Initial Brief (Washburn v. OCC)

CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES

I. Parties and Amici.

Appellant, Dale E. Washburn (“Washburn”), and Appellee, Office of the Comptroller of the Currency (“OCC”), are the only parties to this case. No other person or entity has sought, or expressed an interest or intention in seeking, to intervene or appear in this case amicus curiae.

II. Rulings Under Review.

The only ruling under review is a final Decision and Order entered on May 2, 2002 by the OCC (“Final Order”). The Final Order adopted the conclusion recommended in an Initial Decision (“Initial Decision”) issued on February 4, 2002 by Administrative Law Judge Ann Z. Cook (“ALJ Cook”) that denied Washburn’s Application to the OCC for an award of attorneys’ fees and related legal expenses (“Application”) under the Equal Access to Justice Act (“EAJA”), 5 U.S.C. § 504.

The style and OCC case number for both the Initial Decision and the Final Order is In the Matter of Dale E. Washburn, Equal Assess to Justice Applicant, AA-EC-01-15. Neither pronouncement is reported; however, the Initial Decision and Final Order are in the Joint Appendix at JA 514-22 and JA 551-52, respectively.

Washburn incurred the legal fees and expenses claimed in the Application defending an adversary adjudication action instituted against him by the OCC on February 13, 2001 for the assessment of a civil money penalty pursuant to 12 U.S.C. § 1818(i) (“CMP Action”) for having allegedly caused or aided certain violations of law that were allegedly committed by the Peoples National Bank, Seneca, Missouri (“Bank”) where Washburn served as President and Compliance Officer. Washburn denied all allegations of wrongdoing and requested a formal hearing to determine the merit of the charges against him. After Washburn had commenced discovery procedures and incurred considerable legal fees and expenses preparing for the hearing over a period of more than six months, the OCC summarily dismissed all charges against Washburn without comment or explanation.

The style and OCC case number for the CMP Action is In the Matter of Dale E. Washburn, Former President of Peoples National Bank, Seneca, Missouri, AA-MW-01-04. The CMP Action against Washburn and the Final Order terminating that action are not reported; however, both documents are in the Joint Appendix at JA 66-73 and JA 174, 184, respectively.

III. Related Cases.

There are no related cases to this action as such phrase is defined in Circuit Rule 28(a)(1)(C).

Nevertheless, this Court should know that Washburn has filed a civil damages action for breach of contract against the Bank to recover the same legal fees and expenses claimed in the Application. The Bank has denied any liability for payment of such sums. The style and docket number of the case is Washburn v. Peoples National Bank, Case No. CV-664CC in the Circuit Court of Newton County, Missouri. The trial and appeal of that action (which is currently in the discovery stage) is expected to take three (3) years. Washburn does not seek duplicate recoveries. In the event Washburn is successful in this appeal, any net recovery from the OCC will be deducted from the total amount of damages Washburn seeks to recover from the Bank.

TABLE OF CONTENTS

Component Page

CERTIFICATE OF COMPLIANCE WITH CIRCUIT RULE 28(a)(1) i

TABLE OF CONTENTS iii

TABLE OF CASES AND AUTHORITIES................. vi

GLOSSARY OF ABBREVIATIONS AND ACRONYMS................... xi

STATEMENT OF APPELLATE JURISDICTION................ 1

APPLICABLE STATUTES AND REGULATIONS.............. 2

STATEMENT OF ISSUES PRESENTED FOR REVIEW..................... 3

STATEMENT OF THE CASE

I Institution and Final Disposition of the Underlying Adversary Adjudication 4

II. Application for Award Under EAJA and Final Disposition of the Application.. 5

A. Application for an Award of Fees and Expenses Under EAJA 5

B. Initial Decision on Merits of the Application.. 7

C. Final Agency Action on the Application.. 8

STATEMENT OF FACTS

I. Brief History of the Bank, the Flawed Structure of its Executive Management, and

the Unfortunate Adverse Consequences of that Management Structure...... 9

II. Bank Efforts to Develop, Adopt, and Implement Policies and Procedures Designed to Assure Bank Compliance with BSA and its Implementing Regulations 11

III.... OCC Examination of the Bank in June of 2000 and Its Aftermath. 12

SUMMARY OF ARGUMENT................. 15

class=Section4>

ARGUMENT

I.... Introductory Caveat....... 18

II. The Charges in the Notice of Assessment Were Not Substantially Justified in Fact.

............. A..... Standard of Review ..... 18

B. The Comptroller Failed to Satisfy the Essential Elements to Support a Finding the Charges in the Notice of Assessment Were

....................... ... Substantially Justified in Fact................. 18

1 The finding was not based upon a review and consideration of all of the evidence in the record,

...................... ........... ........... viewed as a whole........... 20

2. The finding is not supported by a preponderance of

...................... ........... ........... evidence in the record........... 21

3. The finding is not supported by any evidence in the record that support the pivotal factual elements of the

....................... ....................... .. charges in the Notice of Assessment 23

III. The Institution of a Civil Money Penalty Action Based Upon the Charges in the Notice of Assessment Was Not Substantially Justified in Law.

