On March 25, 2016, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) announced that it is reissuing a final rule against FBME Bank Ltd. (FBME). Under Section 311 of the USA PATRIOT Act, FinCEN has authority to designate a foreign financial institution as a “primary money laundering concern” and promulgate a rule imposing “special measures” on the bank. Here, the reissued final rule confirms the findings of the original rule and imposes the “fifth special measure” – the most severe available – which prohibits US financial institutions from opening or maintaining a correspondent account for, or on behalf of, FBME, effectively precluding FBME’s access to the US financial system.
As we have previously discussed, FinCEN originally issued the rule against FBME in July 2015, but FBME took the unusual step of challenging it in federal court. On August 27, 2015, the US District Court for the District of Columbia issued a preliminary injunction, finding FBME likely to prevail on its claim that FinCEN did not adhere to the APA’s procedural requirements. The Court found the APA required FinCEN to provide, and enable FBME to respond to, all non-classified, non-privileged information upon which FinCEN relied and to explain its use of the fifth special measure, as opposed to less drastic measures. The Court, however, found FBME unlikely to prevail on its claim that FinCEN’s actual findings were arbitrary and capricious under the APA; and on November 6, 2015, it granted FinCEN’s motion for a voluntary remand to allow for further rulemaking proceedings to correct the procedural deficiencies.
Following this remand, on November 27, 2015, FinCEN issued a notice that it was re-opening the final rule for comment for 60 days and that it was making available the unclassified, non-protected documents that supported the rulemaking. Now, after having considering the additional public comments and “all measures available to it under Section 311,” FinCEN has confirmed that the fifth special measure is appropriate and has reissued its final rule.
This finding by FinCEN is not surprising – as we predicted FinCEN has provided the unclassified information, considered FBME’s rebuttal, and reached the same conclusion. FinCEN’s decision also confirms that FBME’s procedural victories, while important, may have simply delayed the inevitable.
FBME has vowed to continue fighting this final rule in court, and it remains to be seen whether the court will find FinCEN’s procedures sufficient this time around. The chance of success for FBME in the end, however, seems unlikely – courts tend to give the Executive Branch wide discretion on national security issues. In our experience, other alternatives such as engaging directly with FinCEN to address its concerns, while also risky, lengthy, and uncertain, may yield more productive results in the long run.