NEW YORK - On May 13, a three-judge panel of the 2nd U.S. Circuit Court of Appeals in Manhattan issued a unanimous ruling against a Puerto Rican lender that challenged the New York Federal Reserve’s decision to terminate its access to the U.S. central banking system.
The appeals court overturned Banco San Juan Internacional’s claim that the Federal Reserve Act conferred a right to a so-called "master account," the credential that allows banks to use the Fed’s electronic payment system. The court’s 3-0 decision rejected BSJI’s argument that the statute guaranteed such access.
BSJI had filed suit in 2023 after being informed the bank’s master account, which had been maintained for 11 years, would be closed. The New York Fed cited concerns that BSJI was not complying with U.S. sanctions and anti-money-laundering rules.
The bank argued its termination was part of a broader campaign to de-bank certain business models, saying the action echoed other moves that have affected companies with links to cryptocurrency and cannabis. The appeal also raised an allegation that the bank was cut off because it was owned by a Venezuelan national.
Circuit Judge Denny Chin, writing for the panel, countered those claims by emphasizing the discretion regional Federal Reserve Banks possess in deciding who may access the payments system. He framed that discretion as part of the Reserve Banks’ responsibility to promote financial stability.
"To perform that function, Congress gave Reserve Banks a toolkit of scalpels and a hatchet," Chin wrote. "Against member banks, Reserve Banks have a myriad of precise and targeted powers - including supervision, investigation, and enforcement authority - through which they can surgically manage risk. Against nonmember banks, their primary power is the blunt instrument of allowing or disallowing access to the Fed’s payment system."
The appeals court also found no supporting evidence of "discriminatory animus" behind BSJI’s removal from the Fed’s payment network, undermining the bank’s claim that its ownership ties to Venezuela motivated the decision.
In its filings, BSJI cited a 2019 news report that detailed a prior effort by the New York Fed to curb activities in Puerto Rico’s offshore banking sector in the context of sanctions targeting the Venezuelan government. The appeal further noted the historical closeness between Puerto Rico’s banking industry and Venezuela.
The case record also references developments concerning Venezuela’s leadership, noting that the individual identified in those reports is now in a Brooklyn jail awaiting trial on drug trafficking charges and has pleaded not guilty.
Context and implications
The ruling affirms the legal principle that regional Reserve Banks retain substantial latitude in controlling access to central banking services, particularly for nonmember institutions, and clarifies the limits of statutory claims seeking guaranteed master accounts.