Bank of Tokyo Mitsubishi UFJ headquarters. Photo: flickr

The Bank of Tokyo-Mitsubishi UFJ Ltd.'s request to trade its state license for a federal one was granted unlawfully and arbitrarily, New York's banking and insurance regulator claimed late Wednesday in an answer and counterclaim to a lawsuit filed in federal court in Manhattan.

The Department of Financial Services Superintendent Maria Vullo questioned the legality of the Tokyo lender's charter conversion, arguing that a license granted by the federal Office of the Comptroller of Currency is “contrary to law, invalid and not effective, as they were issued pursuant to federal agency action that was arbitrary and capricious, an abuse of discretion, and not in accordance with law.”

Vullo, who is being represented by lawyers at Attorney General Eric Schneiderman's office as defendant in her official capacity as DFS superintendent in Bank of Tokyo-Mitsubishi UFJ v. Vullo, 1:17-cv-08691, accuses the bank of “avoiding responsibility” for its prior illegal conduct in New York by moving jurisdiction from a state-licensed entity to a federally licensed entity. The lawsuit was filed by the bank against Vullo last November in the U.S. District Court for the Southern District of New York. Judge Sidney Stein is presiding.

The bank sued DFS in an effort to stop the state agency from overseeing the lender after it was subjected to penalties for improperly handling transactions involving countries that were subject to sanctions by the United States. In 2013, BTMU paid a $250 million fine to New York over transactions involving Iran, Myanmar and other sanctioned countries, according to court documents. A year later, the bank paid a $315 million penalty “for orchestrating a multi-party conspiracy designed to hide information from DFS about the bank's past illegal conduct.”

In DFS's answer to the complaint, lawyers for Vullo assert that the Bank of Tokyo-Mitsubishi UFJ (BTMU) “willfully and repeatedly violated New York law and two DFS consent orders while it was operating under a license issued by the state of New York and under DFS's jurisdiction.”

“Even if regulatory arbitrage were acceptable going forward (and it is not), the conversion of a foreign bank from a state license to a federal license cannot and does not permit an institution to obtain immunity from conduct occurring while licensed by its predecessor licensor and subject to New York law,” the answer said.

Vullo claims that the Bank of Tokyo-Mitsubishi UFJ lied to the independent consultant that DFS assigned to monitor the lender and impeded the consultant's work by terminating the chief compliance officer of its New York office, who was working with the independent consultant.

The bank declined to comment on Thursday.

A spokesman for the OCC said in an email that the license conversion granted to the Tokyo lender was “fully in accordance with legal standard and agency policy.” Spokesman Bryan Hubbard added that the OCC's decision does not allow the bank or any of its branches “to evade oversight for the matters covered” by the consent order that is “substantively the same as the then outstanding NYDFS consent order.”

The Bank of Tokyo-Mitsubishi UFJ is being represented by Covington & Burling partner Henry Liu, partner Robert Long Jr. and associate Jonathan Mincer; and by Sullivan & Cromwell partner Richard Pepperman II.