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The U.S. Supreme Court’s reversal of a legal doctrine that for the past 40 years has shielded federal regulations from judicial challenges could upend longstanding rules against illicit finance predicated on the Bank Secrecy Act, legal analysts told ACAMS moneylaundering.com.

In a 6-to-3 decision, the Court’s conservative majority overturned the 1984 ruling in Chevron vs. Natural Resources Defense Council on Friday and discarded the “Chevron doctrine” it established, pursuant to which federal judges must defer to regulatory agencies’ “reasonable interpretation” of laws enacted by Congress when legislation is worded ambiguously.

While environmental and consumer-protection regulations may suffer the most in the near term, the ruling could also expose core federal anti-money laundering requirements to legal challenges going forward, Daniel Stipano, an attorney with the Davis Polk & Wardwell law firm in Washington, D.C., told ACAMS moneylaundering.com.

“The statutes that are vulnerable are the ones that are not prescriptive,” said Stipano.

For example, section 352 of the 1970 Bank Secrecy Act as amended by the Patriot Act in 2001 mandates that financial institutions establish “internal policies, procedures and controls” to protect themselves and the U.S. financial system from money launderers and terrorist financiers.

On the basis of that language, the Financial Crimes Enforcement Network, the congressionally appointed federal anti-money laundering regulator, requires banks and other financial services companies to assess the illicit finance-related risks that each of their customers pose and screen their transactions accordingly.

“If you look at the statute, it doesn’t say any of that,” Stipano said. “FinCEN took the ball and ran with it.”

Similarly, FinCEN’s expansion of reporting and recordkeeping requirements to virtual asset service providers in March 2013 did not rest on any specific statutory language, but on the bureau’s own interpretation of “money transmission” to cover the transfer of any “value that substitutes for currency to another location or person, by any means.”

Friday’s negation of the Chevron doctrine does not upend all federal regulations immediately, but rather sets the stage for businesses to challenge them with a high probability of success.

“Litigants will come out of the woodwork,” U.S. Solicitor General Elizabeth Prelogar warned in her oral argument in favor of the Chevron doctrine in January.

Roberts v. Kagan

“Chevron’s presumption is misguided because agencies have no special competence in resolving statutory ambiguities. Courts do,” Chief Justice John Roberts stated in the majority opinion. “The Framers [of the Constitution] anticipated that courts would often confront statutory ambiguities and expected [they] would resolve them by exercising independent legal judgment.”

In her dissenting opinion for the minority, Justice Elena Kagan countered that the ruling will have the effect of replacing qualified agencies with federal judges who lack the expertise and experience required to answer the technical and scientific questions that often arise when converting laws on paper into regulations in practice.

“Agencies report to a president who in turn answers to the public for his policy calls,” Kagan wrote. “Courts have no such accountability and no proper basis for making policy.”

The Chevron doctrine has played a role in bringing thousands of cases to resolution since coming into existence in 1984. Impossible to count are the cases that opponents of a regulation did not file because they foresaw defeat at the hands of the now 40-year-old standard.

In the financial services sector, the D.C. Circuit Court of Appeals deferred to the doctrine five years ago in preserving the National Credit Union Administration’s 2016 interpretation of the Federal Credit Union Act to permit credit unions to claim large geographical regions, and sometimes entire states, as “rural districts” eligible for membership.

The plaintiff in that case, the American Bankers Association, argued afterwards that the ruling “stretches Chevron beyond its limits.”

Sen. Maize Hirono (D-HI) and other supporters of the doctrine warned prior to Friday that any ruling knocking down the standard would transform long-established regulatory frameworks into a “chaotic mess” of conflicting legal opinions from one jurisdiction to the next.

Despite facing stiff industry opposition, the high degree of specificity in the Corporate Transparency Act may ultimately insulate the beneficial-ownership requirements FinCEN has developed pursuant thereto from judicial interference after Chevron’s demise, said Stipano, who formerly served as deputy chief counsel for the Office of the Comptroller of the Currency.

“The CTA, at least when you look at it in terms of a Chevron analysis, has the benefit of being quite descriptive and detailed—almost unusually so,” Stipano said. “It left FinCEN very little discretion as to how to implement it.”

The CTA, which lawmakers passed as part of the Anti-Money Laundering Act in January 2021, has already faced legal challenges filed on constitutional grounds, including a lawsuit filed in the Northern District of Alabama now under review in the 11th U.S. Circuit Court of Appeals in Atlanta.

Dropping the Chevron doctrine could also hamstring federal efforts to regulate and supervise new, complex and rapidly developing technologies such as artificial intelligence.

During oral argument in January, Kagan said that legislation to regulate AI will need to delegate any required rulemakings to executive agencies to keep pace as the technology evolves and its impacts come into focus.

“Congress knows there are going to be gaps [in specific provisions] because it can hardly see a week into the future with respect to this subject, let alone a year or a decade into the future.”

Contact Fred Williams at fwilliams@acams.org