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Cierco v. Lew

United States District Court, District of Columbia

May 20, 2016

RAMON CIERCO, et al., Plaintiffs,
v.
JACOB J. LEW, et al., Defendants.

          AMENDED MEMORANDUM OPINION

          JAMES E. BOASBERG United States District Judge.

         Plaintiffs Ramon and Higini Cierco, along with two associated corporations, are the majority shareholders of a privately held Andorran Bank, Banca Privada d’Andorra S.A. (BPA), which has recently found itself in a bit of a pickle. An arm of the U.S. Treasury Department, the Financial Crimes Enforcement Network (FinCEN), developed concerns that BPA was facilitating - or was willfully blind to - various money-laundering transactions happening under its roof. Relying on authority provided by the 2001 USA PATRIOT Act, FinCEN in early 2015 started a process that, had it been completed, would have effectively required all U.S. banks to stop transacting with BPA. In pursuit of this goal, FinCEN published both a Notice of Finding and a Notice of Proposed Rulemaking in the Federal Register, stating its reasons for suspecting that BPA was of “primary money laundering concern” and proposing regulations that would limit U.S. banks’ involvement with the accused.

         Before FinCEN promulgated a final rule, however, Plaintiffs sued in this Court in October 2015, seeking to vacate those Notices and enjoin Treasury from proceeding any further. Plaintiffs believe that FinCEN’s actions set into motion a chain of events that will (soon and irrevocably) lead to BPA’s demise. In particular, after the Notices issued, U.S. banks voluntarily ceased U.S. dollar transactions with BPA. Even worse, the Andorran government took control of BPA and has recently developed plans for its liquidation. Given this turn of events, FinCEN recently changed course, withdrawing its Notice of Finding and NPRM in early 2016 because it believes that BPA, on account of its Andorran receivership, is no longer of “primary money laundering concern.” Pointing to those withdrawals, the government has now moved to dismiss, arguing that any controversy that once existed between the parties has been rendered moot. The Court agrees and will grant Defendants’ Motion.

         I. Background

         A. Statutory Background

         Beginning at least with the enactment of the Bank Secrecy Act in 1970, Pub. L. 91-508, Tit. II, 84 Stat. 1118, Congress has given the Secretary of the Treasury authority to impose various regulations on domestic banks to reduce the “use of banks and other institutions as financial intermediaries by persons engaged in criminal activity.” Ratzlaf v. United States, 510 U.S. 135, 138 (1994). Following the terrorist attacks on September 11, 2011, Congress amended the Act in Title III of the 2001 USA PATRIOT Act, Pub. L. 107-56, 115 Stat. 272, in an effort to “prevent, detect, and prosecute international money laundering and the financing of terrorism.” Id. § 302(b)(1). Relevant here, § 311 of the PATRIOT Act, codified at 31 U.S.C. § 5318A, gave the government authority to impose any of five “special measures” on domestic financial institutions, provided the Secretary “finds that reasonable grounds exist for concluding” that a foreign bank - i.e., one “operating outside the United States” - is “of primary money laundering concern.” 31 U.S.C. § 5318A(a)(1).

         The first four of the “special measure[s]” allow the Secretary, by way of FinCEN, to require domestic banks to keep records and report on specific types of transactions. Id. § 5318A(b); see also § 310 (establishing FinCEN as a “a bureau in the Department of the Treasury” and enumerating its authorities). Those measures, which are not at issue here, may be imposed by Treasury “by regulation, order, or otherwise as permitted by law.” § 5318A(a)(2)(B).

         The fifth special measure, in contrast - which is the one FinCEN believed was warranted for BPA - represents a more severe imposition on domestic banks. If the Secretary finds a foreign banking institution to be “of primary money laundering concern, ” he may, “in consultation with the Secretary of State, the Attorney General, and the Chairman of the Board of Governors of the Federal Reserve System, . . . prohibit, or impose conditions upon, the opening or maintaining in the United States of a correspondent account or payable-through account by any domestic financial institution or domestic financial agency for or on behalf of a foreign banking institution.” Id. § 5318A(b)(5). Unlike the other four measures, which may be imposed “as permitted by law, ” this measure “may be imposed only by regulation.” § 5318A(a)(2)(B), (C); see 5 U.S.C. § 553 (describing procedures for agency rulemaking).

