions.

Here are some ideas on answering the question which was to offer a list of advice, issues, and concerns. I offer the following, all within the framework of what you have studied so far. Remember McNamara’s thoughts on Vietnam, “We didn’t ask enough questions.”

1. Those Numbers

a. $25 mil – not a great deal of scratch for an international shipping company to lay down – we don’t know how this relates to the actual financial picture for Transnational and that is one of the questions. Sounds callous – can we afford to pay the ransom? But, there is method in this madness of asking these questions (see below).

b. Numbers require you to go up and down and across the chain, so you have some numbers effects that are not easily quantifiable. You can also do stakeholders here if you want and analyze cost and stakeholders together:

ü Impact on Transnational’s costs going forward.

ü You can always pay, but there is always the next set of pirates and a new demand.

ü Once pirates know you pay, your negotiation power is somewhat reduced.

ü How long can Transnational continue to follow the “Just pay the ransom” approach to resolving these pirate attacks? This is where the big numbers picture comes in. And your Donaldson comes in here. With certain moral absolutes, where are you as a company? Given the reality of pirates, does the company need a new business model? Does the company need new security measures? Different routes? Different ways of training crews? Maybe new routes that avoid high-risk pirate areas? Maybe revisiting the whole international business transport model?

ü Not paying and employee death (think Kelly aristocracy) is bound to have a negative impact on recruiting new employees and wages will increase because international barge work just got a much higher risk, and risk demands increased pay.

ü Families of employees – going to get some lawsuits on this one.

ü Customers – higher price issues depending on which way you go as well as the risk of a boycott (Nestlé case gives us background for this); let 25 employees bite the dust because you don’t negotiate with pirates and there might be some backlash.

ü Insurance costs go up – maybe uninsurable depending upon what Transnational does and the results.

ü Classic sunk cost pressures here.

ü Other companies that do shipping are affected because pirates are emboldened when they get what they want.

ü Transnational’s shareholders will be affected by the decision no matter which way you turn on this one – there can be bad reaction either way (payment or no payment).

ü Davis’s early warning and a previous industry accident put you in the position of being aware of a risk and having done nothing – this coming out is problematic, especially if you opt not to pay.

ü This is a low probability (maybe medium probability, depending upon where the ship is sailing and off the coast of Africa carries higher probability than other areas)/high risk event.

ü If you pay, costs will increase; the pirates live to play another day (from the movie “Speed,” with an ex-cop demanding a ransom.

ü If you don’t pay, you have the employees and their families as stakeholders and the fact that Davis alerted management to the issue but no one took any steps – this is classic Nash – how did you get in this situation in the first place? You are here largely because the Davis issue was unresolved.

c. Transnational undertook its business model without thinking through the real costs of this type of business, costs that include this ultimate confrontation between human life and continuing existence and profits.

2. The Law

a. International waters mean a certain degree of lawlessness.

b. If you call it a “ransom,” then there is no illegality.

c. If you call it a “bribe,” then Transnational may have issues as a US company (something we will cover next time in class).

d. You have one of the areas in which no country has jurisdiction.

e. The US does have the right to protect its citizens in international waters, so there is the thought of involving the U.S. government (something that was indeed done in the previous pirate attack that Davis referred to).

3. Examine Categories

a. This is a classic “condoning unethical conduct” if you pay the pirates.

b. If you don’t pay the pirates, it is organizational abuse, because we probably all can agree that letting employees get bumped off may not be a good morale booster or HR policy.

c. Underlying this will be hiding information – like Merck, Manville, Dow, company was aware of an issue but took no action or steps to develop policies, processes, procedures, resolution prior to the time the pressure of this situation hit.

d. Were we saving money by not having necessary precautions and security on board? Organizational abuse.

e. There is also a classic balancing of ethical dilemmas here – 25 human lives at stake, but the implications of payment are significant for so many others who will be affected.

