Ninth Circuit rules that the FFIEC BSA/AML Examination Manual has the force of regulation!

Upsetting the long-held belief that legislation is clarified by regulations that are clarified and explained by written guidance and modified over time by shifting regulators’ expectations, the Ninth Circuit has recently ruled that the BSA/AML Examination Manual (written guidance) is, effectively, regulation.

In California Pacific Bank v. Federal Deposit Insurance Corporation a three-judge panel of the U.S. Court of Appeals for the Ninth Circuit held in March 2018 that the Bank Secrecy Act (BSA) and its implementing regulations were not unconstitutionally vague, and that the FDIC had properly relied on the Federal Financial Institutions Examination Council (FFIEC) BSA/AML Examination Manual. Writing for the majority, Judge James Gritzner wrote:

“Not only are the BSA and FDIC’s implementing regulations economic in nature and threaten no constitutionally protected rights, but it is clear that a detailed manual issued by agencies with enforcement authority, such as the FFIEC Manual, can put regulated banks on notice of expected conduct. The BSA authorizes the FDIC to review banks for compliance. 12 U.S.C. § 1818(s). The FFIEC Manual frames the examiners’ expectations in anticipation of routine compliance checks … We hold that the BSA and its implementing regulations are not unconstitutionally vague, and the FDIC did not exhibit unconstitutional bias against the Bank. We further hold that the FDIC acted in accordance with the law by relying on the FFIEC Manual to clarify its four pillars regulation.”

So unless and until this Ninth Circuit decision is over-ruled or contradicted … consider the BSA/AML Exam Manual to be have the impact of regulations.