         B. Factual and Procedural Background

         1. The Two Notices

         In March 2015, FinCEN publicly announced that it had “found that reasonable grounds exist for concluding that [BPA] is a financial institution operating outside of the United States of primary money laundering concern.” Notice of Finding That Banca Privada d’Andorra Is a Financial Institution of Primary Money Laundering Concern (“Notice of Finding”), 80 Fed. Reg. 13464, 13464 (March 13, 2015). Basing this assessment on various factors, it concluded that: (a) “[s]everal of BPA’s high-level management have facilitated financial transactions on behalf of TPMLs [third-party money launderers]”; and (b) BPA has weak anti-money-laundering (AML)

         controls and “allow[s] its customers to conduct transactions through the U.S. financial system that disguise the origin and ownership of the funds.” Id. at 13465-66. FinCEN acknowledged that while BPA may offer services for some “legitimate business purposes, ” distinguishing between legitimate and illegitimate services was “difficult to assess on the information available . . . .” Id. at 13466. On the basis of these findings, FinCEN concluded that imposition of the fifth special measure under § 311 was appropriate, suggesting that doing so

would guard against [] international money laundering and other financial crimes described above directly by restricting the ability of BPA to access the U.S. financial system to process transactions, and indirectly by public notification to the international financial community of the risks posed by dealing with BPA and TPMLs.

Id. at 13466.

         On the same day it published its Notice of Finding, FinCEN also published in the Federal Register a Notice of Proposed Rulemaking “to propose the imposition of [the fifth] special measure against BPA.” Imposition of Special Measure against Banca Privada d’Andorra as a Financial Institution of Primary Money Laundering Concern (NPRM), 80 Fed. Reg. 13304, 13304 (March 13, 2015). In addition to setting forth what the rule would require from U.S. financial institutions and justifying Treasury’s use of the fifth special measure, the government also observed that “[o]ther countries or multilateral groups have not yet taken action similar to the action proposed in this rulemaking, ” - i.e., blocking the domestic use of correspondent bank accounts maintained for BPA and screening out BPA-related transactions. Id. at 13305. It therefore “encourage[d] other countries to take similar action based on the information contained in this NPRM and the Notice of Finding.” Id. It also informed the public that the deadline for submitting any comments regarding the NPRM was May 12, 2015. Id. at 13304-05.

         Plaintiffs took advantage of the public-comment period, filing on May 6, 2015, a comment that “described (1) numerous steps the Bank had taken for years prior to FinCEN’s Notice to evaluate its AML and compliance program, (2) the results of those evaluations, and (3) evidence showing the Andorran government’s certification of BPA’s AML program.” Complaint, ¶ 66. The comment did not specifically respond to FinCEN’s allegations contained in the Notice of Finding because, according to Plaintiffs, “[t]he characteristic lack of specificity in the NOF made it impossible” to do so. Id. ¶ 70. Plaintiffs also wrote letters to FinCEN before the comment period closed, asking for it to “provide additional specificity or a complete file of unclassified underlying documents that served as the evidentiary basis for the charges, in order to afford Plaintiffs the opportunity to provide a comprehensive response before the closure of the Notice and Comment period on May 6, 2015.” Id., ¶ 71. FinCEN, however, never responded. Id.

         Notwithstanding their ongoing attempts to change Treasury’s mind, Plaintiffs allege that the Notice of Finding and NPRM had an “immediate impact” on BPA’s business. See id., ¶ 43. Specifically, they believe the Notices “directly caused the Andorran government to seize BPA.” Id. In addition, “BPA’s U.S. correspondent banks immediately froze BPA’s accounts and refused further banking services, thus cutting BPA off from the U.S. dollar market. BPA’s non-U.S. dollar banking relationships worldwide also were immediately terminated.” Id.

         2. Plaintiffs’ Lawsuit & ...


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