Student Blog: Financial Tools Under the USA PATRIOT ACT

by Kevin Tang, RBFL Student Editor

      

      On August 6th, 2019, the D.C. Circuit upheld contempt fines of $50,000-per-day on 3 Chinese banks. While these have been some of the harshest and most austere penalties imposed based on the USA PATRIOT ACT, the affirmation in favor of the United States could hardly be said to be surprising. The USA PATRIOT ACT’s provisions give the United States expansive and potent powers to deal with money laundering and foreign banks. And yet, while the full extent of those powers has not been accessed, the last five years have signaled an increased usage of those power by the United States, with courts affirming the government’s actions repeatedly. With the courts signaling wide deference to the United States in implementing the USA PATRIOT ACT’s financial powers, they may be opening the door for the use of those powers in the influence of foreign policy, notably against China, North Korea, and Iran. The two most impactful financial tools under the USA PATRIOT ACT are Sections 311 and 319.

            Section 311 allows for the Secretary of the Treasury to designate a particular foreign financial institution, account, or even an entire region or country as a place of “primary money laundering concern.” Once designated, the United States can then require heightened recordkeeping and identification standards, but most notably, the United States can cut off interbank services from the designated institution. Without access to interbank services from American banks, there is no way to access U.S. dollars, and the impacted bank will usually go under. Hypothetically, the most expansive use of this Section could lead to the United States designating an entire country and cutting off the dollar from any financial institution within that country, as well as to any financial institution outside that country that does business with said country.

            Section 319 allows for the United States to seize money from foreign accounts associated with not just money laundering, but with any activity that would be a crime in that foreign jurisdiction. Through statutory magic, Section 319 makes it so that money deposited in foreign accounts is considered to be deposited in the interbank account of that bank, and thus subject to seizure by the United States. Here, hypothetically, had a foreign actor used money in an illegal fashion in the foreign jurisdiction, regardless of whether it is a crime in the United States, and deposited that money in a foreign bank, Section 319 gives the United States the power to seize that money from that foreign bank’s American interbank account.

            The expansive use of these two sections have been upheld by recent court decisions. In FBME Bank LTD. v. Mnuchin, the United States used Section 311 and cut off a Tanzanian bank from maintaining interbank accounts with American banks, the bank sued on the basis that the United States justified its action on classified information. The D.C. circuit affirmed that the United States could rely on classified information in justifying its 311 powers and the bank sent under shortly after. In United States v. Sum of &70,990,605, the court confirmed that seizures conducted under Section 319 granted no standing to the bank seized from to challenge the seizure outside of a very limited exception.

            The recent willingness exhibited by the United States in using its broad powers under the USA PATRIOT ACT to go after financial institutions, mixed with the affirmation of such usage by the courts could lead us into a new era of leveraging those powers. It remains to be seen whether the current administration would be willing to use these powers in the realm of foreign policy, but these developments do signal that such uses may be permissible.

 

 

 

 

Sources:

FBME Bank Ltd. v. Mnuchin, 249 F.Supp.3d 215 (D.D.C. April 14, 2017); In Re: Sealed Case, 932 F.3d 915 (D.C. Cir. 2019); United States v. Sum of $70, 990, 605, 128 F.Supp.3d 350, 355-356 (D.D.C. Sept.14, 2015); 31 U.S.C. §5318; 18 U.S.C. §981; Joshua P. Zoffer, The Dollar And The United States’ Exorbitant Power to Sanction, 113 AM. J. INT’L L. 152, 154 (2019); Jon Hill, DC Circ. Won’t Let 3 Chinese Banks Duck US Subpoenas, Law360 (Aug. 6, 2019), https://www-law360-com.ezproxy.bu.edu/articles/1185604/dc-circ-won-t-let-3-chinese-banks-duck-us-subpoenas.

View all posts