Fbme Bank Ltd. v. Lew, Case No. 15-cv-01270 (CRC)

CourtUnited States District Courts. United States District Court (Columbia)
Writing for the CourtCHRISTOPHER R. COOPER, United States District Judge
Citation209 F.Supp.3d 299
Decision Date20 September 2016
Docket NumberCase No. 15-cv-01270 (CRC)
Parties FBME BANK LTD., et al., Plaintiffs, v. Jacob LEW, in his official capacity as Secretary of the Treasury, et al., Defendants.

209 F.Supp.3d 299

FBME BANK LTD., et al., Plaintiffs,
v.
Jacob LEW, in his official capacity as Secretary of the Treasury, et al., Defendants.

Case No. 15-cv-01270 (CRC)

United States District Court, District of Columbia.

Signed September 20, 2016


209 F.Supp.3d 307

Jonathan Gordon Cooper, William A. Burck, Derek Lawrence Shaffer, Quinn Emanuel Urquhart & Sullivan, LLP, Washington, DC, for Plaintiff.

Lynn Yuhee Lee, Amy E. Powell, U.S. Department of Justice, Washington, DC, for Defendant.

MEMORANDUM OPINION

CHRISTOPHER R. COOPER, United States District Judge

Table of Contents

I. Background ...308

II. Applicable Legal Standards ...310

III. Analysis ...311

209 F.Supp.3d 308

A. FinCEN's Compliance with Statutory Procedural Requirements....313

1. Whether FinCEN Complied with its Obligations Under the APA ...314

a. Informal Versus Formal Rulemaking ...314

b. Notice-and-Comment Procedures....314

2. Whether FinCEN Adequately Put FBME on Notice of the Basis for the Second Final Rule ...316

a. FinCEN's Nondisclosure of Suspicious Activity Reports (SARs) ...316

b. FinCEN's Failure to Produce a Privilege Log of Otherwise Privileged or Protected Information ...317

c. FinCEN's Alleged Nondisclosure of New Accusations and Information ...318

3. Whether FinCEN Met Its Obligation to Undertake Required Consultations ... 322

a. FinCEN's Contention That FMBE Is Precluded from Raising This Argument ... 323

b. The Sufficiency of the Administrative Record to Establish that FinCEN Undertook the Required Consultations....325

B. FinCEN's Compliance with Constitutional Due Process Requirements ...326

1. Whether FBME is Entitled to Due Process ...326

2. Whether the Rulemaking Complied with Due Process ...328

C. FinCEN's Compliance with APA § 706(2)(A)...331

1. Whether FinCEN Impermissibly Failed to Respond to FBME's Concerns Regarding the Agency's Analysis of SARs ...331

2. Whether FinCEN Failed to Respond to FBME's Concerns Regarding FBME's Cypriot Regulator ...334

3. Whether FINCEN Considered Other "Discredited" Allegations ...336

4. Whether FinCEN Considered the Statutory Factors Listed in Section 311 ... 337

a. Factors Related to Whether FBME Is of Primary Money-Laundering Concern ... 337

b. Factors Related to Which Special Measure to Impose ...338––––

5. Whether FinCEN Considered Alternatives to a Prohibition Under the Fifth Special Measure ...339

6. Whether the Rulemaking was Tainted by FinCEN's Alleged Review of Privileged Materials ...340

D. Remedy ...341

IV. Conclusion ...343

I. Background

On July 29, 2015, the U.S. Treasury Department's Financial Crimes Enforcement Network ("FinCEN") promulgated a Final Rule under Section 311 of the USA PATRIOT Act of 2001, imposing a "special measure" against FBME Bank Ltd. ("FBME" or the "Bank"), a Tanzanian-chartered commercial bank that operates mainly in Cyprus. The measure—the fifth and most serious authorized by the statute—prohibited domestic financial institutions from opening or maintaining correspondent bank accounts on behalf of FBME.1 The Final Rule was designed to prevent FBME from continuing to do business in the United States or in U.S. dollars. Congress required that the agency impose this special measure only by regulation, following a finding that a nondomestic

209 F.Supp.3d 309

financial institution is of "primary money laundering concern" and thus a threat to national security and the U.S. financial system. 31 U.S.C. § 5318A(a)(2)(C). Congress also empowered the agency to consider classified information in formulating a rule under this section, and to provide that information "to the reviewing court ex parte and in camera." Id. § 5318A(f). In other words, the imposition of this special measure involves a sort of quasi-adjudicative rulemaking process in which the agency may rely on classified information unavailable to the target of the rule or the public.

