As expected, Judge Cooper ruled in favour of FinCEN in US Court on the 14th of April 2017. Coopers’ comments in 2015, where the Court stated that ‘FinCEN has strong enough support for its factual assertion in this regard that any comment from FBME would not make a difference’, and that ‘the Court finds it exceedingly unlikely that FBME could mount a credible challenge’ to the argument that FinCEN failed to disclose supporting documentation for its findings, initiated the final verdict of the Court, concluding that ‘lifting the stay pending appeal is proper’.
In July 2014, FinCEN published a Notice of Finding claiming that FBME Bank was a threat to the US financial system. In the Notice of Finding, FinCEN appointed different serious irregularities in the banks’ business model. The Central Bank in Cyprus took instant action and prevented a bank run that could have serious consequences for depositors and the rationale of the bank. The resolution decree initiated an unclear and nerve-racking time. Customers and staff were left in the dark and little information was provided via the media platform of the shareholders of the bank. Although it is understandable that shareholders are disappointed, almost all statements, interim verdicts and orders by the independent Courts, show an opposite view on the situation. The final order by US Court is such an example.
FBME challenged the Administrative Procedure Act (APA) in the USA. It is remarkable that the findings that led to the closure of the bank were not challenged at all. Via ‘rulemaking’, FinCEN imposed the ‘fifth special measure’ against FBME Bank in July 2015, after which FinCEN sought a voluntary remand to correct certain deficiencies, nominated by the Court to be harmless. The second rule was promulgated and the Court remanded the agency’s motion because FBME conveyed significant comments that deserved an appropriate answer. The answers provided by FinCEN in February 2017 were approved by the Court and FinCEN has met its obligation to respond ‘in a reasoned manner’ to FBME’s comments. Therefore the Court will grant the agency’s motion. This means that FBME is excluded from doing business in the US and with corresponding banks.
Legal standards and approach
As mentioned before, FBME did not challenge the findings of FinCEN. They sought relief in the procedures the agency had to follow to come to the Final Rule against the bank. For various reasons, this strategy is peculiar. If the allegations are, as stated by the owners of the bank, untrue, or even a ‘witch-hunt’ on dubious grounds, one should expect a strong counter action from the owners. Instead, they challenged the Administrative Procedures Act in Court.
The Court issued the order to stay twice, and allowed FBME to defend themselves due to the likelihood of irreparable harm to the banks operations. It was however in 2015 already clear that the Court agreed that FinCEN had a more than sufficient basis to conclude on its own findings and did not need clarification from FBME, to issue the Notice of Finding and the Final Rule.
US law is, similar to EU law, primarily based on a legal framework (laws and directives), complemented with verdicts resulting in jurisprudence. This combination provides clarity and legal security. Opinions of both parties are tested on the law and previous country wide verdicts to prevent discrimination.
The structure of the law and the way the Court analysed the presented information by the parties, makes it difficult to point out the laws that FBME infringed. While investigating the classified and public portions of the case, it is not just a law that was transgressed; on the contrary, it was a combination of regulation, procedures, and specific laws that were indicted.
FinCEN has renewed its motion for summary judgment, arguing that the Supplement—which identifies and responds to each of the comments outlined in the Court’s September Opinion—brings the Rule squarely within the APA’s requirements. Unsurprisingly, FBME does not agree: The Bank argues that FinCEN, even accounting for the Supplement, has failed to respond adequately to any of its comments regarding the agency’s use of SARs data. The Court will therefore consider the adequacy of each of FinCEN’s responses, asking whether the agency reasonably discussed the “major issues of policy that were ventilated” and “why the agency reacted to them as it did.”
The Court analysed responses from FinCEN to the following comments made by FBME: (i) Suspicious Activity Report (SAR) inclusion of too much legitimate activity, (ii) Use of absolute rather that proportional SARs data, (iii) Cypriot financial crisis as an alternative explanation for high SAR rates, and (iv) No SARs benchmark or point of comparison.
- Overinclusive SAR data
The Court concludes that FinCEN responded adequately FBME’s concerns about the SAR over-inclusiveness by explaining that the problem was not just the high number of shell company activity, but the apparent nature, purpose and use of these companies and their transactions. The data gathered was primarily valuable as ‘qualitative evidence’ of suspicious activity; organisations and transactions with no apparent business purpose.
- Usage of specific SAR data
The arguments of FBME were far beyond the scope of the Court’s review of the motion, since FBME only was granted the possibility to receive a response to its questions about the SAR data itself. FinCEN explains in the supplement that the absolute volume of suspicious activity is a more valuable metric because it indicates whether a bank “poses a significant threat to the U.S. and international financial systems” by “allowing large amounts of funding to pass to terrorist or criminal activity.” Additionally, FinCEN explained that it considered a variety of information to come to their finding and rule. It even considered the extent of FBME’s legitimate business.
