D.C. Circuit Affirms Dismissal of Challenge to FinCEN Section 311 'Finding of Primary Money Laundering Concern' for Banca Privada d'Andorra

On May 23, 2017, the United States Court of Appeals for the District of Columbia affirmed the dismissal of a challenge to the U.S. Treasury’s  use of Section 311 of the USA PATRIOT Act against Andorran bank Banca Privada d’Andorra (BPA) by the bank’s majority shareholders. 

The court’s decision provides important support for Treasury’s use of the Section 311 tool, confirming the great difficulties that plaintiffs will face in seeking to challenge, in the United States, the severe actions foreign regulators often take in response to even an initial announcement by Treasury that it is considering using this provision. The decision also provides important guidance to foreign financial institutions and other potential Section 311 plaintiffs on how to preserve their standing to challenge Section 311 actions. 

Under Section 311, if the Director of the Treasury’s Financial Crimes Enforcement Network (FinCEN) finds that a foreign financial institution qualifies as a “primary money laundering concern,” she may propose a rule that would impose one or more of five different “special measures” against it. The most severe special measure, and the one typically imposed, is the fifth special measure, which prohibits U.S. banks from maintaining correspondent relationships with the named foreign financial institution. A proposed rule to impose the fifth special measure must be made available for public comment and becomes effective once the rule is finalized.

In March 2015, FinCEN published a Notice of Finding identifying BPA as a “primary money laundering concern” under Section 311, and also issued a Notice of Proposed Rule Making proposing to impose the fifth special measure against BPA. Following publication of the notices, but before FinCEN published a final rule, the Andorran government took control of the bank and developed plans for its liquidation. A month later, two of the majority shareholders of BPA filed suit in the U.S. District Court for the District of Columbia against FinCEN, levying substantive and procedural challenges under the Administrative Procedure Act and the Due Process Clause.

Their two principal claims for relief sought: (1) an order requiring FinCEN to withdraw the notices; and (2) a declaration that the notices were unlawfully issued. The shareholders sought this relief in the hope that a withdrawal of the notices and a judicial determination that both were unlawful would encourage the Andorran Government to reverse its seizure of BPA. 

In March 2016, during the pendency of the district court litigation, FinCEN withdrew both notices because the Andorran government had seized BPA and taken measures to strip its “good assets” and transfer them to a new financial institution that would be owned by the Andorran government, and concluding that these steps “sufficiently protect[ed] the U.S. financial system from the money laundering risks previously associated with BPA,” making “the imposition of Section 311 special measures no longer justifiable.” FinCEN then moved to dismiss the shareholders’ suit on the basis that any controversy had been rendered moot. The D.C. District Court granted FinCEN’s motion to dismiss on those grounds on May 18, 2016. Less than two months after the D.C. district court granted FinCEN’s motion to dismiss, on July 14, 2016, the Andorran Government announced that it had finalized the sale of BPA’s assets.

The BPA majority shareholders nevertheless appealed the decision to the D.C. Circuit, reasserting their claims for (1) an order requiring FinCEN to withdraw the notices; and (2) a declaration that the notices were unlawfully issued. The Court affirmed the District Court’s opinion, but for different reasons. While the Court agreed that the first claim for relief was moot because BPA received full relief when FinCEN withdrew the notices, the Court rejected the second claim on the separate basis that the BPA shareholders lacked standing to sue because they had not demonstrated that it was likely, as opposed to merely speculative, that their injuries would be redressed by a favorable decision.

The BPA shareholders argued that a declaration that the two notices were unlawful would redress their injuries because there was "a substantial likelihood that a decision finding that FinCEN improperly labeled [BPA] as a ‘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 [BPAs] assets, what should be done with the corporate structure and any assets that remain, and how [BPAs owners] should [] be treated in the process.” 

The Court rejected this argument on the grounds that (1) no evidence was presented to show that a declaration that FinCEN violated the APA in promulgating the notices would have caused Andorra to reverse course; and (2) in any case, the window of time to have an impact on the position of Andorran authorities closed after it was announced that the Andorran government had finalized the sale of the assets.

Practical Considerations

The takeaway for banks targeted by any future Section 311 action, or other would-be plaintiffs seeking to challenge such an action, is to prevent any final sale of a bank’s assets by its national regulator that cannot be undone, so as to preserve standing to challenge the Section 311 action. 

Overall, however, the decision shows how quick and devastating the actions of foreign regulators can be following Section 311 actions by FinCEN, even before any final rule is promulgated. It reinforces the notion, underlined by a recent D.C. District Court opinion dismissing another challenge to the use of Section 311, that contesting Section 311 actions will remain very difficult.