249 F. Supp. 3d 215
D.D.C.2017Background
- FinCEN promulgated a Final Rule in July 2015 imposing the PATRIOT Act §311 “fifth special measure” against FBME Bank, barring U.S. banks from maintaining correspondent accounts for FBME; the Court preliminarily enjoined that Rule and allowed voluntary remand for corrective rulemaking.
- FinCEN issued a Second Final Rule in March 2016; the Court in September 2016 upheld most aspects but remanded because FinCEN had not adequately responded to FBME’s significant comments about FinCEN’s reliance on Suspicious Activity Reports (SARs).
- FBME’s key SARs-related comments challenged: (1) SARs overinclude legitimate activity, (2) FinCEN relied on absolute rather than proportional SARs, (3) the Cypriot financial crisis inflated SARs, and (4) FinCEN provided no SARs benchmark for comparison.
- On remand FinCEN published a December 1, 2016 Supplement responding to each comment, explaining SARs were used primarily as qualitative indicators (e.g., shell-company typologies), that absolute volume can matter for systemic risk, that its conclusions rested on multi-year data not driven solely by the Cypriot crisis, and that benchmarks are infeasible or counterproductive.
- FBME also sought reconsideration, arguing recently discovered emails and a February 2015 CBC report (the “February Report”) show FinCEN withheld material from the administrative record and acted in bad faith; FinCEN submitted classified ex parte material and declarations denying bad faith and explaining possible classification of the CBC material.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Adequacy of response to comment that SARs overinclude legitimate activity | FBME: SARs are unreliable because they capture much legitimate activity and thus cannot support adverse findings | FinCEN: SARs used qualitatively to show indicators (e.g., shell companies, lack of business purpose); weak AML controls mean SARs likely understate illicit activity | Held: FinCEN’s Supplement adequately and reasonably addressed overinclusiveness concerns |
| Use of absolute vs proportional SARs | FBME: Statute requires considering the "extent to which" institution is used for laundering—implies proportional analysis | FinCEN: Absolute volume is relevant to systemic risk; agency evaluated broader statutory factors including proportional metrics elsewhere | Held: Court will not revisit statutory application here; FinCEN’s approach is reasonable and responses adequate |
| Cypriot financial crisis inflated SARs counts | FBME: Crisis-era disruptions could have produced spurious SARs, skewing results (notably a $387M one-year figure) | FinCEN: Findings rely on data spanning 2006–2014 and on qualitative indicia; conclusions do not materially depend on crisis-period spikes | Held: FinCEN adequately explained conclusions did not turn on crisis-period SARs |
| Lack of SARs benchmark or point of comparison | FBME: Need comparative benchmark to show numbers are abnormal; one bank’s raw numbers are meaningless alone | FinCEN: Benchmarks are infeasible and may create perverse incentives; agency explained why benchmarks unnecessary and risky | Held: FinCEN reasonably explained why no benchmark was provided and adequately answered the comment |
| Motion to reconsider/extrarecord discovery re: February Report and administrative record completeness | FBME: Emails and CBC February Report show FinCEN withheld material and acted in bad faith; requests privilege log and deposition of record certifier | FinCEN: Either the report was not considered or was treated as classified foreign-government information; strong presumption of regularity and no clear evidence of bad faith | Held: FBME failed to show bad faith or exceptional circumstances; no extra-record discovery or reconsideration granted |
Key Cases Cited
- Reytblatt v. Nuclear Regulatory Comm’n, 105 F.3d 715 (D.C. Cir. 1997) (agency must respond to significant comments in a reasoned manner)
- City of Portland v. EPA, 507 F.3d 706 (D.C. Cir. 2007) (agency must respond to significant public comments; significant comments can require rule change)
- Pub. Citizen, Inc. v. FAA, 988 F.2d 186 (D.C. Cir. 1993) (explanation must ventilate major policy issues and reasons for agency action)
- Thompson v. Clark, 741 F.2d 401 (D.C. Cir. 1984) (agency decision must be based on consideration of relevant factors)
- Motor Vehicle Mfrs. Ass’n v. State Farm, 463 U.S. 29 (U.S. 1983) (court must not substitute its judgment for an agency and must assess whether action was arbitrary or capricious)
- Theodore Roosevelt Conservation P’ship v. Salazar, 616 F.3d 497 (D.C. Cir. 2010) (extra-record discovery or supplementation requires strong showing of bad faith or improper behavior)