UNITED STATES OF AMERICA v. Standard Chartered Bank

Background

Brutus Trading, LLC brought a qui tam action under the False Claims Act, a federal law that allows a private party called a relator to sue in the name of the United States. Brutus alleged that Standard Chartered Bank, Standard Chartered PLC, and Standard Chartered Trade Services Corporation engaged in banking practices that violated U.S. sanctions against Iran.

The allegations concerned defendants’ admitted conduct between 2001 and 2007 involving U.S. dollar transactions by Iranian clients. Defendants later entered into a 2012 deferred prosecution agreement with the Department of Justice and related agreements with other agencies, paying hundreds of millions of dollars in fines and penalties. Brutus first filed a related action in 2012, later dismissed that complaint without prejudice, and refiled the case in 2018. Its second amended complaint also alleged that defendants made reverse false claims under 31 U.S.C. § 3729(a)(1)(G), meaning they allegedly avoided or reduced an obligation owed to the Government.

The Government declined to intervene in the action but moved to dismiss the second amended complaint. The Government argued that Brutus’s allegations did not lead to new False Claims Act violations or cause the 2013 investigation that resulted in a 2019 deferred prosecution agreement. It also argued that continuing the case would require the Government to spend resources on litigation it had determined lacked merit.

Legal standard

The court explained that the Second Circuit had not definitively established the standard for reviewing a Government motion to dismiss a qui tam action when the Government has declined to intervene. The court therefore considered the motion under the more searching standard from Sequoia Orange Co. v. Baird-Neece Packing Corp. Under that approach, the Government must identify a valid government purpose and a rational connection between dismissal and achieving that purpose. The relator then must show that the dismissal decision was fraudulent, arbitrary and capricious, or illegal.

Court’s analysis

The court found that the Government had identified at least two valid purposes. First, based on declarations from investigators and officials at multiple agencies, the Government concluded that Brutus’s allegations were unsupported and had not contributed to the 2013 investigation. The court found that the Government had provided a detailed record explaining its investigation and conclusions.

Second, the court found that avoiding additional Government expenditures on litigation was an independent valid purpose. The court considered this reason especially persuasive because the Government had already recovered hundreds of millions of dollars from defendants after investigations lasting nearly a decade.

The court rejected Brutus’s argument that the Government had failed to investigate properly or understand the evidence. It held that Brutus’s disagreement with the Government’s investigative strategy and conclusions did not establish that the dismissal decision was arbitrary and capricious. Brutus did not allege that the decision was fraudulent or illegal and did not carry its burden under the Sequoia Orange standard.

The court did not decide whether Brutus’s reverse false claims theory was legally valid. It stated that dismissal was justified by the Government’s other reasons, even assuming that theory could proceed.

Disposition

Judge Engelmayer granted the Government’s motion to dismiss the second amended complaint. The clerk was directed to terminate the motion and close the case. The opinion did not state that the dismissal was with or without prejudice.