The Court finds FBME’s arguments ‘unavailing’ and the Court agrees that questions by FBME were answered accordingly by FinCEN.
- The impact of the Cyprus financial crisis on SAR data
FinCEN’s main point in response is straightforward. The agency explained that its conclusions did not materially “rely” on any increase in “the number of SAR filings involving FBME . . . during the Cypriot financial crisis as compared to past periods in the analysis.” The agency cited figures spanning a period between 2006 and 2014, and it also pointed to the year 2013, where there was an increased level of SAR data available.
According to the Court, FinCEN has adequately explained that, even assuming inflated SARs figures at the end of the 2006–14 period, its conclusion would not have changed—and therefore, was “based on a consideration of the relevant factors.”
- A lack of a benchmark for SAR
FinCEN explained in the supplement that benchmarks are unnecessary and infeasible to provide. First, it reiterated some of its points regarding the agency’s focus on absolute SARs data, and on the potential that SARs rates actually underestimate FBME’s illicit activity because of the Bank’s weak AML controls. Second, FinCEN noted its concern that “setting a benchmark as FBME suggests could simply set a target for banks or customers wishing to evade money laundering controls.”
All individual responses and the complete supplement are considered by the Court as an ‘adequate response to FBME’s significant comments in promulgating the Second Final Rule.
For the foregoing reasons, the Court will grant FinCEN’s renewed motion for summary judgment and deny FBME’s motion for reconsideration. Furthermore, the Court will lift the stay currently blocking the Second Final Rule’s implementation. Four factors apply when resolving a motion to stay pending appeal: “(1) whether the stay applicant has made a strong showing that he is likely to succeed on the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure the other parties interested in the proceeding; and (4) where the public interest lies.”
In light of the Court’s merits analysis, FinCEN’s interest in having the Rule take effect, and the public’s interest in protecting the U.S. financial system from illicit activity such as money laundering, only the second factor could possibly weigh in favor of FBME at this stage. And the Bank has not demonstrated how implementation of the Rule would cause it irreparable harm under present circumstances. Accordingly, lifting the stay pending appeal is proper.
The definitive closure and liquidation of the bank now has to be ruled by the Court in Cyprus. The outcome of the arbitrage tribunal proceedings in Paris have no influence on the banks future activities. Customers currently have to rely on the order of the Judges in Cyprus.
Supervision of financial services in an integrated European Single Market enables mandatory cooperation between host and home supervisors in respect of branches. In extreme circumstances, and if corrective action is not taken, host supervisors have the power to intervene. It is based on the current situation in Tanzania, where the administrator of the bank is uncooperative, likely that Cyprus court allows liquidation of the Cyprus branch and all accounts (including Tanzania accounts) that were managed from Cyprus, in Cyprus.
Statements by the owners and the administrator of the bank in Tanzania, claiming that Cyprus has no legal jurisdiction in Tanzania remains questionable. Regulation and international law provide sufficient input for a legitimate liquidation of the business unit that managed Tanzania accounts from Cyprus, in Cyprus.
FUND RECOVERY SERVICES
Although numerous customers of the bank already received their account balances, there still are many customers waiting in vain for a solution. Customers of FBME Bank in Tanzania or those with an excess of 100.000 Euro on their account, are close to a solution. Those with accounts in Cyprus who have not applied for the DGS, should do at shortest notice.
Since the end of 2014, Legal Floris LLC provides fund recovery services for customers of FBME Bank. Hundreds of our customers have already recovered their account balance or a substantial part of this account balance. You can read their comments on our ‘testimonial‘ page. On a daily basis, we continue to assist customers who need an efficient streamlined process to apply and qualify for the Deposit Guarantee Scheme and/or recover their funds in a different way.
The Legal Floris Group currently offers fund recovery solutions and services for the following customer groups. Click on one of the links below for more detailed information:
Are you a customer of the bank and do you want the funds from your blocked bank account to be returned, contact us today. Legal Floris LLC currently represents over 1.300 customers of FBME Bank, both with accounts in Cyprus as well as in Tanzania.
We don’t work for everyone. FBME Bank was shut down for a reason. If there is a suspicion of money laundering, the DGS and liquidator, can and will not pay. Simultaneously, we reserve the right not to accept you as a customer. We wish to know our clients and must be assured on the source of your funds. If you’re a legitimate customer there is nothing to fear. Therefore, contact us today and let’s start the process for recovery right away.