Exclusive: U.S. Treasury unit seeks to resolve suit challenging Patriot Act power over foreign banks

June 3, 2014

By Brett Wolf, Compliance Complete

NEW YORK, June 3, 2014 (Thomson Reuters Accelus) – The U.S. Treasury Department’s anti-money laundering arm is quietly attempting to resolve a lawsuit challenging its use of a potent Patriot Act power against a Macau bank as well as the constitutionality of that authority, documents filed in federal court in Washington suggest.
The effort by Treasury’s Financial Crimes Enforcement Network (FinCEN) to avoid litigating the lawsuit brought by Banco Delta Asia (BDA) suggests the bureau is hoping to avoid a court battle that could weaken or perhaps even kill the extraterritorial power prized by U.S. authorities, Section 311 of the Patriot Act, former Treasury officials say. 

There has been “an extended discussion between the parties through a course of several telephone calls and meetings over the past year” aimed at resolving the lawsuit by BDA outside of court, a document filed in District Court earlier this week states. The document seeks to bring the judge overseeing the case up to speed regarding what has occurred since February when the parties jointly requested the lawsuit be put on hold so they could attempt to resolve the matter.

It states that apart from the lawsuit, BDA made an administrative request that FinCEN withdraw its 2007 action that labeled BDA a “financial institution of primary money laundering concern” under Section 311 and thereby barred U.S. financial institutions from opening or maintaining correspondent accounts for the bank, severing it from the U.S. financial system.

At the heart of FinCEN’s action were U.S. allegations that BDA facilitated counterfeiting, narcotics trafficking and other illicit activity involving the government of North Korea.

According to the document filed in District Court, FinCEN responded to BDA’s administrative request by proposing “further action” on the bank’s part and that the parties have “tentative” plans to meet next month to discuss the matter.

The plaintiffs in the lawsuit include BDA, its parent, Hong Kong-based Delta Asia Group Ltd, and its chairman Stanley Au, in March 2013. The named defendants are Treasury Secretary Jack Lew, FinCEN and its director, Jennifer Shasky Calvery.

In its lawsuit, BDA said FinCEN’s Section 311 action was taken “without statutorily or constitutionally adequate procedure, without adequate evidentiary support, and based on improper considerations.” It also claimed Section 311 itself is unconstitutional because it “fails to provide adequate specificity as to the criteria for designating a financial institution as being ‘of primary money laundering concern’ and … it provides Executive Branch officials overly broad discretion in making those determinations.”

FinCEN would not stand to benefit from a legal fight over the constitutionality of Section 311, a unique tool that offers Treasury authorities considerable leverage over foreign banks, said former Treasury officials who asked not to be named due to their private-sector work. They added that a court battle might also put FinCEN in a difficult position as it tried to avoid public disclosure of the sources and methods it used to gather evidence against BDA.

FinCEN has invoked Section 311 against 17 financial institutions during the past 12 years, most recently last year when it targeted virtual currency firm Liberty Reserve SA, which the U.S. government accused of laundering billions of dollars in dirty money generated by a variety of criminal activity.

Lawyers with the Jones Day law firm in Washington, who are representing BDA in the matter, did not respond to telephone calls and emails seeking comment.

A FinCEN spokesman declined to comment.

The case is 1:13-cv-00333 in the U.S. District Court for the District of Columbia.

(This article was produced by the Compliance Complete service of Thomson Reuters Accelus. Compliance Complete provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 400 regulators and exchanges. Follow Accelus compliance news on Twitter: @GRC_Accelus)

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