As part of a crackdown on lenders with ties to Venezuela, a U.S. judge on Friday declined to stop the Federal Reserve Bank of New York from cutting off a Puerto Rican bank’s access to the country’s central banking system.
Banco San Juan Internacional (“BSJI”) failed to demonstrate that it would suffer irreversible injury if U.S. District Judge John Koeltl in Manhattan did not impose a preliminary injunction.
Concerned that it was not adhering to anti-money laundering regulations and U.S. sanctions, the bank filed a lawsuit in July to prevent the New York Fed from cancelling its “master account,” which grants banks access to the Fed’s electronic payment system.
After a 22-month ban in 2019 and 2020 due to an investigation into its credit arrangements with the sanctioned state-run oil corporation Petroleos de Venezuela, BSJI reported that compliance had improved. Venezuela belongs to OPEC.
The bank claimed that suspension had lost it over 90% of its clientele and that it was “unlikely to survive” if its account was closed.
However, Koeltl rejected the warning as “self-serving speculation” in a 33-page ruling, concluding that there was “no likelihood” that the New York Fed had acted arbitrarily or capriciously in light of the “significant number of red flags” it had discovered.
The FRBNY and the financial system are put at risk when deposits are accepted from and financial services are rendered to a financial institution that has a history of noncompliance with BSJI,” Koeltl said. “Granting BSJI’s motion for emergency relief would place the public in harm’s way.”
Until Koeltl made a decision on the preliminary injunction request, the New York Fed consented to maintain the bank’s master account open.
Requests for comments from BSJI’s solicitors were not immediately answered. Requests of a similar nature were not promptly answered by the New York Fed.
2019 saw the New York Fed announce that due to sanctions intended to topple socialist President Nicolas Maduro of Venezuela, it would no longer be granting new master accounts for offshore banks located in Puerto Rico.
U.S. District Court, Southern District of New York, No. 23-06414; Banco San Juan Internacional Inc. v. Federal Reserve Bank of New York et al. is the case in question.