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Recent U.S. and U.K. assessments of anti-money-laundering and efforts to combat terrorism financing show how the two countries have structured respective approaches to pinpointing key risks.
November 17 -
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
Despite being from a small principality, Banca Privada d'Andorra had expanded into a major market under European Union regulation. The trade press had named the bank "Best Wealth Manager" and "Best Private Bank" in Spain. The bank was profiting in the reeling Spanish economy. Two of the "big four" accounting firms and its home regulator had given the bank thumbs up for its anti-money-laundering efforts.
Then one afternoon a relatively obscure U.S. regulator issued a notice saying Banca Privada d'Andorra was a financial institution "primary money laundering concern." The agency, the Financial Crimes Enforcement Network, said the bank should be banned from processing transactions through the U.S., the lifeblood of BPA's international banking business, while encouraging foreign regulators to take similar steps for transactions in their countries. Within a day, the bank was out of business.
This may sound like financial science fiction, but this is exactly what happened to the Andorran bank. Without much explanation or even a hearing for BPA to address Fincen's charges, the bank was shut down. How could an agency, which most people outside of the U.S. have never heard of, issue a "notice of proposed rulemaking" that effectively snuffs out hundreds of jobs and hundreds of millions of dollars of value? It relied on an obscure provision in the Patriot Act.
Although the law was intended to counter terrorism, it contained several other financial enforcement measures, including Section 311. The provision authorizes the Treasury Department to take "special measures" against foreign banks and entire national banking systems that Fincen finds to be of "primary money laundering concern," a term that has no definition in law or regulation.
BPA was not the first bank targeted under the Fincen authority. Earlier this year, the Tanzania-based FBME Bank in Tanzania took the rare step of challenging the agency in court and obtained a preliminary injunction. BPA is now also suing the regulator, and just last week filed a motion for summary judgment against both Fincen and Treasury.
The Section 311 provision was designed to include five different possible sanctions to address money laundering threats – each with a different magnitude – but in application Fincen has used only the most extreme of the five: prohibiting a sanctioned bank from opening or maintaining a correspondent account. To build its case, Fincen is allowed to rely on classified or confidential information, which the targeted institution cannot see. Fincen has even insisted it has no obligation to disclose non-classified information or even explain why it selects the fifth and most draconian "special measure," which effectively closes down the bank.
A federal judge recently issued a preliminary injunction requiring Fincen to make this information available so that foreign banks in Fincen's crosshairs can meaningfully respond. But that injunction can only help so much. The bank was already shut down. Even if it is able to show that the notice was based on a mistaken premise, it is too late for resuscitation. Fincen can take its time and then argue that there is no function left for the court because there is no effective relief that a court can issue.
Much has been made of large financial institutions that have engaged in massive and deliberate money laundering, often involving support of state sponsors of terrorism or merchants of weapons of mass destruction. But Section 311 has not been used on those institutions. Instead, they pay fines which fall on shareholders and may cost these institutions a few days' profits. But Section 311 has been used on 15 banks, mainly small institutions in small countries. Eight of these designations were subsequently rescinded, but way too late.
BPA's road to shutdown began in August 2014 when the U.S., through Fincen, recommended certain AML measures for the Andorran banking sector. Andorra answered the next month, indicating that everything was under control but declining to implement the suggested cash reporting measures. Fincen tried again in January 2015, but Andorra did not respond. Two months later, Fincen issued the notice against BPA, designating three instances of alleged money laundering, all of which had been reported by BPA to the Andorran government more than a year earlier.
Andorra apparently never told Fincen that BPA had been upfront about the money-laundering concerns, made appropriate reports and cooperated with authorities. A year later, voila, Fincen has discovered that there are incidents of money laundering and the bank has to be closed. Why exactly BPA was targeted for incidents that had already been reported while other larger banks have not been closed for similar findings is still kind of a mystery. But the concern is whether BPA is a scapegoat for failings in the Andorran regulatory regime and its inability to engage constructively with Fincen.
What happened to BPA could happen to any bank. Without notice, Fincen destroyed a viable institution, asset value, jobs and destroyed reputations without legitimate cause or factual basis. Now the owners of BPA are fighting back for transparency, accountability and due process.
Eric Lewis is a partner at the law firm of Lewis Baach. He is representing the majority shareholders of Banca Privada d'Andorra who are suing the U.S. government
