International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Tuesday, November 10, 2015

Is FinCEN Becoming a Star Chamber? The Curious FBME case

Several of my blog readers have been following FinCEN's first use (and abuse alleges the FBME FinCEN-logo-shieldbank, defendant of this contentious matter) of the PATRIOT Act's power allowing FinCEN to block a foreign financial institution from the US financial market.  Over the past year, FinCEN has published a couple press releases referring to its action against FMBE, and that its action is justified based on the nefarious behavior of some of FBME's clients.  See FinCEN Cuts FBME Bank from Access to U.S. Financial System

But, there are generally two or more perspectives for any story.  FBME has fought back against FinCEN's determination, and at least convinced a judge that there is more here going on than meet's the eye.  See FBME Bank Obtains Preliminary Injunction Against FinCEN

On Friday, FinCEN agreed to a "do-over" of its determination with FBME, and to disclose 'four' items of the substantial evidence upon which it relied (but not the other evidence).  Of course this heightens the interest in the evidence that FinCEN will not disclose.  

At the core of this case for FBME is whether FinCEN must disclose to FBME all the evidence that it relied upon to make a determination to ban FBME from the US financial system.  Who is to determine if such evidence is protected by national security interests?  FinCEN itself, or the judiciary?  Should a defendant have to defend against non-reviewed evidence?  What if the evidence is hearsay, by example - newspaper accounts?

So, now I am curious if the doctrine of due process has been afforded FBME bank?  And if the rules of evidence have been followed?  

Some respondents will point out that a civil action, such as FinCEN, does not require the heightened protections of the doctrine of due process and the rules of evidence that apply to an individual's criminal investigation.  "The government giveth the license to carry on commerce, and the government taketh away that license."  Though I disagree with that bifurcation from a political philosophy and from a rule of law perspective, the Courts lean in the respondents' favor.

In FBME's situation, this FinCEN determination impacts FBME maintaining a correspondent banking relationship in the US, and also implies to other regulators that they should evaluate FBME's activities in light of FinCEN's determination.  It is the equivalent of a banking death sentence.

Given the public nature of FinCEN's allegations, not sure how FBME can obtain a correspondent U.S. banking relationship in the future.  But BNP pled guilty to funding genocidal regimes and Iran, was given a setence of five year probabtion and nearly $10 billion in fines.  No BNP employees went to prison, or even paid a fine.  And BNP is operating in the US.  (see BNP Paribas Criminally Sentenced for Financing Sudan, Iran and Cuba)  A search of this blog will find numerous like situations of criminal activity at banks, a non-prosecution agreement, and the bank continues on.

Why is FBME being treated differently?  Should it be?  Questions that we cannot provide an opinion upon because we have limited information.

In consideration of the many other banks that have been fined for AML and/or OFAC transgressions, the FBME case stands out because of the severity of the sanction and the lack of background information about FinCEN's action.   

FBME states in its press releases that it has been cooperating with FinCEN over the course of FinCEN's investigation.  However, alleges FBME, FinCEN has not been cooperating with FBME because FinCEN will not present the evidence at the heart of the matter upon which FinCEN bases it allegations against FBME upon.  FBME argues that it cannot defend against "secret" evidence.  FinCEN retorts that the evidence is required to remain secret as a matter of national security.  Sounds reminiscent of a Star Chamber.  I thought we don't like Star Chambers in America?  

If this is national security protected evidence, should at least the FISA tribunal be presented with it and agree?  It's not the correct forum, but better than a single executive branch serving as its own prosecutor, judge, and executioner.  

Latest News About FBME Case

Last Friday November 6, 2015 in response to the FinCEN's request for voluntary remand regarding its Final Rule against FBME, Judge Cooper of the DC District Court had asked FinCEN to submit the basis for withholding unclassified and unprotected documents on which the agency relied during the first rulemaking process. Judge Cooper of the DC District court granted FinCEN's request for voluntary remand in the case. 

Judge Cooper wrote:

Although FinCEN does not directly confess error, it recognizes that the Court has identified serious “procedural concerns” with the Final Rule, Mot. Remand 1, and it agrees that the “record . . . needs to be supplemented,” Defs.’ Reply 2. These concerns include both potential inadequacies in the notice-and-comment process as well as FinCEN’s seeming failure to consider significant, obvious, and viable alternatives to the sanction it imposed. Id. at 4. Moreover, FinCEN does not challenge the preliminary injunction, nor does it wish to continue to defend its previous rulemaking. FinCEN has thus acknowledged substantial and legitimate concerns with the promulgation of its Final Rule.

Judge Cooper has retained jurisdiction and the injunction remains in place to protect FBME. He also made express his assumption that FinCEN will “fulfill its obligations under the Administrative Procedure Act to disclose unclassified information not protected by the Bank Secrecy Act on which it intends to rely.”  And he’s specified a clear timetable whereby the case may return to him around April if FBME remain's aggrieved.  

FinCEN in a filing to the court late Friday has now said it will release four of these documents publicly. 

Quinn Emanuel on behalf of FBME, filed this response to the Court as its rebuttal to FinCEN.  

  • The Notice studiously avoids giving a straightforward answer to the Court’s straightforward question whether the Government will disclose specified documents, or else “on what basis it would continue to withhold those materials.
  • The Government now says it “anticipates” that four documents 'will likely be made available,' but only to the extent that other unidentified agencies may separately permit their disclosure. Thus, the Government commits to nothing beyond awaiting further word from unnamed agencies.
  • In a footnote, the Government discloses for the first time—after the preliminary injunction proceedings concluded, after being pressed by FBME for the administrative record as well as a schedule for briefing summary judgment, after making its case for voluntary remand, and after being asked by the Court about any additional documents—that it has withheld from the Court unclassified “sensitive” (but apparently not privileged) documents that it relied upon in imposing the Final Rule. Even while alluding to these documents and FinCEN’s substantive reliance thereon, the Government commits to withholding them from FBME as well as the Court. Thus, rather than retreat from its withholding or defend its withholding, the Government blazes a third path for itself, by waving a wand to make the materials simply vanish from this case: if FinCEN 'reaches a decision adverse to Plaintiffs, these documents will not be part of the subsequent administrative record.'” 

Court Documents

FinCEN | Permalink


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