4. Checks for Rationalization, Perception, Bias, Language

a. “Bribes” vs. “ransom”.

b. Davis sees his perspective.

c. Do we really understand the pirates and their motivation? Is there something in our ethnocentrism that might provide some insights and answers about their behavior, choices, and willingness to negotiate?

d. Employees believe the company credo on bribes is paramount.

e. Is it a “cut your losses” situation (i.e., loss aversion)?

f. Diagnosis bias – is the problem the pirates or was it the lack of training; lack of security procedures; lack of security plan in place? If the cause is something other than just “bad pirates, evil pirates,” there may be an effect on the decision.

g. The outcome is presumed—going both ways.

h. Is it possible that the rules of the high sea are different (Sadhu) and that everyone in shipping buys into these risks?

i. “It’s a gray area.”

j. “Everybody else just pays the bribes.”

k. “This is the way we have been doing it.”

l. “If we don’t do it, another company will and we will have suffered because of our stance.”

m. Time pressure because of pirates’ deadline.

n. Sunk costs and the draw to recover them.

o. We can fix this; we always have in the past.

5. List Those Affected by Your Decision

a. Did a fairly good job as part of numbers (see above).

b. Transnational’s reputation.

c. Transnational’s shareholders.

d. Creditors for Transnational and the ability to raise capital.

e. Transnational’s employees – both those on the boat and otherwise.

f. Other shipping companies because decision here affects their ability to stop piracy, depending on what Transnational does.

g. Employees who work international shipping company boats.

h. U.S. government’s foreign policy and diplomacy.

i. Military forces as decisions are made about deployment and use of force.

j. Insurers for company, cargo, and employees.

k. Effect on insurance industry.

6. Decide Your Role and the Role of Business

a. Utilitarians – do the most good for the most people – losing 25 lives now could save million.

b. Natural law – human life is paramount and policies on bribes take a back seat to preserving human life.

c. Rights – there are the rights of the employees, but there are also the rights that exist in commerce.

d. Rand and self-interest – in whose self-interest is the death of the employees? In whose self-interest is the preservation of their lives? There is great depth to be found in just exploring this issue.

e. Everybody knows the high seas are tough territory – all part of the game – and we bought into it, employees, companies, etc. (Albert Carr).

7. Apply Questions

a. There is a slip into the either/or conundrum here – either we pay the bribe or we lose the lives.

b. Is there “wiggle room” here?

c. How does Transnational define itself? Is the no-bribes policy part of its credo? What about human life?

d. The issue is framed only one way, “To pay or not to pay,” and that framing costs us the perspective of options.

e. Flaws in the “to pay or not to pay” are that you can’t really trust the people you cheat with; they will throw you under the bus. These are pirates – even with payment you may not attain the release of the employees.

f. Reframe to think of country assistance, military options, possibility of the release of some in exchange for partial payment, a way to reduce the likelihood of employee injury if you do fire upon.

g. The headline test is awful no matter what (and the fact that you knew does not help either way).

h. You could discuss consequences here (WSJ).

i. Blanchard and Peale – The element of conscience – even with logic on your side, the loss of employees will be tough to live with – see our discussion of Andrew Carnegie and his response to the Homestead rebellion when the suppression of union activities cost employees their lives.

j. If I were one of the employees, how would I want this issue resolved?

k. Can I see alternatives or have I fallen into the either/or conundrum?

l. Classic Laura Nash – how did we get in this situation in the first place?

8. Rely on Cases and History

a. Facts give you information that this type of piracy has happened before – how was it resolved? What strategies did that company use? Can we use them?

b. What do we risk if we do not see all of these issues?

c. Seems to be a failure to get input here.

d. What other companies have faced similar life-and-death dilemmas and how have they responded to them?

e. Can we get help?

f. Have others developed a strategy?

g. The likelihood of all of our lack of ground work on this issue coming out is 100%.

h. If we assume our inaction will become public, how should we resolve this stand-off?

i. Explore alternative resolutions.

j. Recall Merck, Dow, Manville and the costs of their lack of candor – Transnational knew of issue but took no action – problematic position no matter which way they turn.

k. Maybe this is an inherently dangerous activity that cannot be controlled, in which case, do they need to reformulate where they are headed?

