Feeling the Pinch: How Recent Appellate Decisions Are Adding to Financial Institutions’ Regulatory Burden
In the most uneventful of years, banks face intense scrutiny from a host of regulators with overlapping mandates. Following presidential elections in the United States, all industries brace for a shift of priorities. But few expected the seismic shakeup promised in 2021 by the Biden Administration, its Department of Justice, and other components of the federal government. These announcements have, deservedly, received substantial attention, and their impact on financial institutions is summarized below. But seemingly unnoticed—though potentially just as consequential to banks—are a pair of 2021 opinions from the Second Circuit, a court that by virtue of its jurisdiction has impacted businesses more than any other. The decisions, Kaplan v. Lebanese Canadian Bank and United States v. Turkiye Halk Bankasi A.S. (Halkbank), strip protection from foreign banks, open them to private lawsuits, and impose unprecedented due diligence requirements.
A Shift of Priorities
Even before President Biden took office, Congress passed the Anti-Money Laundering Act of 2020 (the AMLA), the most drastic anti-money laundering (AML) reform during the past two decades. Among other things, the law promises millions to potential whistleblowers to report AML and Bank Secrecy Act violations, increases criminal penalties, and—most remarkably and controversially—extends the United States’ (already broad) reach into other countries by allowing prosecutors to subpoena foreign banks for information on entirely foreign accounts.
