One key question – do the Committees’ investigations have a valid legislative purpose? – brings Anti-Money Laundering investigations and legislation into the spotlight
Posted May 11, 2019 with an update from one court’s decision on May 20, 2019
I am not offering an opinion, one way or another, on the relative merits of the parties’ allegations: I am pointing out that these cases could have an impact on AML programs and professionals.
In two different federal courts in a span of seven days, President Trump and various companies he owned or controlled, directly or indirectly (or owns or controls, directly or indirectly, through a trust or otherwise, or otherwise has or had an interest in), and in the New York case, three of his children (all collectively referred to “the Plaintiffs Trump”), sought to quash a number of subpoenas issued by three Democrat-controlled U.S. House of Representative committees. In both cases, the plaintiffs Trump argued that the Democrats or Democrat-controlled committees:
“ignored the constitutional limits on Congress’ power to investigate. Article I of the Constitution does not contain an ‘Investigations Clause’ or an ‘Oversight Clause.’ It gives Congress the power to enact certain legislation. Accordingly, investigations are legitimate only insofar as they further some legitimate legislative purpose. No investigation can be an end in itself. And Congress cannot use investigations to exercise powers that the Constitution assigns to the executive or judicial branch.”
In the Washington DC case, the Plaintiffs Trump allege:
“[the] subpoena … lacks a legitimate legislative purpose. There is no possible legislation at the end of this tunnel; indeed, the Chairman does not claim otherwise. With this subpoena, the Oversight Committee is instead assuming the powers of the Department of Justice, investigating (dubious and partisan) allegations of illegal conduct by private individuals outside of government. Its goal is to expose Plaintiffs’ private financial information for the sake of exposure, with the hope that it will turn up something that Democrats can use as a political tool against the President now and in the 2020 election.”
In the New York case, the Plaintiffs Trump allege:
“The subpoenas … lack any legitimate legislative purpose. There is no possible legislation at the end of this tunnel; indeed, the Committee Chairs have not claimed otherwise. With these subpoenas, the Committees are instead assuming the powers of the Department of Justice, investigating (dubious and partisan) rumors of illegal conduct by private individuals, many of whom are outside of government. Their goal is to rummage around Plaintiffs’ private financial information in the hope that they will stumble upon something they can expose publicly and use as a political tool against the President.”
The cases are very similar and involve the same four basic principles of law: the scope of the investigatory powers of Congress, whether and to what extent the various committees have the power to investigate, whether a committee has a “valid legislative purpose” in issuing a subpoena, and the role of the courts in quashing Congressional subpoenas. In the DC case, the “valid legislative purpose” or purposes involve conflicts of interest and financial disclosure issues: in the New York case, those purposes involve compliance with banking regulations, money laundering, industry-wide compliance with anti-money laundering policies, the use of anonymous corporations as vehicles to launder illicit funds, and transparency regarding ownership of anonymous shell corporations generally.
For AML professionals, the New York case should be watched closely to see if there is any impact on AML legislation, regulation, and expectations.
The Washington DC Case – Federal District Court, District of Columbia, Civil Case Number 19CV01136 –filed April 22, 2019
In this case, President Trump and various Trump-owned and/or controlled (previously or currently, directly or indirectly through trusts or otherwise) companies, sued Elijah Cummings in his official capacity as Chairman of the House Committee on Oversight & Reform, and Mazars USA LLP. The opening two paragraphs of the complaint paint the picture:
“The Democrat Party, with its newfound control of the U.S. House of Representatives, has declared all-out political war against President Donald J. Trump. Subpoenas are their weapon of choice.”
“This case involves one of those subpoenas. Last week, Defendant Elijah E. Cummings invoked his authority as Chairman of the House Oversight Committee to subpoena Mazars USA LLP—the longtime accountant for President Trump and several Trump entities (all Plaintiffs here). Chairman Cummings asked Mazars for financial statements, supporting documents, and communications about Plaintiffs over an eight-year period—mostly predating the President’s time in office.”
(One week after the complaint was filed, the parties agreed to, essentially, dismiss the case against the accounting firm and the Chairman of the House Committee, and substitute as the sole defendant the actual Committee, to be represented by the Office of General Counsel of the House of Representatives).
On May 9th, Judge Amit Mehta issued an order that has the effect of turning the May 14th hearing on the preliminary injunction into a trial on the merits: the Judge will hear arguments on the 14th and then decide whether the subpoena shall stand or not.
The New York Case – Federal District Court, Southern District of New York, Civil Case Number 19CV03826 – filed April 29, 2019
This complaint is very similar to the complaint filed in Washington DC the prior week. Here, President Trump, a number of his companies, and three of his children (Donald Jr., Eric, and Ivanka: again, “the Plaintiffs Trump”) brought a civil complaint against two of the Plaintiffs Trump’s banks, Deutsche Bank and Capital One, to prevent the banks from responding to subpoenas issued by the House Permanent Select Committee on Intelligence and the House Financial Services Committee. Among other allegations, the Plaintiffs Trump pleaded that the subpoenas “have no legitimate or lawful purpose”, are “to harass” the President, “to rummage through every aspect of his personal finances” and are intended to “ferret about” for incriminating information. And as in the DC case, the Plaintiffs Trump also argue that the Committees are exceeding their constitutional powers:
“The Committees have ignored the constitutional limits on Congress’ power to investigate. Article I of the Constitution does not contain an ‘Investigations Clause’ or an ‘Oversight Clause.’ It gives Congress the power to enact certain legislation. Accordingly, investigations are legitimate only insofar as they further some legitimate legislative purpose. No investigation can be an end in itself. And Congress cannot use investigations to exercise powers that the Constitution assigns to the executive or judicial branch.”
