When the U.S. Treasury designates a foreign financial institution as a “primary money laundering concern,” the institution rarely survives. The recent takedown of a Swiss merchant bank is a case study in how it works — and why local regulators often can’t keep up.
On February 26, 2026, FinCEN issued a notice of proposed rulemaking designating MBaer Merchant Bank AG, a Zurich-based institution founded by a great-grandson of the Julius Baer dynasty, as a “primary money laundering concern” under Section 311 of the USA PATRIOT Act. Within days, the bank withdrew its appeal of a Swiss regulatory order and entered liquidation. Its website now states that no repayment of client funds is currently possible.
The speed of the collapse is remarkable. Switzerland’s financial regulator, FINMA, had been investigating MBaer for two years. It had opened formal enforcement proceedings, examined millions of records, and ultimately ordered the bank’s licence revoked. But Swiss law allowed MBaer to continue operating while it appealed. The bank’s doors stayed open.
Then Washington acted, and the bank was dead.
What Section 311 Actually Does
Section 311, codified at 31 U.S.C. § 5318A, was added to the Bank Secrecy Act by the USA PATRIOT Act in October 2001. It grants the Secretary of the Treasury — with authority delegated to FinCEN — the power to designate a foreign jurisdiction, financial institution, class of transactions, or type of account as being of “primary money laundering concern.”
Once that finding is made, FinCEN can impose one or more of five “special measures” on U.S. financial institutions dealing with the designated entity. The measures are graduated: the first four involve enhanced recordkeeping, beneficial ownership identification, and due diligence requirements. The fifth measure is the severe one. It prohibits U.S. financial institutions from opening or maintaining correspondent accounts for, or on behalf of, the designated institution.
In practice, special measure five severs a bank from the U.S. dollar clearing system. For any institution that needs to process dollar-denominated transactions — which is to say, virtually every internationally active bank — this is an existential event. The institution loses the ability to clear trades, settle cross-border payments, or maintain relationships with counterparties who themselves depend on U.S. correspondent banking access.
Tom Keatinge of the Royal United Services Institute put it succinctly in the FT’s recent reporting on the MBaer case: Section 311 is not used often, but when it is, it is fatal.
The Mechanics of Death
What makes Section 311 uniquely destructive is not the final rule itself. It is the announcement.
When FinCEN publishes a notice of proposed rulemaking identifying a bank as a primary money laundering concern, every correspondent bank in the world receives an immediate signal: this institution is toxic. The formal prohibition may take months to finalise through the federal rulemaking process, but the reputational damage is instantaneous. Correspondent banks begin severing ties as a prophylactic measure, not waiting for the rule to become final.
This dynamic was first demonstrated dramatically in September 2005, when FinCEN designated Banco Delta Asia (BDA), a small Macau-based bank, for laundering funds on behalf of North Korea. The mere announcement triggered a run on the bank. Macau authorities froze North Korean accounts worth $25 million. The amount was modest, but the chilling effect was global: banks worldwide became unwilling to process any North Korean transactions for fear of being caught in the same regulatory blast radius.
BDA’s final rule was issued in March 2007, formally barring all U.S. financial institutions from maintaining correspondent accounts with the bank. But BDA had effectively ceased functioning as an international institution long before that date.
The pattern has repeated with each subsequent deployment. In February 2018, FinCEN designated ABLV Bank, Latvia’s third-largest bank at the time, as a primary money laundering concern. Within days, the European Central Bank determined the bank was failing or likely to fail. ABLV entered self-liquidation. A Latvian bank was destroyed by a U.S. administrative proceeding without a single criminal charge being filed.
A Selective Weapon
Section 311 has been used sparingly. Since 2002, Treasury has deployed it against a handful of jurisdictions (Burma, Nauru, Ukraine — the latter subsequently rescinded) and roughly a dozen financial institutions and their affiliates. The targets have spanned Macau, Syria, Latvia, Lebanon, Iraq, and now Switzerland.
The selectivity is part of the design. Section 311 draws its power from credibility: if it were used routinely, the market signal would weaken. Each deployment is calibrated to send a message that extends far beyond the individual target.
