MBaer Merchant Bank AG: FinCEN Section 311 action and FINMA liquidation – Important compliance lessons for Swiss financial institutions

1. Introduction

On 26 February 2026, the U.S. Financial Crimes Enforcement Network ("FinCEN") issued a notice of proposed rulemaking ("NPRM") under Section 311 of the USA PATRIOT Act proposing to designate MBaer Merchant Bank AG ("MBaer") as a financial institution of primary money laundering concern. If adopted, the proposed rule would have imposed special measure five ("Special Measure Five"), the most severe measure available under Section 311, effectively cutting off the bank's access to the U.S. financial system through correspondent and payable-through account restrictions[1].

Specifically, Section 311 allows the U.S. Treasury (through FinCEN) to identify a foreign financial institution as being of "primary money laundering concern" and to impose one or more special measures on U.S. financial institutions

In the case at hand, FinCEN proposed Special Measure Five, which would, in essence:

• prohibit U.S. financial institutions from maintaining correspondent accounts for MBaer;
• require U.S. financial institutions to prevent indirect processing of MBaer-related transactions;
• require enhanced due diligence on foreign correspondent accounts.

Although the measure must be adopted through a formal rulemaking process, the publication of a proposed rule may already have significant practical consequences. Experience with previous Section 311 cases shows that the publication of a proposed rule alone already has significant reputational and financial consequences, even before the adoption of a final measure[2]. Indeed, financial counterparties reassess relationships where access to the U.S. financial system may, in the future, be affected.

[1]     The proposed rule is available here: FinCEN NPRM – MBaer and the corresponding press release is available here: press release.

[2]     List of financial institutions previously targeted by Section 311 is available here.

2. Main findings set out in the FinCEN NPRM

The proposed rule states, on the basis of public and non-public information, that MBaer allegedly facilitated or failed to prevent illicit financial activity over a number of years.

The FinCEN analysis focuses primarily on anti-money laundering deficiencies, including:

• maintenance of a high-risk customer base without sufficient mitigating controls;
• exposure to transactions linked to high-risk jurisdictions;
• insufficient scrutiny of high-value transactions;
• inadequate documentation of economic purpose.

The proposed rule also places particular emphasis on MBaer's exposure to clients and transactions linked to high-risk jurisdictions, in particular Russia, Venezuela and Iran. FinCEN describes a business model characterized by a significant concentration of clients connected with these jurisdictions, including politically exposed persons and individuals associated with sanctioned parties. These elements are presented as important contextual factors in FinCEN's overall assessment of elevated money laundering risk.

While the proposed rule repeatedly refers to activity linked to Russia, Venezuela and Iran, these references are presented primarily as elements of the broader assessment of money laundering risk rather than as independent sanctions violations.

The proposed rule contains numerous examples of payment activity that FinCEN considers indicative of weaknesses in transaction monitoring.

3. What concrete lessons for Swiss financial institutions?

The proposed rule highlights several themes that are relevant for Swiss financial institutions.

AML controls must address sanctions-evasion patterns

Although the FinCEN action is primarily based on anti-money laundering considerations, the proposed rule repeatedly refers to activity linked to sanctions-evasion schemes. The case illustrates that sanctions-evasion typologies are treated as indicators of elevated money laundering risk.

For Swiss financial institutions, this confirms that sanctions-related risks should be integrated into AML monitoring frameworks, in particular where complex ownership structures, trusts or intermediaries are involved.

Economic plausibility and transaction consistency

One of the most instructive aspects of the proposed rule is FinCEN's detailed analysis of transaction patterns and contextual risk indicators.

FinCEN's focus is on the economic plausibility of significant transactions and their consistency with the known profile of the client.

In practice, this means that financial institutions should ensure that monitoring frameworks capture:

• unusually large transfers lacking a clear economic purpose;
• movements of funds between personal accounts without an identifiable rationale;
• transactions inconsistent with the known profile of the client;
• transactions involving clients associated with credible adverse media.

Adverse information must be assessed and documented

The proposed rule makes repeated reference to publicly available information when assessing client and transaction risk. Where adverse media or comparable risk indicators arise, financial institutions should be able to demonstrate that the information has been analysed and that a documented conclusion has been reached as to whether the risks can be reasonably excluded or mitigated. Where such risks cannot be satisfactorily clarified, the matter should be escalated and assessed in light of suspicious activity reporting obligations and other measures, including asset blocking or termination of the relationship.

Access to the U.S. financial system creates structural exposure

The proposed rule illustrates how foreign financial institutions may be exposed to U.S. supervisory action where access to the U.S. financial system is involved.

FinCEN's proposed Special Measure Five is designed to prevent U.S. banks from providing correspondent access and to prevent indirect processing of transactions involving the targeted institution. Even prior to adoption of a final rule, the proposed measure may prompt counterparties to reassess exposures.

Needless to say for any financial institution, access to the U.S. financial system (USD clearing, correspondent relationships, U.S. custodians) constitutes a structural dependency which is a prerequisite for the continuation of the banking activities.

