In an op-ed in American Banker Magazine, Sharyn O’Halloran said that on top of the fact that FinCEN’S punishment was draconian “the glaring gaps in its administrative process and lack of substantiated claims in its pursuit of FBME suggest that FinCEN sleepwalked toward a predetermined outcome of simply wanting the institution closed”.
The Financial Crimes Enforcement Network, she said, remained undeterred by FBME’s cooperation, remedial actions “or even outright facts”.
“From court filings and public comments, it appears that FinCEN may have violated the APA [Administrative Procedures Act]. Even more troubling, it also appears that FinCEN’s targeting of the bank borders on unconstitutional,” O’Halloran said.
The Central Bank of Cyprus (CBC) put the Tanzanian bank under administration in July 2014, FinCEN, a division of the US Treasury, described the lender as “of primary money laundering concern”. Last month, FinCEN reaffirmed its decision to cut FBME’s ties to the US banking system, which was followed within days by the dismissal of 136 staff by the special administrator in Cyprus.
Since then, the CBC has announced its decision on payouts to depositors, angering the bank, which said the supervisory authority had only triggered the deposits scheme so that it could claim to have fulfilled its duties to depositors “and evade further exposure for misconduct”.
O’Halloran, in her op-ed said that based on the public record and federal agencies’ obligations under the Administrative Procedures Act, the bank still had a good case.
She said that in the vast majority of situations, an action by a federal agency that results in the significant taking or deprivation of property interests is unconstitutional.
Under FinCEN’S Patriot Act, authority to designate a foreign bank tied to US correspondent banks as a money-laundering concern, the agency need not even issue a formal finding.
“The reputational damage of simply a proposed rule is sufficient to significantly damage a bank,” she said, adding that of the five banks which had the special rule imposed on them, FinCEN had rescinded the rule for three of them. “That was not because the agency reconsidered its rulemaking. It was because the banks had gone out of business,” she said.
O’Halloran also said FinCEN had been remiss in evaluating the evidence given to them and had disregarded the steps taken by FBME to readjust its control mechanisms. FinCEN had also ignored reports by independent auditors Ernst and Young and KPMG “that the bank was compliant with international and domestic money-laundering standards”.
“An agency with significant discretionary power cannot afford to skip elementary due diligence,” O’Halloran said. If FinCEN had “engaged with this evidence in a meaningful way, it should attempt to refute those sections of the evidentiary record it disagrees with, rather than glossing over inconvenient facts,” she added.
FinCEN, she suggests, should critically evaluate its own actions and determine whether the agency has acted in a manner that is consistent with its mandate.
Excerpts reproduced with the permission of the author of the original piece. Sharyn O’Halloran wishes to make it clear she has no affiliation with FBME or any bank.