Introduction: A Case That Raises Systemic Questions
In September 2023, a small Puerto Rican international banking entity agreed to pay $15 million to the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN). On its face, the case looked like another enforcement action under the Bank Secrecy Act (BSA). But the aftermath has raised broader policy concerns: What happens when the lawyers advising a bank on compliance become part of the problem?
The shareholder of Bancrédito International Bank & Trust is now suing three law firms—McConnell Valdés, Holland & Knight, and McDermott Will & Schulte—for malpractice. At stake is not only compensation for a collapsed bank but also the role of legal counsel in safeguarding financial institutions and the limits of regulatory authority when banks are in receivership.
The Core Contradiction: Adequacy vs. Deterioration
At the heart of the malpractice case lies a contradiction. In 2020, counsel assured Puerto Rico regulators that Bancrédito’s AML program was adequate, risk-based, and improving. In 2023, the same firms guided the bank—then under receivership—into a FinCEN consent order stating the program had deteriorated over time and that violations were willful.
From a policy perspective, this about-face illustrates the fragility of compliance narratives. Regulators often rely heavily on legal counsel’s assessments. When those assessments change, especially without new facts, it erodes confidence not only in the institution but in the legal gatekeeping function itself.
The Legal Standard: Malpractice as a Check on Counsel
In the U.S., malpractice claims against lawyers require showing duty, breach, causation, and damages. Applied to Bancrédito:
- Duty: The law firms had a clear responsibility to provide competent, conflict-free representation.
- Breach: Advising a client to admit to facts previously deemed false or exaggerated may fall below professional norms.
- Causation: The direct link between the advice and the $15 million penalty is central to the shareholder’s claim.
- Damages: The penalty and reputational loss are measurable harms
If courts find that “no reasonable counsel” would have advised acceptance of the FinCEN consent order, the case could reinforce malpractice law as a regulatory safeguard—a mechanism to discipline lawyers who abandon defensible positions in the face of enforcement pressure.
FinCEN’s Enforcement Power: The Willfulness Question
FinCEN’s authority under 31 U.S.C. § 5321 hinges on the term “willful.” In civil cases, this includes not only intentional misconduct but also reckless disregard or willful blindness.
This low threshold has given FinCEN wide latitude to impose large penalties. Yet the Bancrédito case highlights the policy tension: If a bank can show it relied on legal advice and audits that deemed its program adequate, can that conduct truly be called “willful”?
By conceding willfulness, the bank forfeited a defense that could have reshaped FinCEN’s penalty calculus. From a policy standpoint, this raises the question: Should regulators be allowed to secure sweeping admissions when contradictory legal opinions exist in the record?
Administrative Overreach: Receivership as a Governance Challenge
Bancrédito’s receivership adds another dimension. The receiver, tasked with liquidation, not only signed the FinCEN order without shareholder consultation but allegedly retained or sold surplus assets after depositors were repaid.
From an administrative law perspective, this implicates two issues:
- Fiduciary Duty – Receivers owe duties to maximize value for both creditors and owners. Signing away $15 million without testing defenses may breach that duty.
- Ultra Vires Action – Puerto Rican administrative law prohibits agencies and their agents from acting beyond their statutory authority. If the receiver exceeded its mandate, the consent order itself could be open to challenge.
The policy concern here is systemic: receiverships, designed to protect financial stability, may inadvertently enable unchecked settlements that prioritize closure over fairness.
Implications for Policy and Practice
- For Law Firms: The case signals a growing expectation that lawyers must maintain consistency and independence in compliance advice. When prior opinions become a client’s best defense, counsel cannot ignore them without risking malpractice.
- For Regulators: FinCEN’s reliance on admissions of willfulness raises fairness questions. If banks admit to facts their lawyers previously labeled false, enforcement risks becoming less about truth and more about leverage.
- For Banks and Shareholders: Receivership governance remains a weak point. Without clear oversight, receivers may strike deals that sacrifice long-term value for short-term resolution.
- For Policy Makers: The Bancrédito dispute may push for reforms clarifying how privilege, advice-of-counsel defenses, and receiver duties operate in high-stakes regulatory settlements.
Conclusion: A Precedent in the Making
Bancrédito’s case is more than a malpractice lawsuit. It is a stress test for the accountability of lawyers in compliance enforcement and for the boundaries of administrative authority in bank supervision.
If the shareholder prevails, the message will be clear: law firms cannot switch compliance narratives without consequence, and receivers cannot treat admissions of willfulness as routine bargaining chips.
In an era of aggressive AML enforcement, this case could redefine the balance between regulators, banks, and the lawyers who stand between them.