9. Incorporate Strategy

a. Thinking long term, what effect will this decision (regardless of what it is) have on the company?

b. Is this an isolated incident or is it part of an evolving problem that requires involvement of the international community?

c. If I am working to resolve the problem internationally, can I proceed on a case-by-case basis until the international community has a resolution, help, etc.?

d. Where do my individual positions and postures fit when there is movement in a different direction that will eventually solve the issues?

e. Whose is in charge here? Is this Transnational’s responsibility, and if it isn’t can they be excused from their “no bribes” policy?

· The WTO (See PowerPoint Slide 7-8)

§ GATT

§ 159 member nations

§ Trying to work through this approved concept of free trade

§ Establishes World Trade Organization (WTO)

w Has Dispute Settlement Body (DSB) – arbitration

w Most-favored nation (MFN) status gets more favorable trade treatment

w Can impose fines

· The North American Free Trade Agreement (NAFTA) (See PowerPoint Slide 7-9)

§ Implemented over 15-year period

§ Canada, U.S., and Mexico: seamless trade

· Prohibitions on trade: individual nation sanctions (See PowerPoint Slide 7-10)

§ International tensions politically spill over into trade, e.g., U.S. and Iraq

§ Primary trade sanctions: can’t do business with countries

w Can be limited in scope; e.g., during war

w Can be limited to items; e.g., all but food and medications

§ MFN, or “most favored nation”, has no trade restrictions

§ Secondary boycott

w Original country is boycotted

w U.S. will not do business with any company that works with government of that nation; e.g., military contractors can’t use U.S. banks or get federal contracts

w Generally not retroactive

w Applies prospectively to new business

· The International Monetary Fund (IMF) and the World Bank (See PowerPoint Slide 7-11)

§ Currency stability – created at Bretton Woods with this goal

§ Special drawing rights – using line of credit to stabilize a country’s currency

§ Issues of buying currency

· The Hague Convention: civil litigation cooperation across borders

· The climate agreements and treaties

§ The Kyoto Protocol or global-warming treaty – could not gain approval

§ Following Copenhagen climate summit, late in 2009, treaty is basically dead; U.S. will not approve; other countries have doubts

§ Paris agreement signed in 2015 by 200 countries (non-binding)

· The Organization of Petroleum Exporting Countries (OPEC)

§ Organization of Petroleum Exporting Countries

§ Cartel that controls supplies, production, prices and taxes

Use Exhibit 7.1 to review treaties.

7-2 Trust, Corruption, Trade, and Economics (See PowerPoint Slides 7-12, 7-13, 7-14, 17-15, and 7-16)

Focus in Recent Years on Reducing Bribes and Corruption

7-2a Foreign Corrupt Practices Act (FCPA)

· History, purpose, and application of the FCPA

§ Applies to businesses with principal offices in the United States

§ Requires establishment of internal accounting controls so that bribes are not permitted to flow through easily

§ Prohibits making, authorizing, or promising a gift to a foreign official with the intent to corrupt; has five elements:

w Instrumentality of interstate commerce must have been used

Example: Phones or mail

· What constitutes a payment under the FCPA?

§ Payment or something of value must have been given

§ Money or item of value is given to foreign official with discretionary authority or NGO official – a political candidate or political party

§ Purpose of the payment was to get official to act or to keep from acting

§ Payment was made with the idea of assisting the giver’s business

§ Resource Guide for the Foreign Corrupt Practices published by the Justice Department (see list on p. 227-228)

BUSINESS STRATEGY − THE COSTS OF SLIPPING ON THE FCPA: Students often argue that the company may have to pay an FCPA fine, but they made a great deal of money as they were engaged in bribery, so it was worth it. There are other factors to consider:

1. Sometimes the company is banished from doing business in that country, forever or for a certain period of time.

2. Sometimes other countries refuse to do business with the company because the government does not want to be perceived as corrupt.