“The subpoenas to Deutsche Bank and Capital One lack any legitimate legislative purpose. There is no possible legislation at the end of this tunnel; indeed, the Committee Chairs have not claimed otherwise. With these subpoenas, the Committees are instead assuming the powers of the Department of Justice, investigating (dubious and partisan) rumors of illegal conduct by private individuals, many of whom are outside of government. Their goal is to rummage around Plaintiffs’ private financial information in the hope that they will stumble upon something they can expose publicly and use as a political tool against the President.”
On May 3rd the plaintiffs filed a Motion for Preliminary Injunction to prevent the defendant banks from responding to the subpoenas. The two Committees intervened, and were added as Intervenor-Defendants (“real parties in interest”) and are represented by the Office of General Counsel of the U.S. House of Representatives. The parties agreed on a schedule for submitting replies to the Motion and for a hearing date – May 15th.
On May 10th the House filed its Opposition to the Trump motion. Among other things, the Opposition addresses the Plaintiffs Trump arguments about the powers of the Congressional committees and their motives in issuing the subpoenas:
- “Mr. Trump’s request for a preliminary injunction betrays a fundamental misunderstanding of the powers of the Legislative Branch under our constitutional scheme and is flatly inconsistent with nearly a century of Supreme Court precedent.”
- “Contrary to Mr. Trump’s allegation that the Committees are merely attempting to expose his finances, the Committees are investigating serious and urgent questions concerning the safety of banking practices, money laundering in the financial sector, foreign influence in the U.S. political process, and the threat of foreign financial leverage, including over the President, his family, and his business.”
- “The Committees are conducting wide-ranging investigations of issues bearing upon the integrity of the U.S. financial system and national security, including bank fraud, money laundering, foreign influence in the U.S. political process, and the counterintelligence risks posed by foreign powers’ use of financial leverage.”
The House Opposition provides some details on what the two committees are investigating. The details relating to the Committee on Financial Services are particularly interesting for AML professionals. That Committee is:
“… investigating serious issues regarding compliance with banking regulations, loan practices, and money laundering … the movement of illicit funds throughout the global financial system … the questionable financing provided to President Trump and the Trump Organization by banks like Deutsche Bank to finance his real estate properties …. industry-wide compliance with banking statutes and regulations, particularly anti-money laundering policies … the use of anonymous corporations as vehicles to launder illicit funds through legitimate investments and enterprises …”
And “[t]he Committee is considering legislation that would increase transparency regarding ownership of anonymous shell corporations generally.”
As of this writing, the Plaintiffs Trump have not yet replied to the House Opposition to their motion.
Update May 20, 2019 – In the District of Columbia case, the District Court judge upheld the Committee’s subpoena and ordered the accounting firm to comply with the subpoena. The Plaintiffs Trump have indicated they will appeal that decision.
In his written opinion, the Judge began with the following (citations omitted):
“I do, therefore, . . . solemnly protest against these proceedings of the House of Representatives, because they are in violation of the rights of the coordinate executive branch of the Government, and
subversive of its constitutional independence; because they are
calculated to foster a band of interested parasites and informers,
ever ready, for their own advantage, to swear before ex parte
committees to pretended private conversations between the
President and themselves, incapable, from their nature, of being
disproved; thus furnishing material for harassing him, degrading
him in the eyes of the country . . .” – President James Buchanan
These words, written by President James Buchanan in March 1860, protested a resolution adopted by the U.S. House of Representatives to form a committee—known as the Covode Committee—to investigate whether the President or any other officer of the Executive Branch had sought to influence the actions of Congress by improper means.
Buchanan “cheerfully admitted” that the House of Representatives had the authority to make inquiries “incident to their legislative duties,” as “necessary to enable them to discover and to provide the appropriate legislative remedies for any abuses which may be ascertained.” But he objected to the Covode Committee’s investigation of his conduct. He maintained that the House of Representatives possessed no general powers to investigate him, except when sitting as an impeaching body. Buchanan feared that, if the House were to exercise such authority, it “would establish a precedent dangerous and embarrassing to all my successors, to whatever political party they might be attached.”
Some 160 years later, President Donald J. Trump has taken up the fight of his predecessor.
Echoing the protests of President Buchanan, President Trump and his associated entities are before this court, claiming that the Oversight Committee’s subpoena to Mazars exceeds the Committee’s constitutional power to conduct investigations. The President argues that there is no legislative purpose for the subpoena. The Oversight Committee’s true motive, the President insists, is to collect personal information about him solely for political advantage. He asks the court to declare the Mazars subpoena invalid and unenforceable.
Courts have grappled for more than a century with the question of the scope of Congress’s investigative power. The binding principle that emerges from these judicial decisions is that courts must presume Congress is acting in furtherance of its constitutional responsibility to legislate and must defer to congressional judgments about what Congress needs to carry out that purpose. To be sure, there are limits on Congress’s investigative authority. But those limits do not substantially constrain Congress. So long as Congress investigates on a subject matter on which “legislation could be had,” Congress acts as contemplated by Article I of the Constitution.
Applying those principles here compels the conclusion that President Trump cannot block the subpoena to Mazars.
… it is not for the court to question whether the Committee’s actions are truly motivated by political considerations. Accordingly, the court will enter judgment in favor of the Oversight Committee.
More to come …