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The U.S. Financial Crimes Enforcement Network’s creation of a new investigatory unit in August 2019 raised hopes that the bureau would target more foreign financial institutions caught handling illicit funds with any one of an array of punitive measures under the Patriot Act.

Instead, the 30 or so personnel that comprise FinCEN’s new Global Investigations Division have yet to publicly conclude a single case under section 311 of the 2001 law in three-and-a-half years despite identifying several worthwhile candidates during that time, a source with knowledge of the matter told ACAMS moneylaundering.com on condition of anonymity.

Section 311 empowers FinCEN to blacklist foreign banks and other financial institutions, certain classes of transactions or even entire nations as a “primary money laundering concern” and tag them with one of five special measures, the most powerful of which blocks their access to the U.S. financial system by barring them from holding correspondent or payable-through accounts.

U.S. officials also have the option of negotiating resolutions of anti-money laundering and counterterrorist financing problems with offending banks and overseas governments behind the scenes without blacklisting them as conduits of illicit proceeds.

The diplomatic strategy aims to avoid a lengthy rulemaking process while sparing friendly countries the economic fallout from a bank collapsing under the threat of a section 311 designation, as ABLV, Latvia’s erstwhile third-largest lender, did in February 2018.

“That division is responsible for working on investigations but to have FinCEN actually take an action requires quite a bit of review,” said Jamal El-Hindi, the bureau’s former deputy director. “An issue comes up through investigation, a particular institution might be identified … and that may serve as an opportunity for Treasury to raise the issue with another jurisdiction.”

Another source, one of two who spoke on condition of anonymity for this article, said FinCEN made initial preparations for designating Gabon-based BGFIBank’s branch in the Democratic Republic of Congo after leaked documents in 2017 revealed that the lender had maintained accounts for Hezbollah, a U.S.-blacklisted militia based in Lebanon.

The Sentry, an investigatory and advocacy group in Washington, D.C., reported in November 2021 that the Congolese branch, BGFIBank DRC, helped funnel $85 million of embezzled funds to relatives of President Joseph Kabila from 2015 to 2018, when his brother was the lender’s chief executive officer.

Instead of publicly blacklisting BGFIBank DRC, a decision that probably would have led to a protracted legal battle and possibly destabilized the DRC economically, U.S. officials opted to quietly persuade the lender to embrace global standards against money laundering and corruption, the second source told moneylaundering.com.

“I’m sure there are lots of people on Capitol Hill who are upset that FinCEN is not 311-ing all the time, but you can just as easily see it as a success,” the second source said. “Like with sanctions, the goal is to change behavior, not just to hand out penalties. If the [criminal] activity stops, it worked.”

Kabila left office in January 2019 after losing the election to Felix Tshisekedi amid the corruption scandal, after which BGFIBank DRC’s compliance program reportedly obtained high marks following independent audits.

Neither FinCEN nor BGFIBank Group returned calls and emails seeking comment on the specifics of the Congolese subsidiary’s AML overhaul and the Treasury Department’s private discussions with the lender by press time.

FinCEN has proposed to blacklist 26 foreign financial institutions and jurisdictions under the Patriot Act since 2002 and finalized 10 of those designations. The longest period between proposal and final rule began in 2011 and ended in 2019, when FinCEN completed its designation of Iran.

The bureau ultimately rescinded 17 of the 26 designations, both proposed and finalized.

Obstacles and impatience

FinCEN’s use of section 311 has sparked several legal battles.

In July 2014, an attorney for FBME Bank, a now-defunct lender primarily based in Cyprus, fought FinCEN’s imposition of the fifth special measure against his client and ultimately won two federal injunctions that delayed the bureau from issuing a final rule until March 2016.

The owners of Banca Privada d’Andorra, or BPA, which also no longer exists, sued FinCEN in October 2015 for moving to designate the institution based on suspicious transactions that the lender itself had reported.

A federal appeals court ruled in favor of FinCEN in May 2017.

An earlier target of section 311, Macau’s Banco Delta Asia, also challenged FinCEN in court. The bureau rescinded BDA’s designation in August 2020, 13 years after imposing the fifth special measure against the lender for handling payments for North Korea.

Tacitly acknowledging the unwieldiness of the rulemaking process for section 311 designations, the House of Representatives last year considered adding a provision to the America Competes Act that would have eliminated the requirement altogether.

The provision would have given FinCEN authority to blacklist financial institutions as foreign money-laundering threats and bar them from holding U.S. correspondent and payable-through accounts without rulemaking, but did not make the final bill.

“FinCEN may have thought, ‘Well, if that authority is coming soon, it will make it easier to do some of these actions,'” El-Hindi said. “Maybe FinCEN at one point was waiting for that to happen.”

The bureau’s only designation of a money laundering threat since 2019 came not under the Patriot Act, but section 9714 of the Combating Russian Money Laundering Act, legislation adopted in 2021 that empowered the bureau to blacklist Russia-linked threats directly and immediately, with no rulemaking required.

FinCEN used section 9714 for the first time on Jan. 18 to bar U.S. companies from handling payments to or from digital addresses hosted by Russian cryptocurrency exchange Bizlato, hours after federal authorities arrested Anatoly Legkodymov, the platform’s owner, in Miami.

Some U.S. lawmakers have pushed for stronger action against money laundering-related threats, Russian or otherwise.

In October 2021, Patrick Toomey (R-PA), then serving as the ranking member of the Senate Banking Committee, grilled Deputy Treasury Secretary Wally Adeyemo on whether his department would designate Taliban-controlled Afghanistan under section 311 and pushed him to answer when Congress could “expect a new tranche of designations.”

Adeyemo responded that he could not preview forthcoming actions. Toomey retired at the end of his term in January.

Six months later, in a hearing of the House Financial Services Committee, Rep. Andy Barr (R-KY) questioned the efficacy of section 311’s special measures in light of FinCEN’s decision to withdraw Banco Delta Asia’s designation.

“Why,” Barr asked FinCEN’s Acting Director Himamauli Das, “should Congress grant FinCEN a new sixth special measure to go after digital assets when the effectiveness of the first five special measures is unclear?”

Without addressing Barr’s skepticism of section 311’s effectiveness when used against mainstream banks, Das replied cross-border payments of cryptocurrency were immune from the fifth special measure because they do not rely on U.S. correspondent accounts.

Elise Bean, former staff director and chief counsel for former Sen. Carl Levin (D-MI) who helped draft section 311 in the wake of the Sept. 11 terrorist attacks, supported cautious use of the legislation in an interview with moneylaundering.com.

“It’s a very powerful enforcement authority and both Democratic and Republican administrations have been wise to use it sparingly,” said Bean. “The due-process issues and financial impacts can be significant.”

Contact Fred Williams at fwilliams@acams.org