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12/15/88 National Commercial v. William C. Harris

December 15, 1988

NATIONAL COMMERCIAL BANKING CORPORATION OF AUSTRALIA, LTD., ET AL., APPELLEES

v.

WILLIAM C. HARRIS, COMMISSIONER OF BANKS AND TRUST COMPANIES OF THE STATE OF ILLINOIS, APPELLANT



SUPREME COURT OF ILLINOIS

532 N.E.2d 812, 125 Ill. 2d 448, 126 Ill. Dec. 941 1988.IL.1804

Appeal from the Circuit Court of Cook County, the Hon. Thomas J. O'Brien, Judge, presiding.

APPELLATE Judges:

JUSTICE CLARK delivered the opinion of the court.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE CLARK

At issue in this appeal is a provision of the Foreign Banking Office Act (the Act) (Ill. Rev. Stat. 1985, ch. 17, par. 2701 et seq.) which imposes a nonreciprocal license fee upon foreign banks which "donot provide reciprocal licensing authority" to Illinois State or national banks (Ill. Rev. Stat. 1985, ch. 17, par. 2710). The circuit court of Cook County declared section 3 of the Act (Ill. Rev. Stat. 1985, ch. 17, par. 2710) void and unenforceable on its face for its imposition of the nonreciprocal license fee. The court held that the Act violated Federal statutory law and the Constitutions of the United States and Illinois. The Commissioner of Banks and Trust Companies of the State of Illinois (the Commissioner) thereupon filed this direct appeal pursuant to Supreme Court Rule 302(a)(1) (107 Ill. 2d R. 302(a)(1)). The Comptroller of the Currency of the United States (the Comptroller) was given leave to file an amicus curiae brief in support of appellees' position.

Appellees are three Australian banks that received authorization in late 1981 and 1982 from the Comptroller to establish limited Federal branches in Illinois pursuant to the International Banking Act of 1978 (the International Banking Act) (12 U.S.C. § 3101 et seq. (1982)). Under the provisions of the International Banking Act, limited Federal branches are restricted as to deposits they can receive; only such deposits as are permissible to Edge Act corporations (deposits linked to international trade) under section 25(a) of the Federal Reserve Act are allowed. (12 U.S.C. § 3103(a)(1) (1982).) Appellees each opened a limited Federal branch office in the Chicago Loop area.

In December 1983, the Commissioner mailed to each appellee a fee statement demanding payment of the nonreciprocal license fee imposed under the provisions of section 3 of the Foreign Banking Office Act (Ill. Rev. Stat. 1985, ch. 17, par. 2710). The fee of $63,287.67 was for a prorated portion of 1983 and for all of 1984. Appellees refused to pay the fee and instead initiated an action in the circuit court challenging the Commissioner's authority to collect the fee. The portion of section 3 of the Act subject to review and under which the Commissioner claimed authority to collect the fee provides:

"A foreign banking corporation, upon receipt of a certificate of authority from the Commissioner, may establish and maintain a single banking office in the central business district of Chicago and may conduct thereat a general banking business. . . . f a foreign banking corporation shall be licensed by any banking supervisory authority of a jurisdiction other than the Commissioner, and the foreign nation within which a foreign banking corporation so licensed does not provide reciprocal licensing authority to Illinois State of [ sic ] National Banks, then such foreign banking corporation shall pay an annual 'non-reciprocal' license fee to the State of Illinois which shall be deposited in the General Revenue Fund. Such annual fee shall be in an amount of $50,000." Ill. Rev. Stat. 1985, ch. 17, par. 2710.

Appellees contend that imposition of the nonreciprocal fee violates the supremacy clause of the United States Constitution (U.S. Const., art. VI, cl. 2) because it conflicts with section 5(a)(1) of the

International Banking Act (12 U.S.C. § 3103(a)(1) (1982)) by attempting to regulate the licensing of a limited Federal branch. Section 5(a)(1) provides:

"(a) Except as provided by subsection (b) of this section, (1) no foreign bank may directly or indirectly establish and operate a Federal branch outside of its home State unless its operation is expressly permitted by the State in which it is to be operated, and the foreign bank shall enter into an agreement or undertaking with the Board to receive only such deposits at the place of operation of such Federal branch as would be permissible for a corporation organized under section 25(a) of the Federal Reserve Act under rules and regulations administered by the Board" 12 U.S.C. § 3103(a)(1) (1982).

The Commissioner, on the other hand, contends that the very language of the Federal statute (i.e., "expressly permitted by the State") permits just the kind of regulation and fee imposed through the Illinois statute. Appellees point out, however, that section 5(a) must be read not in isolation but in conjunction with the remainder of the International Banking Act as well as in conjunction with the rules and regulations promulgated thereunder. Thus, appellees contend that the license fee imposed under the Illinois statute also violates the supremacy clause because it discriminatorily taxes some foreign banks in contravention of section 4(b) of the International Banking Act (12 U.S.C. § 3102(b) (1982)) and that, therefore, section 548 of the National Bank Act (12 U.S.C. § 548 (1982)) is violated as well as the regulations promulgated by the Comptroller. Section 4(b) of the International Banking Act provides in part:

"(b) In establishing and operating a Federal branch or agency, a foreign bank shall be subject to such rules, regulations, and orders as the Comptroller considers appropriate to carry out this section, which shall include provisions for service of process and maintenance of branch and agency accounts separate from those of the parent bank. Except as otherwise specifically provided in this chapter or in rules, regulations, or orders adopted by the Comptroller under this section, operations of a foreign bank at a Federal branch or agency shall be conducted with the same rights and privileges as a national bank at the same location and shall be subject to all the same duties, restrictions, penalties, liabilities, conditions, and limitations that would apply under the National Bank Act to a national bank doing business at the same location . . .." (12 U.S.C. § 3102(b) (1982).)

Because provisions in the International Banking Act grant Federal branches or agencies the same rights and privileges accorded national banks, section 548 of the National Bank Act is applicable; that section provides that "[f]or the purposes of any tax law enacted under authority of the United States or any State, a national bank shall be treated as a bank organized and existing under the laws of the State or other jurisdiction within which its principal office is located." 12 U.S.C. 548 (1982).

Appellees also contend that the nonreciprocal license fee violates the commerce clause of the United States Constitution (U.S. Const., art. I, § 8, cl. 3), the equal protection clauses of the United States (U.S. Const., amend. XIV, § 1) and Illinois (Ill. Const. 1970, art. I, § 2) Constitutions, and the due process clauses of the United States (U.S. Const., amend. XIV, § 1) and Illinois (Ill. Const. 1970, art. I, § 2) Constitutions; that it is an unconstitutional attempt to interfere with foreign-policy-making powers of the Federal government in violation of ...


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