How a Compliance Case Became a Malpractice War

The $15 Million Turnabout: How a Compliance Dispute Became a Legal Malpractice War

Inside a small Puerto Rico–licensed bank’s big fight with the powerhouse law firms that told it one story in 2020—and advised it to admit the opposite in 2023

The moment everything flipped

In mid-September 2023, an offshore-licensed bank agreed to a $15 million penalty in a negotiated deal with the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN). On paper, the bank admitted that its anti-money-laundering program had “deteriorated over time,” and that it had willfully failed to report suspicious transactions—admissions that unlock the highest tiers of civil penalties under the Bank Secrecy Act (BSA). The deal landed without notice to the bank’s sole shareholder and after the institution had already moved into receivership. Within a year, that shareholder sued three major law firms, alleging the penalty—and the admissions that triggered it—were the product of negligent legal advice and a strategic collapse in advocacy

At the center of the controversy is a startling contradiction: the same lawyers who, in 2020, told Puerto Rico’s regulator that the bank’s AML controls were adequate later guided the bank (through a receiver) to accept a federal consent order saying those controls had worsened—and that the bank’s conduct was willful

Two stories, one client

2020: “Adequate, risk-based, improving”

In a detailed 2020 analysis to the local regulator, counsel framed the bank’s AML program as robust and risk-based, emphasizing that SAR filing is an “inherently subjective” judgment and that examiners should focus on process, not second-guessing individual calls. The letter argued the bank’s controls were sound, aligned with federal guidance, and repeatedly deemed adequateby the regulator in prior touchpoints

That 2020 analysis also pushed back on a “one-size-fits-all” theory of due diligence, citing federal guidance that AML programs must remain risk-based, not rigid. It underscored that alerts and red flags aren’t automatic proof of crime; they are prompts to investigate further—an approach the bank said it followed through enhanced reviews, documentation checks, negative-news sweeps, and transaction-level scrutiny before wires went out

2023: “Deterioration” and “willfulness”

Fast-forward: negotiating with FinCEN under a receiver’s control, counsel let the bank admit that its program deteriorated and that it willfully missed SARs—the polar opposite of the 2020 framing they had supplied and defended. Those admissions, the shareholder now argues, discarded viable defenses and cemented the massive penalty.

Why “willful” matters (and how it’s proved)

For lay readers, “willful” in civil BSA cases doesn’t mean cartoon-villain intent. In U.S. regulatory practice, it typically includes reckless disregard or willful blindness—still a serious label, but one that can be rebutted by showing good-faith reliance on a defensible compliance process (and, yes, on legal advice), credible internal audits, and reasoned, documented judgment calls. The 2020 analysis—and the bank’s subsequent independent audits—were precisely the kind of evidence that could have undercut willfulness or, at minimum, bargained down the penalty. The suit says that argument simply wasn’t pressed.

In other words, counsel had two levers most banks dream of in an AML fight: (1) a paper trail that the program was adequate/improving, and (2) a contemporaneous legal analysis validating risk-based SAR decisions. The new case claims both levers were left on the table.

The U.S. standard for legal malpractice—explained simply

Across the United States, legal malpractice generally turns on four ideas: duty, breach, causation, and damages. In plain English:

Duty Lawyers must act like reasonably careful lawyers in similar circumstances.
Breach They fell short—bad advice, missed defenses, conflicted judgment.
Causation The bad lawyering caused the bad outcome (here, the size and terms of the penalty).
Damages The loss is real and quantifiable.

The new case puts a bullseye on breach (“no reasonable counsel would advise agreeing to these admissions”), causation (the advice directly led to a $15M penalty), and damages (at least $15M plus reputational harm)

The narrative also raises a conflict-of-interest red flag: when prior legal opinions are your client’s best defense, but putting them forward might embarrass you or create liability, loyalty requires you to elevate the client’s interest—even if it means waiving privilege in a targeted way or stepping aside for independent counsel. The allegation here is that the defense most likely to defeat “willfulness” (good-faith reliance on counsel) was never raised, while admissions that maximized civil exposure were embraced.

Administrative overreach and why that matters

There’s another story line, less glamorous but just as potent: what a receiver can—and cannot —do when it takes over a bank.

In this case, a court-appointed receiver stepped in during liquidation and, the shareholder says, acted like a board, negotiated with FinCEN, and signed the consent order—without telling the owner. Later, when asked to pursue claims against the lawyers, the receiver refused. The shareholder calls that rejection conflicted and bad faith, pointing out that once all depositors were repaid, surplus assets should have reverted to the bank or its owner—not lingered under the receiver’s control.

The 2020 analysis also flagged a broader principle of U.S. administrative law: regulators (and by extension, their agents and appointees) must act within the powers the legislature gives them. Unpublished, ever-moving rules applied on the fly are the definition of arbitrary action— grounds for challenge. That theme—stay within your lane, and publish the rules—threads through the bank’s earlier pushback to local examiners and now echoes in the shareholder’s claim of administrative overreach in the receivership phase.

The “before/after” that makes this case pop

If you’re trying to understand causation in human terms, compare the two enforcement arcs:

Local track (2020–2021) After pushback grounded in federal guidance, the bank and local regulator resolved matters with a limited set of transaction look-backs and a modest monetary sanction. (The suit contrasts this outcome with what came next.)
Federal track (2023) With a receiver in charge and the same law firms at the table, the bank admitted program “deterioration,” conceded willfulness, and accepted a $15 million fine.

That “before/after” is the shareholder’s Exhibit A: same underlying conduct, wildly different outcomes—and, they argue, the difference is lawyering.

What the lawsuit seeks—and why it could resonate nationally

The shareholder is asking a Florida court to award at least $15,000,000 plus interest and costs— effectively clawing back the penalty as malpractice damages. They frame the consent order as the predictable result of counsel advising the bank to accept false or unsupportable findings and to abandon the best available defenses.

If a jury agrees, the case could send a message well beyond Miami or San Juan: When enforcement heats up, risk-based programs and contemporaneous legal opinions aren’t just paperwork—they’re shields. And lawyers who forged those shields can’t later pretend they never existed.

The takeaway for non-lawyers

“Willful” isn’t inevitable. It’s a label you can fight—especially if you can show good-faith, documented compliance steps and credible legal sign-off.
Privilege is your tool, not your lawyer’s armor. If your best defense depends on what your lawyers told you at the time, you can waive privilege selectively to prove good faith.
Receivers aren’t kings. They owe fiduciary duties, must stay within statutory powers, and should maximize remaining value for owners once depositors are safe. When they don’t, courts can—and do—step in.

What to watch next

Conflict and independence. Expect scrutiny over whether counsel with skin in the 2020 analysis could ethically steer 2023 strategy—or whether independent AML counsel should have led.
The “no reasonable counsel” test. The heart of the case: would a prudent lawyer facing the same record ever advise a client to admit deterioration and willfulness—and swallow $15 million—when prior opinions and audits pointed the other way?
Administrative lines. Whether courts bless or rebuke the receiver’s choices may shape how aggressively future receivers bargain away claims—or push back.

Editor’s note on sourcing

This piece draws on court-filed factual allegations and regulator-facing legal analyses that detail the programmatic claims, risk-based defenses, and admissions at issue. Quotations and specific facts are attributed inline.