WASHINGTON — At first blush, a government agency revoking its finding that a bank posed a material money-laundering risk might seem like encouraging news of regulatory easing.
But observers have reacted differently to the Financial Crimes Enforcement Network's recent removal of "primary money laundering concern" labels for three foreign banks. Many say the withdrawals reinforce concern that Fincen is citing certain overseas banks just to push them out of business, while backers of one of the banks, Banca Privada d'Andorra, say Fincen is trying to escape legal scrutiny of its action through the withdrawals.
"We think by withdrawing the notice, they conceded that they didn't act properly," said Eric Lewis, a partner at the law firm of Lewis Baach representing BPA's majority shareholders in a lawsuit against Fincen. "But we want a judge to rule on that."
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How could an agency most people outside of the U.S. have never heard of effectively shut down an overseas bank without much explanation or even a hearing?
November 18 -
A foreign bank that sued the U.S. Treasury's Financial Crimes Enforcement Network won a preliminary injunction suspending an action that would have cut off the bank's access to dollar funding.
August 28 -
The largest bank in Tanzania has sued the U.S. Treasury Department to halt a rule that designates the bank as a "primary money laundering concern," which cuts off its access to dollar funding and may prove to be a death sentence for the institution.
August 26
In all three cases, the withdrawals came after business had already halted and governments had seized much of the bank's assets, making the revocation moot.
"I don't think it really gives any indication" that Fincen is dialing down its authority, said David Schwartz, chief executive of the Florida-based International Bankers Association. "If you read the withdrawals, there were three institutions that were subject to … [them], and two of them are no longer operating."
Last month, Fincen announced withdrawals for BPA, Liberty Reserve S.A. of Costa Rica and JSC CredexBank of Belarus. Fincen had previously found the three banks posed particular money-laundering risk under authority granted by Section 311 of the Patriot Act. In the withdrawals, the agency said the banks no longer posed such a threat, but that appears to be the result of the banks' being all but gutted. The initial Section 311 finding alone can halt a foreign institution's business, since it often pushes U.S. banks to end their correspondent relationships.
Liberty Reserve stopped operating after the U.S. Department of Justice seized accounts and Web domain names and charged its principals. Meanwhile, Belarus prohibited the successor institution of JSC CredexBank from operating in the country.
"It's not really a retraction," William Byrnes, a law professor at Texas A&M University, said of the withdrawals. " 'They're no longer a money-laundering concern.' Yeah, because you put them out of business!"
The Andorran bank — headquartered in a principality that borders Spain and France — is a more complicated case. BPA was accused of having facilitated transactions on behalf of money launderers through some of its top managers. Authorities in Andorra took control of the bank and arrested the CEO. But the country is also carrying out a resolution of the institution to transfer operations not posing money-laundering risk to a bridge bank, meaning much of the bank is still functioning.
Fincen in its official notice said it believes efforts by Andorra "sufficiently protect the U.S. financial system." (The agency declined to comment further for this story.) But the bank's former owners, who have sued Fincen over the Patriot Act designation, suggested the withdrawal allows the agency to avoid judicial review of the Section 311 finding.
The Cierco family, which owned the bank, said in a statement that the withdrawal was "a blatant effort to avoid any judicial scrutiny of the legality of its actions." Fincen, they argued, was due to file new information in court in March that would have described its reasons for targeting the bank in greater detail.
The bank's backers said the regulator should not be able to make a finding that halts correspondent business only to backtrack after the damage is already done.
"The case should continue because even though they withdrew it, we want the court to make a ruling on whether they acted properly under the constitution and under the law," Lewis said. He noted that Fincen's withdrawal was the fastest the agency has ever acted to remove a Section 311 finding.
Still, BPA was not the only bank to sue Fincen over its Section 311 finding — the first was FBME in Tanzania — and some observers say the effect of the lawsuits could be to give the agency pause before issuing such finding against other banks. In the case of FBME, a judge in August had granted a preliminary injunction suspending Fincen's order. In November, the agency obtained permission from the court to redo the FBME order.
"As a general matter, when government agencies are used to doing things without judicial supervision and somebody brings in a lawsuit, that does cause the bureaucracy generally to become more cautious," said Stephen Heifetz, a partner at Steptoe & Johnson. "It causes the internal processing to be more deliberate."
Chrisol Correia, the director of anti-money-laundering at LexisNexis Risk Solutions, agreed. "The fact that someone took a national regulator to court really does send a strong signal that if Fincen cuts off access to the U.S. financial system, that really can have a critical effect on the lifeblood … of a financial institution," Correia said.