Beginning in July 2014, after FinCEN issued a Notice of Finding ("NOF") that FBME was an institution of primary money-laundering concern and a Notice of Proposed Rulemaking to impose the fifth special measure, U.S. banks holding correspondent accounts on behalf of FBME began to terminate their relationships with the Bank, and other banks abroad held FBME's U.S.-dollar correspondent accounts in suspension pending imposition of the Final Rule. If the Final Rule had taken effect as scheduled in August 2015, U.S. banks would have been wholly prohibited from engaging in transactions with or for FBME. The Bank thus moved for a preliminary injunction to block the Rule, contending that it would prompt remaining banks with which FBME maintained U.S.-dollar correspondent accounts to liquidate those accounts, effectively excommunicating FBME from the global financial system.

The Court granted the Bank's motion and preliminarily enjoined the Rule on August 27, 2015. See FBME Bank Ltd. v. Lew ("FBME I "), 125 F.Supp.3d 109, 129 (D.D.C.2015). FinCEN then moved for a "voluntary remand," which the Court granted, in order to conduct a new rulemaking and correct the deficiencies the Court had identified in its earlier opinion. See FBME Bank Ltd. v. Lew ("FBME II "), 142 F.Supp.3d 70 (D.D.C.2015). On November 27, 2015, FinCEN published a notice to reopen the Final Rule for 60 days to solicit additional comments. See 80 Fed. Reg. 18481 (Nov. 27, 2015) (to be codified at 31 C.F.R. pt. 1010). The comment period closed on January 26, 2016. See id. at 18482. FinCEN issued the new Final Rule ("Second Final Rule") on March 25, 2016 and published it in the Federal Register on March 31, 2016. The Second Final Rule again concludes that FBME is of primary money-laundering concern and imposes the fifth special measure of Section 311 of the USA PATRIOT Act.

As the Court detailed in its opinion granting FBME's preliminary-injunction motion, FBME I , 125 F.Supp.3d at 115–17, FinCEN's NOF concluded that FBME had facilitated money laundering and maintained weak anti-money-laundering ("AML") controls for many years. The agency specifically found that FBME had maintained accounts for the head of an international narcotics-trafficking and money-laundering network; an account for a front company for a U.S.-sanctioned Syrian entity that has been designated as a proliferator of weapons of mass destruction; and an account that the Department of Justice suspected of containing some $7 million in proceeds from foreign corruption offenses perpetrated by the President of Equatorial Guinea. 79 Fed. Reg. 42639–40. FinCEN also found that FBME had facilitated transactions involving a Hezbollah financier, a financial advisor to a major transnational organized-crime figure, a transfer of over $100,000 to an FBME account involved in a high-yield investment program fraud against a U.S. person, a transfer of over $100,000 to an FBME account from a Michigan-based company that was the victim of a computer-fraud attack, and transfers of over $600,000 generated from a wire fraud scheme. Id. In

209 F.Supp.3d 310

addition, FinCEN's investigation uncovered almost $400 million in FBME wire transfers through the U.S. financial system that the agency concluded "exhibited indicators of high-risk money laundering typologies, including widespread shell company activity, short-term 'surge' wire activity, structuring, and high-risk business customers," and "at least 4,500 suspicious wire transfers through U.S. correspondent accounts that totaled at least $875 million between November 2006 and March 2013."Id. These findings continue to serve as at least part of the basis for the Second Final Rule.

Following FinCEN's issuance of the Second Final Rule, the parties filed cross-motions for summary judgment that became ripe on May 23, 2016, and the Court heard argument on those motions on June 3, 2016. In order to enable thorough judicial review, the court stayed implementation of the Rule pursuant to 5 U.S.C. § 705, which "authorizes courts to stay agency rules pending judicial review without any time limit on the duration of the stay." Mexichem Specialty Resins, Inc. v. EPA , 787 F.3d 544, 562 (D.C.Cir.2015) (Kavanaugh, J., dissenting). For the reasons that follow, the Court declines to vacate the rule, but will remand the matter to FinCEN so that it may adequately respond to certain comments made by FBME. The Court will continue to stay implementation of the rule until FinCEN complies with that directive.

II. Applicable Legal Standards

The Administrative Procedure Act ("APA") empowers a reviewing court to hold unlawful and set aside an agency's actions, findings, or conclusions that are "(A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; (B) contrary to constitutional right, power, privilege, or immunity; (C) in excess of statutory jurisdiction, authority, or limitations, or short of statutory right; [or] (D) without observance of procedure required by...

