The Financial Crimes Enforcement Network has finally convinced a U.S. district court judge to allow the agency to sever FBME Bank Ltd. from the U.S. banking system by preventing the bank from having correspondent accounts at U.S. financial institutions. FinCEN labeled FBME Bank an institution of primary money laundering concern in 2014 and proposed the special measure in 2015, but enforcement of two different rules was stopped by the court. The judge also denied the bank’s request for a continued enforcement stay pending appeal (FBME Bank Ltd. v. Mnuchin, April 14, 2017, Cooper, C.).
FinCEN’s final rule was blocked for the first time in 2015 when the judge agreed with FBME Bank that there were procedural deficiencies in the rule. The judge granted the agency’s request for a voluntary remand, and a new rule was adopted in March 2016 that again included the ban on correspondent accounts (see Banking and Finance Law Daily, March 28, 2016).
The judge rejected most of FBMA Bank’s challenges to the second rule. However, he agreed with the bank that FinCEN had not adequately responded to some comments the bank had made during the notice-and-comment period. He ordered the agency to respond to four concerns about its use of Suspicious Activity Reports and continued the injunction. FinCEN responded by publishing supplemental information in December 2016 (see Banking and Finance Law Daily, Nov. 30, 2016).
SARs concerns. The judge noted that FBME Bank had raised four concerns about FinCEN’s use of SARs filed by other banks:
- The SARs used included so much legal activity that they were not a reliable indicator of money laundering by the bank.
- The number of illegal transactions was only a small percentage of the bank’s activities.
- FinCEN had not considered an alternative explanation for the increase in the number of SARs.
- FinCEN had not provided a benchmark for the number of SARs that would be considered a problem.
FinCEN responses. The agency’s supplemental information responded adequately to all four of the issues, the judge decided.
FinCEN convinced the judge that the SARs data on which it relied were more likely to have understated illegal activity than to have overstated it as the bank claimed. The agency did not look simply at the number of transactions with shell companies that were reported, it also noted the lack of transparency of those transactions and the companies’ lack of any apparent business purpose. Investigative evidence showed the bank had poor anti-money laundering controls as well, meaning that some illicit transactions likely went unreported.
The agency clarified that it focused more on the volume of suspicious transactions than on those transactions as a proportion of all of FBME Bank’s activities, the judge then said. The number of transactions was a better indicator of whether the bank posed a threat to the U.S. financial system, and the agency considered that factor properly.
FBME hypothesized that a financial crisis in Cypress, where the bank did much of its business, had artificially inflated the number of SARs, and it complained that FinCEN had not considered that possibility. The judge rejected the argument, noting that the agency had considered suspicious activities over a longer period of time. The agency’s findings were not based only on the period of the 2013-2014 Cypriot financial crisis. In fact, FinCEN relied more on the nature of the conduct related by the SARs than on the number that were filed, according to the judge.
FinCEN also convinced the judge that it was not required to establish a threshold for the number of SARs that would present a concern. The agency had the authority to make a policy decision on that point, the judge noted, and had explained the decision it made. Moreover, setting a threshold could encourage banks to relax their compliance programs if they believed they were below the limit.
The case is No. 15-cv-01270 (CRC).
Attorneys: Jonathan Gordon Cooper (Quinn Emanuel Urquhart & Sullivan LLP) for FBME Bank Ltd. Lynn Yuhee Lee, U.S. Department of Justice.
Companies: FBMA Bank, Ltd.
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