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

• Decision Date: 14 April 2017
• Docket Number: Case No. 15-cv-01270 (CRC).
• Citation: 249 F.Supp.3d 215
• Parties: FBME BANK LTD., et al., Plaintiffs, v. Steven MNUCHIN, in his official capacity as Secretary of the Treasury, et al., Defendants.
• Court: U.S. District Court — District of Columbia

249 F.Supp.3d 215

FBME BANK LTD., et al., Plaintiffs,

v.Steven MNUCHIN,¹ 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 April 14, 2017

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

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

MEMORANDUM OPINION

CHRISTOPHER R. COOPER, United States District Judge

Sometimes, the third time really is the charm. The Financial Crime Enforcement Network ("FinCEN") first imposed the PATRIOT ACT's "fifth special measure" against Plaintiff FBME Bank Ltd. ("FBME" or the "Bank") via rulemaking in July 2015. After this Court preliminarily enjoined the rule, FinCEN sought a voluntary remand to correct certain deficiencies identified by the Court, and for a second time promulgated a rule imposing the measure against the Bank. Most of the prior inadequacies were addressed, but in September 2016, the Court returned the matter once again to the agency, noting that it had failed to respond to several significant comments FBME had submitted during the second rulemaking process. On remand, FinCEN supplemented its rule with responses to those comments, and now renews its motion for summary judgment. Finding that FinCEN has met its obligation to respond "in a reasoned manner" to FBME's comments, Reytblatt v. Nuclear Regulatory Comm'n, 105 F.3d 715, 722 (D.C. Cir. 1997), the Court will grant the agency's motion.

I. Background

A. Previous Proceedings and Summary Judgment Opinion ²

In July 2015, FinCEN, a component of the U.S. Department of the Treasury, promulgated a Final Rule imposing the "fifth special measure" against FBME under Section 311 of the USA PATRIOT Act of 2001.³ The Rule, aimed at blocking FBME from doing business in the United States or using U.S. dollars, prohibited domestic financial institutions from opening or maintaining correspondent bank accounts on behalf of FBME. In August 2015, in light of apparent procedural deficiencies in the Rule's promulgation and the likelihood of irreparable harm to FBME, the Court granted the Bank's motion to preliminarily enjoin the Rule. FBME Bank Ltd. v. Lew ("FBME I"), 125 F.Supp.3d 109, 114 (D.D.C. 2015). Soon thereafter, the Court permitted FinCEN to voluntarily remand the proceedings in order to conduct a new rulemaking and correct deficiencies. FBME Bank Ltd. v. Lew ("FBME II"), 142 F.Supp.3d 70, 72 (D.D.C. 2015). After reopening the Rule to solicit comments, FinCEN published a new Rule ("Second Final Rule") in March 2016, reiterating its finding that FBME was an institution of primary money laundering concern and again imposing the fifth special measure. 81 Fed. Reg. 18480 (Mar. 31, 2016).

The parties subsequently filed cross-motions for summary judgment as to the Second Final Rule's compliance with the Administrative Procedure Act ("APA") and constitutional due process. In September 2016, the Court granted in part and denied in part FinCEN's motion for summary judgment. FBME Bank Ltd. v. Lew ("FBME III"), 209 F.Supp.3d 299 (D.D.C. 2016). The Court found that FinCEN's rulemaking process had been lacking in some respects, but that those errors were ultimately harmless. Id. at 308–26. The Court also rejected FBME's constitutional due process arguments, id. at 326–32, and most of its arguments that the Second Final Rule was substantively arbitrary and capricious, id. at 332–*42.

The Court did, however, "conclude[ ] that FinCEN [had] failed adequately to respond to certain significant comments made by FBME concerning the agency's reliance on data drawn from Suspicious Activity Reports ("SARs") submitted by other financial institutions concerning transactions with the Bank." Id. at 308.⁴ In particular, FBME had raised the following concerns regarding SARs data, none of which FinCEN had adequately responded to: (1) that SARs included so much legitimate activity (along with illicit transactions) that they were unreliable; (2) that the number of suspicious transactions was actually quite low as a proportion of FBME's overall transactions; (3) that FinCEN had failed to consider alternative explanations for the increase in SARs involving FBME, including the Cypriot financial crisis; and (4) that FinCEN provided no benchmark or baseline for measuring abnormal or acceptable SARs rates. Id. at 332. The Court considered these comments "significant," because "resolving them in the Bank's favor would likely have ‘require[d] a change in [FinCEN's] proposed rule.’ " Id. at 335 (quoting City of Portland, Oregon v. EPA, 507 F.3d 706, 715 (D.C. Cir. 2007) ). Accordingly, while the Court declined to vacate the Rule, it remanded the matter to FinCEN so that it could adequately respond to the relevant comments. In the meantime, the Court continued to stay the implementation of the Rule.

