Banco San Juan Internacional filed an amended lawsuit Thursday, seeking damages exceeding $150 million from the Federal Reserve Bank of New York and the Fed’s board of governors.
The complaint, filed in the U.S. District Court for the Southern District of New York, stems from the Fed’s decision to terminate BSJI’s master account. The bank argues Fed staff ignored federal law and legal precedent, and drifted away from its own historical practices to publish guidelines deeming certain types of banks unworthy of a master account.
“In pursuit of this secret policy, the Fed invoked frivolous, pretextual reasons to close BSJI's master account, causing it enormous harm for which it is seeking damages,” BSJI said in a statement.
BSJI sued the New York Fed in July to stop it from eliminating its master account over allegations the lender was not complying with U.S. sanctions and anti-money laundering rules. The master account was granted in 2012.
The New York Fed suspended BSJI’s account in 2019, citing a probe into a loan it approved to oil company Petroleos de Venezuela, which was subject to sanctions. The master account was reopened the next year but was suspended again in 2022.
BSJI claimed that it improved its compliance while the master account was suspended, but argued the suspension cost the bank more than 90% of its customers and that it was “unlikely to survive,” Reuters reported in October.
The latest litigation also claims the Fed overlooked the findings of an independent third-party auditor, as well as local regulators. The Fed supposedly refused to have talks with the Guaynabo, Puerto Rico-based lender over its concerns.
The debate over the Fed’s master accounts made its way into public conversation in 2022, when Republicans accused Sarah Bloom Raskin, a former candidate to serve as the central bank’s vice chair for supervision, of using her influence as a recent Fed governor to help Reserve Trust, a fintech, gain a Fed master account.
The Kansas City Fed initially denied Reserve Trust’s application for a master account in June 2017, and later granted one a month after Raskin joined Reserve Trust’s board.
Crypto-focused bank Custodia later sued the central bank and the Kansas City Fed, alleging an “unlawful delay” to its request to join the central bank’s payments system.
Nathan Miller, a spokesperson for Custodia, accused the Fed of displaying a “general bias against digital assets.”
In December, the Fed denied The Narrow Bank’s master account application — more than six years after it applied.
The Treasury Department recently dropped Puerto Rico’s international bank entities from its list of “vulnerabilities and risks” related to money laundering.
That law mandates that the Fed provide payment services to all depository institutions that fulfill specific criteria and reserve requirements. Additionally, the central bank must pay interest on each bank’s deposits within the Federal Reserve System.
“With no accountability, transparency or oversight, the Fed upended a century of public policy underpinning our financial system,” Eric Bloom, BSJI's general counsel, said in a statement. “Congress requires a level playing field — every eligible depository institution is entitled to a master account. This is based on critical U.S. policy considerations that are not up to the Fed to ignore.”
