NY Fed Wins Major Appeal Against Puerto Rican Bank Over Venezuela-Linked Account Cutoff

The Federal Reserve Bank of New York has won a significant legal victory after a U.S. appeals court rejected a challenge from Banco San Juan Internacional, a Puerto Rican lender whose access to the U.S. central banking payment system was terminated over compliance concerns linked to sanctions and anti-money-laundering rules.

The 2nd U.S. Circuit Court of Appeals in Manhattan ruled unanimously against the bank, finding that the Federal Reserve Act does not automatically entitle Banco San Juan Internacional, also known as BSJI, to a master account at the New York Fed. A master account allows financial institutions to directly access Federal Reserve payment services, making it a critical gateway into the U.S. banking system.

Appeals Court Backs NY Fed’s Authority

The court said regional Federal Reserve banks have discretion when deciding whether to grant or deny master accounts to certain financial institutions. That decision strengthens the New York Fed’s position that it can restrict access when it believes a bank creates risks for the broader financial system.

BSJI had argued that it was legally entitled to maintain its master account and that the New York Fed’s decision was unfair. However, the appeals court rejected that argument and upheld the dismissal of the bank’s claims. The ruling followed earlier decisions in the same dispute, including a 2025 district court decision that also sided with the New York Fed.

Why the Master Account Was Important

A Federal Reserve master account is not a normal commercial bank account. It gives a bank direct access to the Fed’s payment rails, including electronic transfers and settlement services. Without that access, a bank may need to rely on correspondent banks or other indirect channels, which can be slower, more expensive, and less stable.

For BSJI, losing the account was a major blow. The bank had maintained the account for about 11 years before learning in 2023 that it would be closed. The New York Fed cited concerns that the bank was not properly meeting U.S. sanctions and anti-money-laundering obligations.

Venezuela-Related Concerns at the Center of the Case

The dispute grew out of broader scrutiny of Puerto Rico’s offshore banking sector, which has historically had business ties with Venezuela. U.S. authorities have paid close attention to financial institutions with Venezuelan links because of sanctions connected to the government of Nicolás Maduro.

BSJI claimed it was caught in a wider campaign against “disfavored” banking models, including institutions connected to Venezuela, cryptocurrency, and cannabis-related businesses. The court, however, found no evidence that the New York Fed acted with discriminatory intent because the bank was owned by a Venezuelan national.

Court Rejects Discrimination Claim

The appeals court concluded that BSJI had not shown enough facts to prove discriminatory motive. In other words, the judges did not accept the argument that the bank was targeted simply because of Venezuelan ownership.

Instead, the court focused on regulatory risk. It accepted the New York Fed’s position that Reserve Banks must be able to protect the payment system from institutions that may create sanctions, money-laundering, or operational risks.

Impact on Other Banks

The ruling could matter far beyond one Puerto Rican bank. It gives regional Federal Reserve banks stronger legal support when they deny or terminate master accounts for institutions they consider risky.

This is especially important for nontraditional financial firms, offshore banks, crypto-linked institutions, and other businesses seeking direct access to the Federal Reserve system. The decision suggests that access is not guaranteed simply because a financial institution wants it.

Earlier District Court Ruling Also Favored the Fed

Before the appeal, U.S. District Judge John Koeltl dismissed BSJI’s lawsuit in Manhattan. He found that the Federal Reserve Act gave the New York Fed discretion over master account access and that the bank’s due process rights had not been violated. The court also noted the Fed’s concern that BSJI’s risk profile and compliance problems justified closing the account.

Legal Importance of the Decision

The case highlights a growing legal debate over who can access the Federal Reserve’s payment system. Some banks and fintech firms argue that the Fed has too much power as a gatekeeper. Regulators, meanwhile, argue that they must have flexibility to protect the financial system from abuse.

The Second Circuit’s ruling supports the regulator-friendly view. It makes clear that Federal Reserve banks are not required to provide direct payment access to every institution that applies or previously received an account.

What Happens Next

The ruling leaves BSJI with fewer legal options, though the bank could still seek further review. For now, the decision is a strong win for the New York Fed and a warning to financial institutions that master account access depends heavily on compliance, risk controls, and regulatory trust.

The case also sends a message to offshore banks and other high-risk financial institutions: maintaining strong anti-money-laundering controls and sanctions compliance is not optional. In the eyes of regulators and courts, weak controls can threaten access to the core U.S. banking system.

Conclusion

The New York Fed’s victory against Banco San Juan Internacional is more than a single banking dispute. It is a major ruling about financial-system access, regulatory discretion, and the power of the Federal Reserve to protect its payment network.

By rejecting BSJI’s appeal, the court confirmed that master accounts are not automatic rights for every eligible institution. Instead, they remain a privilege closely tied to risk management, compliance, and confidence in the safety of the U.S. financial system.

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