Appeals Court Sides With New York Fed

The Federal Reserve Bank of New York secured a major legal victory on Wednesday after a federal appeals court rejected an attempt by Banco San Juan Internacional to restore access to the US central banking system.

In a unanimous 3-0 ruling, the 2nd US Circuit Court of Appeals in Manhattan ruled that the lender was not automatically entitled to maintain a Federal Reserve “master account,” which provides banks with direct access to the Fed’s electronic payments infrastructure.

The decision strengthens the Federal Reserve’s authority to deny banking system access when regulators identify potential compliance or financial stability concerns.

Dispute Centered on Fed Master Account Access

Banco San Juan Internacional filed its lawsuit in 2023 after learning that its Federal Reserve account — which it had maintained for more than a decade — would be terminated.

The bank argued that the Federal Reserve Act guaranteed eligible institutions access to a master account and claimed the account closure unfairly targeted certain business models.

The lender also alleged that the action formed part of a broader effort to “de-bank” institutions tied to industries or jurisdictions viewed unfavorably by regulators, including cryptocurrency-related businesses, cannabis firms, and entities connected to Venezuela.

However, the appeals court rejected those arguments.

Court Says Fed Has Broad Discretion

Circuit Judge Denny Chin wrote that regional Federal Reserve banks possess broad discretion when deciding whether institutions should gain or retain access to the payment system.

According to the ruling, Congress granted Federal Reserve banks multiple tools to manage financial system risks, particularly when dealing with nonmember banks.

Judge Chin stated that while the Fed can use targeted supervisory powers with member institutions, its primary mechanism for handling nonmember institutions is the ability to permit or deny access to payment infrastructure.

The court concluded that the New York Fed acted within its legal authority when terminating the account.

Sanctions and Compliance Concerns Played Central Role

The case emerged amid heightened scrutiny of Puerto Rico’s offshore banking sector and its historical ties to Venezuela.

Federal regulators reportedly raised concerns that Banco San Juan Internacional may not have fully complied with US sanctions requirements and anti-money laundering standards.

The bank denied wrongdoing and argued that it had been unfairly singled out because of its ownership structure and Venezuelan connections.

However, the court found no evidence of discriminatory intent behind the Federal Reserve’s actions.

Puerto Rico Banking Sector Faces Increased Scrutiny

Puerto Rico’s international banking industry has faced growing regulatory attention in recent years as US authorities tightened sanctions enforcement involving Venezuela.

Several financial institutions operating in the territory have come under increased examination over compliance controls, customer relationships, and cross-border financial activity.

The appeal referenced earlier reporting concerning a broader Federal Reserve crackdown tied to sanctions efforts targeting the government of Venezuelan leader Nicolas Maduro.

Maduro is currently facing drug trafficking charges in the United States and has pleaded not guilty.

Decision Reinforces Fed Oversight Powers

The ruling is expected to carry broader implications for financial institutions seeking direct access to the Federal Reserve system.

Legal analysts say the decision reinforces the Federal Reserve’s ability to manage systemic risk and maintain oversight standards within the US banking infrastructure.

The case also highlights the increasing intersection between banking regulation, geopolitical sanctions enforcement, and financial system access.

For banks operating internationally or within higher-risk jurisdictions, the ruling signals that maintaining strong compliance and anti-money laundering controls remains critical for preserving access to the US financial system.