On May 23, the federal court of appeals for the District of Columbia Circuit rejected an appeal by the majority shareholders in Banca Privada d’Andorra S.A. (“BPA”) regarding claims that FinCEN violated the Administrative Procedure Act when issuing a March 2015 Notice of Finding that the Andorran bank was a financial institution “of primary money laundering concern” and a Notice of Proposed Rulemaking to impose a special measure pursuant to Section 311 of the USA PATRIOT Act, effectively cutting off the bank’s access to the U.S. financial system.

Specifically, FinCEN had imposed against BPA the fifth and most severe special measure under Section 311, which prohibits a foreign financial institution from opening or maintaining in the United States through a domestic financial institution a correspondent account or payable-through account. See 31 U.S.C. § 5318A(b)(5).  We previously have blogged about FinCEN’s ability to impose the fifth special measure against foreign financial institutions, which the D.C. Circuit court aptly described in the BPA matter as a possible “death sentence” for smaller foreign banks which rely on access to correspondent accounts in the United States for U.S. dollar clearing.

The appellants had sought two principal claims for relief: (1) an order requiring FinCEN to withdraw the Notices; and (2) a declaration that the Notices were unlawfully issued. The D.C. Circuit affirmed the judgment of the district court dismissing the appellants’ first claim for relief on mootness grounds because FinCEN, once “satisfied that the Bank no longer posed a money laundering concern,” withdrew both Notices after the Andorran government seized BPA and transferred its assets to a bridge bank. However, the appellate court deviated from the analysis of the district court with respect to the second claim for relief by finding that this claim should be dismissed not for mootness, but for lack of standing because the appellants had failed to show that a judicial order would redress effectively their alleged injuries.

The appellants argued that a decision holding that the two Notices were unlawful would redress their injuries because “there is a substantial likelihood that a decision finding that FinCEN improperly labeled [the bank] as of ‘primary money laundering concern’ would materially impact the position of Andorran authorities as to the proper course to be followed with respect to the sale of [the bank’s] assets, what should be done with the corporate structure and any assets that remain, and how the majority shareholders, as [the bank’s] owners, should now be treated in the process.” The D.C. Circuit disagreed, reasoning that even if the appellants had shown injury and causation to support standing, the appellants nonetheless “offered no evidence that the Andorran Government would reverse course as a result of the withdrawal of FinCEN’s Notices” and so “have not shown that the sale actually could be undone even if the Andorran Government were so inclined.”

This case involves unusual facts and procedure and potentially represents a relatively unique holding. Having said that, the opinion more generally reflects how the government can put the “rabbit in the hat” in regards to standing to sue, or lack thereof:  by issuing a “death sentence” under Section 311, FinCEN ultimately deprived the former bank’s majority shareholders of standing to sue over almost certain and severe injury caused by FinCEN – specifically because the death sentence was implemented with such relentless efficiency.  Thus, harm and causation was so clear that, in effect, redress was impossible.

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Town of Metula at the Israel-Lebanon border – the site of 2006 rocket attacks by Hizbollah

On September 25, 2019, the Southern District of New York dismissed a complaint brought by victims of rocket attacks in Israel perpetrated in 2006 by Hizbollah, operating in Lebanon. Kaplan v. Lebanese Canadian Bank, SAL, Civ. No. 08 Civ. 7253, 2019 U.S. Dist. LEXIS 162505 (S.D.N.Y. Sept. 20, 2019). The Complaint was brought under the Anti-Terrorism Act, 18 USC 2333 (“ATA”). In it, the Plaintiffs alleged that the Lebanese Canadian Bank, SAL (“LCB”) provided banking services to five members of Hizbollah (“Hizbollah affiliates”), and by doing so, they materially supported an act of international terrorism.

