New York’s banking regulator is demanding communications between the Bank of Tokyo Mitsubishi UFJ Ltd. and its new U.S. supervisor, escalating a legal battle that challenges the legitimacy of the bank’s swift conversion to a federal charter last year.

In a court filing Saturday, Maria Vullo, superintendent of the New York State Department of Financial Services, attacked the bank’s move as an example of “regulatory arbitrage.”

Maria Vullo, the superintendent of the New York State Department of Financial Services
Turf war?
Bank of Tokyo Mitsubishi UFJ Ltd. held “secretive discussions” with the OCC, in which it “began negotiating the means by which it could avoid being prosecuted for its misconduct by absconding to a new regulator,” Maria Vullo, superintendent of the New York State Department of Financial Services, said in a court filing. Bloomberg News


By replacing the department with the Office of the Comptroller of the Currency as its regulator, Bank of Tokyo was trying to evade the consequences of its compliance failures from 2014 through 2017, which included weak due diligence of transactions that could be tied to North Korea, Vullo said in the filing.

Vullo has already asked the court for permission to sanction the bank for its conduct while it was under state supervision. But in the latest filing, she claims that Bank of Tokyo held “secretive discussions” with the OCC, in which it “began negotiating the means by which it could avoid being prosecuted for its misconduct by absconding to a new regulator.”

The OCC and Bank of Tokyo did not immediately respond to requests for comment.

The filing recounts the timing of the conversion process, which began with a notice to the state regulator from the OCC on Oct. 30, asking it to respond within days if it had any objections to the Bank of Tokyo’s request for a national charter.

Vullo's office advised the comptroller’s office of its concerns several times over the next week, the filing says. It also said the OCC was prohibited by law and by the regulator’s own licensing manual from approving the bank’s request for a conversion without her office’s approval.

Nevertheless, the OCC approved the conversion on Nov. 7, just eight days after Vullo's office was notified of the bank’s request.

Consultations between banks and their regulators are normally protected from public view, but the state regulator asked the court to allow discovery of the back-and-forth between the Bank of Tokyo and the OCC over the process that unfolded last fall.

At the time, the OCC was led by Keith Noreika, a lawyer who had advised Bank of Tokyo as a client before becoming acting comptroller of the currency in 2017. A few weeks after Bank of Tokyo’s conversion was approved, Noreika stepped down and returned to private practice.

“DFS is entitled to discovery on the full circumstances that led to the OCC’s approval of BTMU’s conversion applications, including communications regarding the purpose of the conversion, the factors actually considered by the OCC, and the reasons [if any] requiring a decision in eight days without input of consent from DFS,” Vullo said in the filing.

Noreika declined to comment.

The case is Bank of Tokyo Mitsubishi UFJ v Maria Vullo, 17-cv-08691.

Bloomberg News