3. The company’s infrastructure may have suffered. Sales people got used to offering bribes and, as a result, have lost the skill sets for negotiating a deal, putting together a deal, and really competing for business.

· What is “obtaining, retaining, or directing business”?

§ Winning contracts

§ Circumventing rules

§ Outcomes of lawsuits

§ Exceptions to customs, etc.

· Who is covered under FCPA?

§ Political parties

§ Party officials

§ Candidates for office

§ NGOs

BUSINESS PLANNING TIP (How Companies Stay Out of FCPA Trouble): Go through the checklist that includes tips on audits and knowing what the country is like. The importance of self-reporting under the FCPA. Discuss the importance of frequent audits, screening agents, monitoring payments, and getting employees to ask questions.

· Use of agents and the FCPA

§ Cannot cleanse company from FCPA penalties by using an agent and claiming no knowledge

§ Knowledge is attributed from large amount for expenses claimed by agents

§ Knowledge is attributed by the failure to check out the agent prior to using that agent

· The FCPA and “grease” or facilitation payments

§ Payments to get officials to do their jobs, not to influence outcome, and are not prohibited

§ Examples: Payment to get a license, payment to get a phone, payment for paper processing, or payment for other utilities

§ Go over the examples listed here to help students understand the Justice Department’s take on what is and what is not an FCPA violation

· Penalties for violation of the FCPA

§ Criminal violations of FCPA carry penalties of up to $25,000 and 5 years imprisonment for individuals; corporate fines are up to $2,000,000

§ Civil fines under Alternative Fines Act (not FCPA) are tied to benefits received

§ Justice Department has stepped up enforcement

7-3 Resolution of International Disputes

ü London Commercial Court is a popular resource

ü International Court of Justice as well

7-4 Principles of International Law (See PowerPoint Slide 7-17)

7-4a Act of State Doctrine

· Courts of one country do not undertake the responsibilities of providing citizens of another country with rights in their own country

· Leaves these decisions to executive and legislative branches and away from judiciary

· For example, the Union Carbide case had to stay in India

7-4b Sovereign Immunity

· Each nation is sovereign

· Other nations do not take jurisdiction over a country’s internal operations, laws, and people

· Does not apply to contractual relations

See PowerPoint Slide 7-18.

CASE BRIEF 7.1

In re Yukos Oil Company Securities Litigation

2006 WL 3026024 (S.D.N.Y.)

FACTS: Yukos is a Moscow-based joint-stock company whose shares trade on the Russian stock exchange. Yukos shares also trade indirectly on multiple European exchanges and over-the-counter in the United States.

Allegedly, Khodorkovsky was part of a select group of Russian business leaders known as “oligarchs” who supported former Russian President Boris N. Yeltsin, but were politically opposed to current Russian President Vladimir V. Putin.

The Tax Code of the Russian Federation prescribed a maximum income tax rate that incorporated two components: a tax payable to the federal budget and a tax payable to the budget of the taxpayer’s local region. For example, in 2004, the statutory maximum rate was 24%, of which up to 6.5% could be collected by the federal government and up to 17.5% by regional governments. The Tax Code also prescribed a minimum rate for taxes payable to regional governments. In 2004, that rate was 13.5%. However, the regional governments could offer tax benefits to reduce or even eliminate the regional budget liability of certain categories of taxpayers. As a result of this regional variance in the effective income tax rate, taxpayers in the metropolitan regions of the Russian Federation, such as Moscow, paid higher taxes than taxpayers in remote regions, or “ZATOs.”

The complaint alleges that from 2000 through 2003, Yukos grossly underpaid its taxes to the Russian Federation by illegally taking advantage of the ZATOs’ preferential tax treatment. According to the complaint, Yukos booked oil sales at “well below” market prices to seventeen trading companies, all of which were registered within ZATOs. Without taking physical possession, the trading companies sold the oil to customers at market prices and claimed the tax benefits of their ZATOs. However, the profits were “funneled … back to Yukos and Yukos paid taxes only on the initial below-market sales while reaping substantial profits from the low-tax market-price sales.