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  • N.M. Health Connections v. U.S. Dep't of Health & Human Servs., No. CIV 16–0878 JB/JHR
    • United States
    • United States District Courts. 10th Circuit. District of New Mexico
    • February 28, 2018
    ...commentary,’ " it must " ‘respond in a reasoned manner’ " to that comment. Plaintiff Reply. at 23–24 (quoting FBME Bank Ltd. v. Lew, 209 F.Supp.3d 299, 333 (D.D.C. 2016) ).Health Connections then re-alleges that HHS "violates Congressional Intent to have a robust market in bronze plans." Pl......
  • Waterkeeper All., Inc. v. Wheeler, Civil Action No. 18-2230 (JDB)
    • United States
    • United States District Courts. United States District Court (Columbia)
    • April 15, 2020
    ...of a specific citation of the WIIN Act in EPA's response hardly prejudiced Waterkeeper in its challenge. See FBME Bank Ltd. v. Lew, 209 F. Supp. 3d 299, 311 (D.D.C. 2016). In sum, neither of EPA's responses to Waterkeeper's comments was so deficient as to provide a basis for invalidating th......
  • Fares v. Smith, Civil Action No. 16-1730 (CKK).
    • United States
    • United States District Courts. United States District Court (Columbia)
    • April 7, 2017
    ...litigants in a civil suit, and not the provision of an administrative record following agency action. See also FBME Bank Ltd. v. Lew, 209 F.Supp.3d 299 (D.D.C. 2016) ("[I]t is far from the norm to require agencies to produce privilege logs when they exclude material from an administrative r......
  • Standing Rock Sioux Tribe v. U.S. Army Corps of Eng'rs, Civil Action No. 16–1534 (JEB)
    • United States
    • United States District Courts. United States District Court (Columbia)
    • October 11, 2017
    ...expertise. See Wis. Valley Improvement Co. v. FERC, 236 F.3d 738, 746 (D.C. Cir. 2001) (citation omitted); FBME Bank Ltd. v. Lew, 209 F.Supp.3d 299, 342 (D.D.C. 2016) (finding that the "fair likelihood that the agency will be able to make use of its expertise to justify its reliance on data......
  • Request a trial to view additional results
7 cases
  • N.M. Health Connections v. U.S. Dep't of Health & Human Servs., No. CIV 16–0878 JB/JHR
    • United States
    • United States District Courts. 10th Circuit. District of New Mexico
    • February 28, 2018
    ...commentary,’ " it must " ‘respond in a reasoned manner’ " to that comment. Plaintiff Reply. at 23–24 (quoting FBME Bank Ltd. v. Lew, 209 F.Supp.3d 299, 333 (D.D.C. 2016) ).Health Connections then re-alleges that HHS "violates Congressional Intent to have a robust market in bronze plans." Pl......
  • Waterkeeper All., Inc. v. Wheeler, Civil Action No. 18-2230 (JDB)
    • United States
    • United States District Courts. United States District Court (Columbia)
    • April 15, 2020
    ...of a specific citation of the WIIN Act in EPA's response hardly prejudiced Waterkeeper in its challenge. See FBME Bank Ltd. v. Lew, 209 F. Supp. 3d 299, 311 (D.D.C. 2016). In sum, neither of EPA's responses to Waterkeeper's comments was so deficient as to provide a basis for invalidating th......
  • Fares v. Smith, Civil Action No. 16-1730 (CKK).
    • United States
    • United States District Courts. United States District Court (Columbia)
    • April 7, 2017
    ...litigants in a civil suit, and not the provision of an administrative record following agency action. See also FBME Bank Ltd. v. Lew, 209 F.Supp.3d 299 (D.D.C. 2016) ("[I]t is far from the norm to require agencies to produce privilege logs when they exclude material from an administrative r......
  • Standing Rock Sioux Tribe v. U.S. Army Corps of Eng'rs, Civil Action No. 16–1534 (JEB)
    • United States
    • United States District Courts. United States District Court (Columbia)
    • October 11, 2017
    ...expertise. See Wis. Valley Improvement Co. v. FERC, 236 F.3d 738, 746 (D.C. Cir. 2001) (citation omitted); FBME Bank Ltd. v. Lew, 209 F.Supp.3d 299, 342 (D.D.C. 2016) (finding that the "fair likelihood that the agency will be able to make use of its expertise to justify its reliance on data......
  • Request a trial to view additional results

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