Declaration of Meredith Karp & FRBSF Denial Letter — PayServices v. FRBSF (9th Cir.)

Record facts

FEDERAL RESERVE BANK OF SAN · No. 1:23-cv-00305-REP · Doc. 22-2 · 2023-08-14 · Docket on CourtListener

Full text

DECLARATION OF MEREDITH KARP IN SUPPORT OF DEFENDANT FEDERAL RESERVE BANK OF SAN 
FRANCISCO’S MOTION TO DISMISS PLAINTIFF’S COMPLAINT FOR DECLARATORY AND INJUNCTIVE 
RELIEF  
Robert A. Faucher (ISB #4745) 
rfaucher@hollandhart.com   
A. Dean Bennett (ISB #7735) 
adbennett@hollandhart.com  
Julie A. Hamilton (ISB #11708)  
jahamilton@hollandhart.com   
HOLLAND & HART LLP 
800 W. Main Street, Suite 1750 
Boise, ID 83702-7714 
Telephone:  (208) 342-5000 
Facsimile:   (208) 343-8869 
 
Jonathan K. Youngwood (Admitted Pro Hac Vice)  
jyoungwood@stblaw.com  
Meredith Karp (Admitted Pro Hac Vice)  
meredith.karp@stblaw.com  
SIMPSON THACHER & BARTLETT LLP 
425 Lexington Avenue 
New York, NY 10017 
Telephone:  (212) 455-2000 
Facsimile:   (212) 455-2502 
 
Attorneys for Defendant  
IN THE UNITED STATES DISTRICT COURT 
FOR THE DISTRICT OF IDAHO 
PAYSERVICES BANK, 
Plaintiff, 
vs. 
FEDERAL RESERVE BANK OF 
SAN FRANCISCO, 
Defendant.   
 Case No. 1:23-cv-00305-REP  
 
DECLARATION OF MEREDITH KARP IN 
SUPPORT OF DEFENDANT FEDERAL 
RESERVE BANK OF SAN FRANCISCO’S 
MOTION TO DISMISS PLAINTIFF’S 
COMPLAINT FOR DECLARATORY AND 
INJUNCTIVE RELIEF 
 
Case 1:23-cv-00305-REP   Document 22-2   Filed 08/14/23   Page 1 of 6

 
DECLARATION OF MEREDITH KARP IN SUPPORT OF DEFENDANT FEDERAL RESERVE BANK OF SAN 
FRANCISCO’S MOTION TO DISMISS PLAINTIFF’S COMPLAINT FOR DECLARATORY AND INJUNCTIVE 
RELIEF - 1 
I, Meredith Karp, declare as follows: 
1. 
I am one of the attorneys for Defendant Federal Reserve Bank of Francisco, am over 
18 years of age, am competent to make this declaration, and make this declaration based upon my 
personal knowledge. 
2. 
Attached to this Declaration as Exhibit A is a true and correct copy of the Federal 
Reserve Bank of San Francisco’s May 31, 2023 Letter to PayServices, Inc. that is identified in 
Paragraph 43 of the Complaint. 
I declare under penalty of perjury that the foregoing is true and correct. 
Executed on August 14, 2023. 
 
 
 
 /s/ Meredith Karp 
 
Meredith Karp  
 
 
 
Case 1:23-cv-00305-REP   Document 22-2   Filed 08/14/23   Page 2 of 6

 
DECLARATION OF MEREDITH KARP IN SUPPORT OF DEFENDANT FEDERAL RESERVE BANK OF SAN 
FRANCISCO’S MOTION TO DISMISS PLAINTIFF’S COMPLAINT FOR DECLARATORY AND INJUNCTIVE 
RELIEF - 2 
CERTIFICATE OF SERVICE 
I HEREBY CERTIFY that on the 14th day of August, 2023, I filed the foregoing 
electronically through the CM/ECF system, which caused the following parties or counsel to be 
served by electronic means, as more fully reflected on the Notice of Electronic Filing: 
Asa Daniel Brown  
asa@asabrownlaw.com  
 
Jade A. Craig  
jade@jadeacraigpa.com  
 
 
 /s/ Robert A. Faucher  
 
Robert A. Faucher 
of HOLLAND & HART LLP 
30317058_v1 
Case 1:23-cv-00305-REP   Document 22-2   Filed 08/14/23   Page 3 of 6

 
 
 
 
 
 
EXHIBIT A 
Case 1:23-cv-00305-REP   Document 22-2   Filed 08/14/23   Page 4 of 6

 
 
           
 
 
(866) 974-7475   |   www.frbsf.org   |   101 Market Street, San Francisco, CA 94105 
Page 1 of 2 
 
INTERNAL FR/OFFICIAL USE // SECURE EXTERNAL 
 
 
 
May 31, 2023 
 
Lionel Danenberg 
PayServices, Inc. 
14061 Pacific Point Place, #204 
Delray Beach, FL 33484 
 
 
Dear Mr. Danenberg, 
 
The Federal Reserve Bank of San Francisco (FRBSF) has reviewed the request by PayServices 
Bank to obtain a Federal Reserve Master Account and financial services.  FRBSF is unable to 
grant your request because the request does not meet the standards outlined in the Board of 
Governors’ Guidelines for Evaluating Account and Service Requests (Guidelines).  
PayServices has obtained “preliminary approval” from the Idaho Department of Finance to 
establish an uninsured Idaho state-chartered bank and would not be subject to prudential 
supervision by a federal banking agency.  PayServices intends to operate exclusively as an 
online bank and to focus its business model almost entirely on providing payment processing 
solutions to foreign import and export merchants and buyers, and foreign governments.  
Under the Guidelines, PayServices is a Tier 3 institution and thus subject to the strictest level of 
review.  The proposed novel, monoline business model and focus on transactions that are 
largely foreign in nature or involve mostly foreign participants presents undue risks. 
 
PayServices Bank’s unproven risk management framework is considered insufficient to 
address the heightened risks associated with its novel, monoline business model, including its 
ability to mitigate money laundering and terrorism financing risks.  Most notably, the 
significant risks and concerns in the areas of BSA/AML and OFAC risk management, credit 
and settlement process and controls, cyber and information security risk management, 
enterprise risk management, strategic planning, and the limited banking and bank-specific 
risk management experience among management, presents undue risk to the Reserve Bank.  
The proposal also presents potential concerns with respect to PayServices’ ability to be 
resolved safely and effectively upon failure, due to its uninsured status.  Should the institution 
Case 1:23-cv-00305-REP   Document 22-2   Filed 08/14/23   Page 5 of 6

 
 
(866) 974-7475   |   www.frbsf.org   |   101 Market Street, San Francisco, CA 94105 
Page 2 of 2  
 
INTERNAL FR/OFFICIAL USE // SECURE EXTERNAL 
allow the Master Account to fund or facilitate illicit activity, undue reputational risk may also 
be posed to the Reserve Bank, Payment and/or U.S. financial system. 
 
Please let us know if you have any questions. 
 
 
Regards,  
 
Wallace Young, Vice President, Credit Risk Management 
 
 
 
Case 1:23-cv-00305-REP   Document 22-2   Filed 08/14/23   Page 6 of 6

File and source

File

gov.uscourts.idd.52494.22.2.pdf

Size

374,202 bytes

SHA-256

603e72135b4a6036f5ec760e53bc339a5a257191c055f60a30da8393122c7a49

Our copy

gov.uscourts.idd.52494.22.2.pdf

Original

storage.courtlistener.com