The complaint alleges that the regional trading companies received the benefits of ZATO registration illegitimately because “[n]o business was actually conducted by the sham companies in the ZATOs.” This Yukos tax strategy presented enormous risk because it violated Russian law and because the Russian Federation had prosecuted other companies that had acted similarly. Nonetheless, the risk was not disclosed in any of the Yuko’s filings with the SEC. Also, what was filed with the SEC was allegedly not prepared in conformity with U.S. GAAP or other standards of financial reporting.

At a secret meeting with Khodorkovsky and other oligarchs in 2000, Putin promised not to investigate potential wrongdoing at their companies if the oligarchs refrained from opposing Putin. Nearly three years later, at another such meeting, Khodorkovsky allegedly voiced his opinion that high-level officials in Putin’s government should be ousted. According to the plaintiffs, Putin reacted negatively and intimated to Khodorkovsky that the Russian Federation might investigate Yukos’ methods of acquiring oil reserves. Despite Putin’s warnings, Khodorkovsky publicly criticized Putin and financed opposition parties.

On October 25, 2003, Russian Federation authorities arrested Khodorkovsky and charged him with fraud, embezzlement and evasion of personal income taxes. Days later, the Russian Government seized control of Khodorkovsky’s 44% interest in Yukos as security against the approximately $1 billion he owed in taxes. Concurrently, the Tax Ministry revealed that it had been investigating Yukos’ tax strategies. The Department of Information and Public Relations of the General Prosecutors Office then announced charges that accused Khodorkovsky and others of fraudulently operating an illegal scheme at Yukos to avoid tax liability through shell company transactions.

On December 29, 2003, the Tax Ministry concluded its audit of Yukos for tax year 2000 and issued a report that Yukos had illegally obtained the benefit of the ZATOs’ preferential tax treatment and owed $3.4 billion to the Russian Federation in back taxes, interest, and penalties for tax year 2000.

As a result, Yukos defaulted on a $1 billion loan from private lenders and the Russian Government confiscated Yukos’ assets, including its main production facility and billions of dollars from its bank accounts. The price of Yukos securities “plummeted” in response to these events.

Shareholders in Yukos (Plaintiffs) filed consolidated class actions against Khodorkovsky and others (defendants) on July 2, 2004. The U.S. plaintiffs had purchased Yukos securities between January 22, 2003, and October 25, 2003. They allege that Yukos, its outside auditor, and certain of its executives and controlling shareholders knowingly concealed the risk that the Russian Federation would take action against Yukos by failing to disclose: (1) that Yukos had employed an illegal tax evasion scheme since 2000; and (2) that Khodorkovsky’s political activity exposed the Company to retribution from the current Russian government. The plaintiffs based their claims on the fraud provision, Section 10(b), of the Securities Exchange Act.

ISSUE: Does the act of state doctrine prohibit the court from taking the case?

DECISION: No. The court dismissed the case on other grounds, but found that the act of state doctrine did not prohibit the court from hearing the case. The case was not one that involved invalidating Russian actions; it was a case to decide whether the company should have been more transparent and forthcoming about the risk of its strategy as well as the political risk in Russia.

7-4c Protections for U.S. Property and Investment Abroad (See PowerPoint Slide 7-19)

· Expropriation

§ Nationalization of a company’s property by another country

§ Protected by act of state doctrine – U.S. cannot intervene to protect companies

§ Does set bad precedent for business development

§ Hickenlooper Amendment allowed president to cut off aid to those countries that take the property of U.S. companies and citizens

7-4d Repatriation (See PowerPoint Slide 7-20)

· Limits on removal of profits from country where they are earned

· Considered acts of state; cannot be litigated

· Check limits before deciding to do business

7-4e Forum Non Conveniens, or “You Have the Wrong Court”

· Dismiss cases brought in wrong court

· Example: Union Carbide and Bhopal, India; proper forum was India

See PowerPoint Slide 7-21 to discuss the issues a company should examine before doing business in a country.

