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Cierco v. Mnuchin

United States Court of Appeals, District of Columbia Circuit

May 23, 2017

Ramon Cierco, In his personal capacity and derivatively on behalf of himself and all others similarly situated, et al., Appellants
v.
Steven T. Mnuchin, in his official capacity as Secretary of the Treasury, et al., Appellees

          Argued March 13, 2017

         Appeal from the United States District Court for the District of Columbia (No. 1:15-cv-01641)

          Eric L. Lewis argued the cause for appellants. With him on the brief was A. Katherine Toomey.

          Sarah Carroll, Attorney, U.S. Department of Justice, argued the cause for appellees. With her on the brief were Benjamin C. Mizer, Principal Deputy Assistant Attorney General at the time the brief was filed, and H. Thomas Byron, III, Attorney.

          Before: Rogers and Srinivasan, Circuit Judges, and Edwards, Senior Circuit Judge.

          OPINION

          EDWARDS SENIOR CIRCUIT JUDGE.

         Edwards, Senior Circuit Judge: In 2015, the Department of Treasury's Financial Crimes Enforcement Network ("FinCEN") suspected that Banca Privada d'Andorra S.A. ("the Bank") was being used to launder money. Pursuant to Section 311 of the USA PATRIOT Act, FinCEN issued a Notice of Finding and a Notice of Proposed Rulemaking (the "Notices") proposing to cut off the Bank's ties to the United States' financial system. Without completing the rulemaking process that these Notices contemplated, FinCEN effectively achieved its goals when the Andorran Government seized the assets of the Bank and began a process to sell off those assets.

         After the Andorran Government took control of the Bank, Appellants - the majority shareholders of the Bank - filed suit in the District Court, claiming that FinCEN violated the Administrative Procedure Act ("APA") in issuing the Notices. Appellants' complaint sought two principal remedies: (1) an order requiring FinCEN to withdraw the Notices, and (2) a declaration that the Notices were unlawfully issued. While the case was pending before the District Court, FinCEN, satisfied that the Bank no longer posed a money laundering concern, withdrew both Notices. The District Court then granted FinCEN's motion to dismiss on the grounds that the case was moot. Appellants filed an appeal from that judgment. Subsequent to the District Court's decision, the Andorran Government finalized the sale of the Bank's assets to a private investment firm.

         We agree with the District Court that this case should be dismissed, but for different reasons. When FinCEN withdrew the Notices, Appellants received full relief on their first claim. Therefore, we agree that Appellants' first claim for relief is moot. Appellants' second claim for relief - a declaration that the Notices were unlawful - is not moot, but they no longer have standing to press this claim.

         When Appellants first filed their law suit, they had standing to challenge the legality of the Notices. However, once their claim for the withdrawal of the Notices became moot, Appellants had the burden to show that they still had standing to seek a declaratory order that the Notices were unlawful. They have not met this burden. Even assuming that Appellants have the requisite injury and causation to support standing, they have not shown that a judicial order will effectively redress their alleged injuries. We therefore dismiss the case because Appellants' first claim is moot and they lack standing to pursue their second claim.

         I. Background

         A. Statutory Framework

         Section 311 of the USA PATRIOT Act ("the Act") authorizes the Secretary of the Treasury, upon a finding that a foreign financial institution is "of primary money laundering concern, " to impose "special measures" upon any domestic financial institution that does business with the foreign institution. 31 U.S.C. § 5318A(b). The Secretary has delegated his authority under Section 311 to FinCEN, a bureau of the Department of Treasury. 31 C.F.R. § 1010.810(a). The Act provides, inter alia, that:

In making a finding that reasonable grounds exist for concluding that a jurisdiction outside of the United States [or] 1 or more financial institutions operating outside of the United States . . . is of primary money laundering concern so as to authorize the Secretary of the Treasury to take 1 or more of the special measures described in subsection (b), the Secretary shall consult with the Secretary of State and the Attorney General.

31 U.S.C. § 5318A(c)(1). The Act also states that "the Secretary shall consider [additional] information [determined] to be relevant, " including a number of "Jurisdictional" and "Institutional" factors listed in the statute. Id. § 5318A(c)(2)(A), (B).

         If FinCEN determines that a foreign institution is of primary money laundering concern, Section 311 authorizes FinCEN to take one or more of five special measures. Four of these special measures - including recordkeeping and information disclosure requirements - may be imposed by FinCEN "by regulation, order, or otherwise as permitted by law." Id. § 5318A(a)(2)(B). The fifth, and most severe, measure that FinCEN may take against a foreign institution is to prohibit the "opening or maintaining in the United States of a correspondent account or payable-through account by any domestic financial institution . . . for or on behalf of [that] foreign banking institution." Id. § 5318A(b)(5). "[I]mposing this measure has the effect of eliminating or curtailing a foreign banking institution's access to the U.S. financial system and to transactions involving the U.S. dollar." FBME Bank Ltd. v. Lew, 125 F.Supp.3d 109, 115 (D.D.C. 2015). As such, the fifth special measure "can be a 'death sentence' for smaller foreign banks who depend on access to U.S. dollar clearing through correspondent accounts." Steven Mark Levy, Federal Money Laundering Regulation: Banking, Corporate and Securities Compliance § 30.03(E) (2d ed. Supp. 2017).

         Unlike the other four special measures, the fifth measure may only be imposed "by regulation." 31 U.S.C. § 5318A(a)(2)(C). The APA requires FinCEN to publish a "notice of proposed rule making . . . in the Federal Register, " allowing interested parties an opportunity to comment. 5 U.S.C. § 553(b)-(c). FinCEN must then publish a final rule to give effect to the special measure. See, e.g., 31 C.F.R. § 1010.659 (imposing the fifth special measure against North Korean financial institutions).

         In practice, however, FinCEN often achieves the intended effects of the fifth special measure before it completes the rulemaking process. The Government Accountability Office has explained that,

once a proposed rule is issued, almost all U.S. financial institutions immediately implement it voluntarily, stopping financial transactions with designated financial institutions or jurisdictions. . . . U.S. banks often treat proposed Section 311 rules as final and generally cut off all financial interactions with the targeted institution. . . . U.S. banks may be taking this action because the proposed rule is associated with a finding of primary money laundering concern and, in many instances, Treasury issued a finding together with a notice of proposed rule-making. Because it makes good business sense to protect banks from risks to their reputation and possible government penalties, banks may discontinue business with other banks labeled a primary money laundering concern to reduce their reputational risk.

U.S. Gov't Accountability Office, GAO-08-1058, USA PATRIOT Act: Better Interagency Coordination and Implementing Guidance for Section 311 Could Improve U.S. Anti-Money Laundering Efforts 21 (2008), Joint Appendix ("JA") 236. A notice proposing to impose the fifth special measure often has effects overseas, as well, as illustrated by the fact that "several foreign governments have strengthened their laws and regulations in response to proposed rules." Id. at 22, JA 237.

         When FinCEN is able to achieve the objective of imposing the fifth special measure without completing rulemaking, the agency typically withdraws the notice of proposed rulemaking. See, e.g., Withdrawal of the Proposed Rulemaking Against Lebanese Canadian Bank SAL, 80 Fed. Reg. 60, 575 (Oct. 7, 2015).

         B. Proce ...


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