4. Swiss supervisory context

Separate from the FinCEN proceedings, MBaer was the subject of enforcement measures taken by FINMA following supervisory investigations initiated in 2024 into high-risk client relationships, including clients connected with sanctions-related developments and ongoing criminal proceedings[3].

As a result of this investigation, FINMA concluded that the bank had committed serious violations of supervisory law, in particular in relation to anti-money laundering due diligence obligations, organisational structure and risk management. the Swiss regulator found that the bank maintained an unusually high concentration of elevated-risk business and that its organisational and compliance framework was not adequate for the level of risk assumed. According to the investigating agent appointed by FINMA, approximately 80% of client relationships and approximately 98% of incoming assets were classified as high risk.

FINMA further identified structural deficiencies in the bank's AML controls and governance framework, including weaknesses in risk monitoring. FINMA also identified indications that clients had been able to circumvent official asset freezes as a result of these deficiencies. FINMA therefore decided to withdraw the bank's licence and to order its liquidation.

The bank appealed FINMA's decision before the Federal Administrative Court. The appeal was granted suspensive effect, with the result that FINMA's measures could not initially be implemented.

The publication of FinCEN's NPRM occurred while the Swiss proceedings were still pending. Shortly thereafter, MBaer withdrew its appeal before the Federal Administrative Court.

The withdrawal of the appeal allowed FINMA's decision to become legally effective and liquidation proceedings to begin.

The sequence of events illustrates how supervisory proceedings in Switzerland and regulatory measures abroad may interact in practice and how foreign regulatory action may have decisive practical consequences, and in certain cases may effectively determine the outcome, even where domestic supervisory proceedings remain pending.

The MBaer case also arises in a regulatory environment that is currently evolving following the Credit Suisse crisis. As part of the Federal Council's "Too Big To Fail" ("TBTF") reform following the Credit Suisse crisis, Switzerland is reviewing key aspects of its supervisory framework.

The ongoing discussions include proposals to strengthen FINMA's intervention powers, to reconsider the automatic suspensive effect of appeals against certain supervisory decisions and to expand the legal basis for the publication of enforcement actions[4]. The stated objective is to ensure that supervisory measures can be implemented effectively and communicated appropriately, where significant compliance or stability risks arise.

While the legislative process remains ongoing, the MBaer proceedings highlight the practical relevance of these issues, in particular where supervisory action and appeal review interact with parallel foreign regulatory measures.

[3]     Cf. https://www.finma.ch/en/news/2026/02/20260227-mm-mbaer-liquidation/.

[4]     These elements are reflected, inter alia, in the Federal Council's Report on Banking Stability of 10 April 2024 (available here)

5. Conclusion

The FinCEN proposed rule concerning MBaer is noteworthy, in our view, for several reasons.

First, the FinCEN proposed rule provides useful insight into how U.S. authorities assess money laundering risks in relation to foreign financial institutions. Although U.S. regulatory standards do not apply directly as a matter of Swiss law, Swiss financial institutions are nevertheless expected from a risk management perspective, to take into account the legal and reputational risks arising from foreign regulatory regimes, in particular where access to international financial markets is involved. In practice, this includes the need to comply with U.S. regulatory requirements, including sanctions and anti-money laundering standards, as part of the institution's overall risk management framework. The MBaer case illustrates how deficiencies identified by U.S. authorities may translate into concrete supervisory and operational consequences for Swiss institutions. In this respect, the case may also be read alongside recent U.S. enforcement actions concerning sanctions compliance and cross-border risk management, including the OFAC enforcement action against Interactive Brokers[5], which similarly provided practical guidance on U.S. regulatory expectations and their extraterritorial impact.

Second, the MBaer case illustrates the importance of maintaining an AML compliance framework that is aligned with the level of risk assumed by the institution. In particular, the case highlights the need for internal processes capable of ensuring that risk indicators are appropriately analysed, documented and escalated.

Third, the case demonstrates the extent to which Swiss financial institutions may be exposed to foreign regulatory action where a bar from the U.S. financial system is involved. Even before a final designation under Section 311, the publication of a proposed rule may have immediate and detrimental consequences, as counterparties will likely reassess relationships that could be affected by restrictions on correspondent banking and U.S. dollar clearing.

Finally, the procedural developments surrounding MBaer illustrate how foreign regulatory action may interact with Swiss supervisory proceedings in practice. The case demonstrates in particular that measures proposed by foreign authorities may have decisive practical consequences even where Swiss proceedings remain pending. The MBaer case therefore underlines the importance for Swiss financial institutions of maintaining compliance frameworks capable of meeting both Swiss supervisory expectations and the standards applied by foreign authorities where cross-border financial activity is involved.

Please do not hesitate to contact us in case of any questions.

You may reach out to your usual contact at our firm or direct any sanction-specific queries to our dedicated task force at sanctions@lenzstaehelin.com.

[5]     See our Insight: OFAC sanctions enforcement against Interactive Brokers: Important compliance lessons (also) for Swiss financial institutions, available here.

Legal Note: The information contained in this Smart Insight newsletter is of general nature and does not constitute legal advice.