7-4f Conflicts of Law (See PowerPoint Slide 7-22)

· No two countries have the exact same commercial laws

· Some countries have no commercial codes

· Uniform Commercial Code is widely used

· Party autonomy controls

· If parties have not agreed, law of country where the contract is performed will apply

7-5 Protections in International Competition

7-5a The International Marketplace and Monetary Issues: The Disclosure Role of Banks

· Protections for banks and international customers: taxes and shelters

§ Taxation issues lead to companies holding funds off-shore – asset parking

· Protections for bank customers: information

§ Hague Convention and requirements on disclosure of information on bank accounts

See PowerPoint Slide 7-23.

CASE BRIEF 7.2

Tiffany and Company v. Andrew

2012 WL 5451259 (S.D.N.Y.)

FACTS: Tiffany (plaintiffs) allege that Andrew and others (defendants) sold counterfeit Tiffany products through several websites hosted in the United States. Andrew accepted payment in U.S. dollars, used PayPal, Inc. to process customers’ credit card transactions, then transferred the sales proceeds to accounts held by the Bank of China (“BOC”), Industrial and Commercial Bank of China (“ICBC”), and China Merchants Bank (“CMB”) (“Banks”).

Andrew defaulted on the suit, and Tiffany sought discovery from the Banks by serving subpoenas seeking the identities of the holders of the accounts into which the proceeds of the counterfeit sales were transferred and the subsequent disposition of those proceeds. The Banks involved all maintained branch offices in the Southern District of New York, and the subpoenas were served on those branch offices.

The Banks responded to the subpoenas by explaining that the information sought was all maintained in China and that the New York branches of the Banks lacked the ability to access the requested information. China’s internal laws prohibited the disclosure of the information except under certain conditions. The Banks proposed that the plaintiffs pursue the requested discovery pursuant to the Hague Convention.

The court concluded that Tiffany should pursue discovery through the Hague Convention. Tiffany submitted its Hague Convention application to China’s Central Authority in November 2010, and on August 7, 2011, the Ministry of Justice of the People’s Republic of China (“MOJ”) responded by producing some of the documents requested. For each of the Banks, the MOJ produced account opening documents (including the government identification card of the account holder), written confirmation of certain transfers into the accounts and a list of transfers out of the accounts. With respect to CMB, the records indicate that all funds in the account were withdrawn through cash transactions at either an ATM or through a teller. BOC and CMB each produced documents concerning a single account; ICBC produced documents for three accounts.

In its cover letter, the MOJ noted that it was not producing all documents requested. Specifically, the letter stated, “Concerning your request for taking of evidence for the Tiffany case, the Chinese competent authority holds that some evidence required lacks direct and close connections with the litigation. As the Chinese government has declared at its accession to the Hague Evidence Convention that for the request issued for the purpose of the pre-trial discovery of documents only the request for obtaining discovery of the documents clearly enumerated in the Letters of Request and of direct and close connection with the subject matter of the litigation will be executed, the Chinese competent authority has partly executed the requests which it deems conform to the provisions of the Convention.”

On the grounds that the MOJ’s production is deficient, Tiffany moved to enforce the subpoenas previously served on the New York branches of the Banks. The deficiencies Tiffany claims are (1) whether any of the defendants have any additional accounts at the Banks; (2) detailed wire transfer records concerning the deposits into and withdrawals from the CMB and ICBC accounts.

ISSUE: Could the court issue subpoenas in order to obtain more information about the bank accounts to help Tiffany identify the perpetrators of the counterfeit goods?

DECISION: No, the court will not issue the subpoenas. The Banks, through the MOJ, have unquestionably produced relevant, responsive documents. Second, the scope of the Banks’ production has not been so narrow that resort to the Convention can fairly be described as futile. The account holders’ identities and addresses have been identified as well as transaction histories. Plaintiffs’ argument that additional documents concerning transfers into and out of the accounts will lead to a fuller understanding of the trademark counterfeiting operation is extremely speculative. Finally, the fact that the MOJ China takes a narrow