WASHINGTON – For the second time, a federal judge has ruled that the Treasury Department's Financial Crimes Enforcement Network must withdraw a rule designed to cut off the Tanzanian bank FBME from the U.S. financial system.
U.S. District Judge Christopher Cooper said Fincen had still not shared enough about why it was targeting FBME, which the agency designated under Section 311 of the Patriot Act as a potential money laundering concern.
"This statutory authorization obviously clashes with the goals of transparency and public participation that underlie the notice-and-comment process," he said. "Taken to the extreme, requiring the agency to share only the most critical information could license it to share almost nothing publicly, despite nominally proceeding through notice and comment."
This was the second rebuke from Cooper to Fincen. The agency first targeted the bank in July 2015, issuing a rule directing U.S. institutions to cut off correspondent banking ties with FBME. But the bank fought back, saying the order relied on classified material that the institution was not allowed to see.
Cooper ordered Fincen to withdraw the rule, which it did. But the agency issued a new one in March that was designed to be more transparent.
In his latest opinion, Cooper argued that Fincen's Section 311 authority was inherently problematic, because it allowed the agency to issue a rule based on classified information.
Cooper instructed the agency to address the opacity of its Section 311 measures by publishing the unclassified material that participated in the agency's decision, and also explaining its reasoning, even if that means alluding to classified information.
"If the agency wants to act … on the basis of some key fact (even if the fact is stated in more general terms than in its classified form), that fact must have been disclosed in time for commenters to challenge its veracity and weight," the judge said.
Cooper also ordered Fincen to respond to specific comments on its use of aggregate Suspicious Activity Report data in the FBME case, which was disputed on several grounds by the bank.
For instance, FBME argued that the SARs data used by Fincen included "perfectly legitimate" transactions and that it represented only a fraction of the bank's activities. FBME also claimed Fincen did not take into account the Cypriot financial crisis, which could have caused an increase in SARs, and did not compare the bank's transactions against those of other similarly situated institutions.
Fincen responded to these claims with what Cooper called "hollow generalities" and unresponsive comments.
The judge, however, sided with Fincen on many of the specifics of the case, questioning FBME's right to due process and its claims that the agency had failed to sufficiently communicate the reasoning for its decision and allow the bank to respond.
Cooper also affirmed that Fincen's Section 311 authority had a legitimate purpose – fighting terrorism and crime. "Fincen's exercise of its Section 311 powers is critical to drying up the flow of financial support for terrorist and international criminal organizations," he said.
The judge declined FBME's request to vacate the rule entirely, instead allowing the agency to respond to some of the deficiencies identified in the ruling.
"This is not a free pass for Fincen, however," he said.
In a statement, FBME said it was satisfied with Cooper's latest ruling. "All along, FBME has contended that FinCEN failed to provide proper notice and substantively justify its damaging measures against FBME," the bank said.