But the tool has also evolved. In June 2025, FinCEN used newly authorised powers under the FEND Off Fentanyl Act to designate three Mexican financial institutions, invoking a sixth special measure that prohibits all funds transmittals — a broader restriction than the correspondent account prohibition available under the original five measures. And in November 2025, FinCEN targeted ten Mexican gambling establishments linked to the Sinaloa Cartel.
The MBaer action in February 2026 represented the first use of Section 311 against a Swiss financial institution — a notable escalation given Switzerland’s status as a major global financial centre and its extensive post-2008 reforms to dismantle banking secrecy.
The Regulatory Gap
The MBaer case exposes a structural tension that extends well beyond one Swiss bank. FINMA’s investigation was thorough by any reasonable standard: a multi-year review, millions of documents examined, thousands of pages of findings. The regulator concluded that 80 percent of MBaer’s client relationships were high-risk and that 98 percent of incoming assets came from such clients. It found systematic AML failures, transactions processed for sanctioned parties, and clients allowed to circumvent asset freezes.
And yet, under Swiss administrative law, MBaer was able to contest the regulator’s licence revocation in court — and continue operating while the appeal was pending. The bank was still taking meetings, still processing transactions, still sitting in its offices by Zurich’s lakefront while its regulator had already concluded it posed a serious risk.
FinCEN needed one Federal Register notice to accomplish what FINMA’s two-year investigation could not.
This is not necessarily a criticism of FINMA. Due process and appeal rights are features, not bugs, of a functioning legal system. But it illustrates why Section 311 has become the instrument of first resort when the U.S. government wants a foreign financial institution shut down quickly: the American administrative process is faster, the market effects are immediate, and no foreign court can grant a stay.
Mark Pieth, a Basel-based legal scholar specialising in white-collar crime, called the Swiss handling of MBaer an embarrassment, noting that FINMA has a legacy of being slow while FinCEN acted with speed and force.
What It Means for the Rest of the Financial System
For compliance professionals, Section 311 actions function as de facto blacklists with immediate operational consequences. When Wells Fargo, JPMorgan, or any other U.S. correspondent bank receives notice of a Section 311 designation, they do not wait for the comment period to close. They issue compliance notices to their foreign banking clients: the designated institution may not use your correspondent account at our bank, and if we discover it has, we may terminate your relationship entirely.
The secondary effects cascade outward. A bank designated under Section 311 does not just lose its own U.S. access. Its counterparties face pressure to sever ties or risk being seen as facilitating continued access. The designated institution becomes radioactive, and the contamination spreads through the correspondent banking network.
This is, by design, the entire point. Section 311 exploits the architectural reality of international finance: the U.S. dollar clears through the United States, and any institution that needs dollar access — directly or through intermediaries — is subject to U.S. regulatory jurisdiction whether it has a U.S. presence or not.
The Open Questions
Section 311’s effectiveness is well established. Its legitimacy is occasionally debated. Some legal experts have described the FinCEN report on MBaer as thin, noting its reliance on blog posts and other publicly available reporting rather than direct evidence of sanctions violations. The Banco Delta Asia case attracted similar criticism: despite an 18-month investigation reviewing hundreds of thousands of documents, no criminal charges were ever filed in Macau.
The standard for a Section 311 finding is not criminal conviction, or even probable cause. It is a determination that “reasonable grounds exist” for concluding that an institution is of primary money laundering concern. This is an administrative standard, not a judicial one. The institution designated under Section 311 has the right to submit comments during the proposed rulemaking period, but it has no right to an evidentiary hearing, no right to cross-examine witnesses, and no ability to challenge the factual basis in a trial-like proceeding before the designation takes effect in the market.
For the institutions on the receiving end, this distinction is academic. By the time the comment period opens, the damage is done.
The MBaer case is the latest in a twenty-five-year pattern: Section 311 remains the most consequential enforcement tool in the U.S. anti-money laundering arsenal, not because of the legal prohibition it imposes, but because of the market reaction it triggers. For any financial institution that depends on the U.S. dollar — which is to say, nearly all of them — a Section 311 designation is not the beginning of a regulatory process. It is the end.