B. Remand, Supplement and Renewed Summary Judgment Motions

On remand, FinCEN authored a supplement to the Second Final Rule, which was published on December 1, 2016. See Supplemental Information Regarding the Final Rule Imposing the Fifth Special Measure Against FBME Bank, Ltd., 81 Fed. Reg. 86577 (Dec. 1, 2016) ("Supplement"). In the Supplement, FinCEN acknowledged this Court's conclusion that "[it] had not responded meaningfully to FBME's comments regarding the agency's treatment of aggregate SAR data." Id. at 86577. The agency went on to identify the four significant comments enumerated above, and to offer substantive responses to each one. Id. at 86577–79. First, the agency responded to FBME's concern that SARs were unreliable because they included too much legitimate activity by explaining that the data was primarily valuable to show the Bank's high volume of shell-company transactions (itself an indicator of money-laundering activity). Id. Second, regarding FBME's concern about FinCEN's focus on absolute versus proportional numbers of SARs transactions, the agency conceded that its focus was "the substantial volume of all suspicious activity at the bank," and explained that "extensive legitimate activities" alone could not save an institution from the imposition of special measures. Id. at 86578. Third, even if SARs data had been inflated by the Cypriot financial crisis (as FBME posited), that effect would have accounted for only a small portion of the "hundreds of millions of dollars" of suspected shell company activities identified between 2006 and 2014. Id. Fourth, FinCEN rejected FBME's call for a benchmark or some other means of comparing the Bank's SARs data to other banks: The agency pointed out other facts that distinguished FBME, and worried that setting a benchmark might "simply set a target for banks or customers wishing to evade money laundering controls." Id. at 86578–79.

In light of the Supplement, FinCEN renews its motion for summary judgment, arguing that it has now complied with its obligation to respond adequately to all significant comments. FBME disagrees: It cross-moves for summary judgment, and contends that FinCEN's supplemental responses indicate an "inability or refusal to engage in reasoned decision-making." Pls.' Mem. Supp. Cross–Mot. Summ. J. ("Pls.' Cross–MSJ") 1. In the alternative, FBME requests that the Court stay the Second Final Rule pending appeal.

C. FBME's Motion for Reconsideration

Meanwhile, as the parties completed summary judgment briefing, FBME moved the Court to reconsider certain aspects of its September 2016 Opinion and Order, under Federal Rule of Civil Procedure 54(b). FBME alleges that FinCEN excluded from the administrative record a report that the agency "secretly received and considered ... in February 2015." Pls.' Mem. Supp. Mot. for Reconsideration ("Pls.' Mot. Reconsider") 1. The Central Bank of Cyprus ("CBC") prepared this "February Report" to summarize the findings of an FBME audit it conducted with PricewaterhouseCoopers ("PwC") in the summer of 2014. FBME points to a series of emails it recently uncovered, between the CBC and Richard May—then the Director of FinCEN's Office of Special Measures—revealing that May received a confidential copy of the February Report via email on February 13, 2015, and that between August 2015 and March 2016, May sought permission from the CBC to disclose the Report, either to U.S. courts or generally. See Pls.' Mot. Reconsider, Declaration of George Z. Georgiou ("Georgiou Decl.") ¶¶ 15–20.⁵

In FBME's view, this evidence indicates that FinCEN "willfully circumvented obligations to compile the Administrative Record" and "cast[s] grave doubt" on the declarations of Richard May—who had, among other things, attested to the record's completeness. Pls.' Mot. Reconsider 3. FBME asks the Court to: (1) retract its prior determination that FinCEN had afforded FBME sufficient due process by adequately disclosing unclassified, unprotected material and giving the Bank an opportunity to respond, see FBME III, 209 F.Supp.3d at 329 ; (2) grant FBME's request for a privilege log to describe the basis for any withheld documents, which the Court had previously denied, see id., at 317 ; and (3) order the deposition of Richard May, which the Court had earlier declined to do, see id., at 326 n.5. See Pls.' Mot. Reconsider 20–24.

FinCEN responds that none of the evidence FBME has presented establishes that "the February Report was considered by the agency and improperly excluded from the record." Defs.' Mem. Opp'n Pls.' Mot. Reconsider ("Defs.' Opp'n") 7–8. The facts FBME has put forth, the agency points out, do not foreclose the conclusions either that (1) FinCEN never "considered [the February Report] as part of the rulemaking or submitted it to the decisionmaker," or that (2) "FinCEN did consider it but treated the communication as classified, considering the request of a foreign government." Id. at 8. Regarding the latter possibility, although FinCEN cannot "comment...