Judge Shields Foreign Bank from U.S. Penalties

(CN) — A federal judge ordered the Treasury Department to fully respond to a foreign bank's denials of money-laundering activity before cutting it off from the U.S. banking system.

Formerly known as the Federal Bank of the Middle East, FBME has shown a "willingness to service the global criminal element," according to the Financial Crimes Enforcement Network, or FinCEN, a bureau of the U.S. Treasury Department.

An item in the Federal Register in July 2014 said FinCEN had found that FBME actively advertised itself to high-risk shell companies used to finance terrorism and organized crime, evade sanctions and otherwise fund illegal activity worldwide.

It noted as an example that Teodoro Nguema Obiang Mangue - the son of the president of Equatorial Guinea - has transferred $7.2 million out of his country's treasury via FBME to a British shell company.

A new Treasury rule set to take effect Aug. 28 of last year threatened to permanently cut off the bank from the U.S. financial system, which FBME characterized as a "death sentence" in a complaint filed in Washington, D.C.

FBME, headquartered in Tanzania but operating primarily out of Cyprus, filed suit in early August 2015 to block the rule's implementation.

U.S. District Judge Christopher Cooper granted the bank a preliminary injunction, and reaffirmed Tuesday that the rule shall remain stayed until FinCEN adequately responds to FBME's "significant comments."

After the initial stay, FinCEN reopened a 60-day comment period, and issued a second final rule again concluding that FBME is a major money-laundering concern.

It specifically found that FBME had maintained accounts for the head of an international drug trafficking network and a designated Syrian proliferator of weapons of mass destruction, and had facilitated transactions for Hezbollah.

The agency reported at least 4,500 suspicious wire transfers to FBME through U.S. accounts exhibiting indications of money laundering that totaled $875 million between 2006 and 2013.

Cooper called these findings the "cornerstones" of FinCEN's decision to ban FBME from making U.S. dollar transactions.

"It is clear, though, that if FBME's critiques regarding the analysis of [suspicious activity reports, or SARs] data were considered, deemed valid, and incorporated into FinCEN's analysis, those cornerstones might well be weakened," Cooper said in Tuesday's 65-page ruling.

FBME claims that a spike in certain transactions can be attributed to the Cypriot financial crisis, and should not be considered money-laundering activity.

"In failing to respond to these material comments, FinCEN's decision was therefore arbitrary and capricious, being 'not based on a consideration of the relevant factors,'" the judge found.

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