Specifically, the Complaint alleged, among other things, that LCB failed to take certain due diligence measures, including reviewing public sources, and as a result continued to bank with members of Hizbollah. According to the Complaint, the bank’s customers’ afficilation with Hizbollah was “notorious public knowledge” due to news articles, reports, and Hizbollah’s own media sources. The Plaintiffs alleged that, even if the bank did not have actual knowledge, the bank at least should have known because it had a duty to perform due diligence on its customers, monitor and report suspicious or illegal banking activities, and not provide banking services to terrorist organizations.

Although the Kaplan case arises in the context of international terrorism and potential liability under the ATA, its analysis and conclusions can apply to more mundane state law tort claims against financial institutions by investors or consumers defrauded by the institution’s (former) customers. These claims often attempt to bootstrap allegations that a bank knew should have known about the customer’s fraud scheme due to the bank’s anti-money laundering (AML) monitoring and reporting obligations under the Bank Secrecy Act (“BSA”). As we have blogged, courts hold that evidence of an imperfect AML program and potential red flags about a customer fall short of the high bar required to sustain a claim for aiding and abetting a fraud or other tort against third party non-customers.

Continue Reading Anti-Terrorism Act Liability Requires More than Mere Failures of Customer Due Diligence

Alleged Illicit Activity Included Transactions Promoting North Korea’s Missile Program and an Institutional Commitment to Laundering Money

On February 13, 2018, FinCEN announced that it had proposed a special measure naming ABLV Bank, AS (“ABLV”) an institution of primary money laundering concern pursuant to Section 311 of the USA Patriot Act.  We previously have blogged about FinCEN’s powers pursuant to Section 311 of the U.S. Patriot Act to designate institution “of primary money laundering concern” and impose a special measure which effectively cuts off the bank’s access to the U.S. financial system by requiring U.S. institutions as well as foreign institutions that create an indirect link between the foreign institution and the U.S. to sever ties with the designated bank.

Finding that ABLV was a foreign financial institution of primary money laundering concern, FinCEN proposed a prohibition under the fifth special measure restricting domestic financial institutions from opening or maintaining correspondent accounts with or on behalf of ABLV. FinCEN stated that ABLV executives, shareholders, and employees have institutionalized money laundering as a pillar of the bank’s business practices by orchestrating money laundering schemes, soliciting high-risk shell company activity that enables the bank and its customers to launder funds, maintaining inadequate controls over high-risk shell company accounts, and seeking to obstruct enforcement of Latvian anti-money laundering and combating the financing of terrorism (AML/CFT) rules in order to protect these business practices.  Indeed, included in the illicit financial activity were transactions for parties connected to the U.S. and U.N.-designated entities, some of which are involved in North Korea’s procurement or export of ballistic missiles.

ABLV shot back last Thursday stating that the allegations were based “on assumptions and information that is currently unavailable to the bank,” but that they were “continuing check into these allegations” and were open to cooperation with U.S. authorities.  As a result of FinCEN’s finding, Monday morning, the European Central Bank (“ECB”) halted all payments by ABLV pending further investigation into the allegations set forth in FinCEN’s Notice of Proposed Rulemaking (“NPRM”). Continue Reading FinCEN Imposes Section 311 Fifth Special Measure on Latvian Bank ABLV

As widely reported, the Spanish police raided last year the Madrid offices of the Chinese state-run Industrial and Commercial Bank of China (“ICBC”), the world’s biggest bank by assets. In the nearly 18 months following that raid and the numerous arrests made at that time, very little information about this money laundering investigation became known publically. That is, until Reuters recently published a lengthy article resulting from its review of “thousands of pages of confidential case submissions” and its “interviews with investigators and former ICBC employees.” The article raises numerous questions regarding the enforcement of European money laundering laws against Chinese banks operating abroad, as well as certain unique political and diplomatic considerations that may exist in those enforcement efforts. Below, we will compare these efforts with similar U.S. enforcement efforts, which are potentially gaining steam. Continue Reading High-Profile Spanish Money Laundering Investigation of Chinese Bank Raises Questions About Future of Similar U.S. Enforcement