............. A..... Standard of Review...... 25

B. The OCC Did Not Have Legal Authority to Institute a Civil Money

...................... ........... Penalty Action Based Upon the Charges in the Notice of Assessment........... 25

1. Congress has established a clear enforcement scheme regarding the assessment of civil money penalties for

....................... ....................... ... BSA related violations of law............ 26

2............ Congress did not revise the enforcement scheme it had established previously regarding the assessment

class=Section5>

of civil money penalties for BSA related violations of law when it enacted FIRREA in 1989........... 28

IV. The OCC Acted in Bad Faith by Instituting a Civil Money Penalty Action for the Sole Purpose of Using the Enforcement Process Itself as a Means to Facilitate an Illicit Plan to Impose a Financial Penalty Without Due Process of Law.

A. Standard of Review...... 34

B. The OCC Instituted the CMP Action for the Sole Purpose of

Facilitating a Plan to Impose a Financial Penalty Without an

Adjudication of the Merit of the Charges in the Notice of Assessment 34

1. Introductory Note 34

2. The OCC acted in bad faith by using the regulatory enforcement process as a means to impose a financial penalty without regard to due process of law 36

CONCLUSION............. .41

CERTIFICATE OF COMPLIANCE WITH CIRCUIT RULE 28(d) 43

CERTIFICATE OF SERVICE. 44

---------------- Separated from Brief by Blue Cover Sheet ---------------

Cover

ADDENDUM TO BRIEF OF APPELLANT ............... Sheet

Table of Contents i - ii

Federal Statutes 1 - 20

Federal Regulations 21 - 31

...... Legislative History Materials.. 32 - 45

. Miscellaneous Materials.. 46 - 49

TABLE OF CASES AND AUTHORITIES ^[1]

Federal Appellate Cases

* Alphin v. National Transp. Safety Bd.

839 F.2d 817 (D.C. Cir. 1988).. 20, 21

American Hosp. Ass'n v. Sullivan

938 F.2d 216 (D.C. Cir. 1991).. 34, 35

Anderson v. Heckler

756 F.2d 1011 (4^th Cir. 1985)................ 22

Ardestani v. INS

502 U.S. 129 (1991)...... 35

Association of American Physicians and Surgeons, Inc. v. Clinton

187 F.3d 655 (D.C. Cir. 1999)........ 34

Baily v. Bowen

827 F.2d 368 (8^th Cir. 1987)................. 20

Benavides v. DEA

968 F.2d 1243 (D.C. Cir.1992).. 30

Chevron, USA, Inc. V. Natural Resources Defense Council, Inc.

467 U.S. 837 (1984)...... 26

Cornella v. Schweiker

728 F.2d 978 (8th Cir. 1984)................. 20

Cousin v. OTS

73 F.3d 1242 (2d Cir. 1996)................. 25

De Allende v. Baker

891 F.2d 7 (1^st Cir. 1989). 21

* Engine Mfrs. Ass'n v. EPA

88 F.3d 1075, 1089 (D.C. Cir.1996). 32

Fitzpatrick v. FDIC

765 F.2d 569 (6^th Cir. 1985)................. 31

Frost v. Barnhart

___ F.3d ___ (9th Cir. 2002) [2002 WL 31840622] 21

Gowen v. Bowen

855 F.2d 613 (8^th Cir. 1988)................. 20

* Griffin v. Oceanic Contractors, Inc.

458 U.S. 564, 571 (1982) 32

* Halverson v. Slater

129 F.3d 180 (D.C. Cir. 1997)........ 30

* Hammock v. Bowen

879 F.2d 498 (9th Cir. 1989)................. 21

* Independent Ins. Agents of America, Inc. v. Hawke

211 F.3d 638, 643-44 (D.C. Cir. 2000) 30

Jones v. Heckler

760 F.2d 993 (9th Cir.1985)................. 21

Kuhns v. Board of Governors of the Federal Reserve

930 F.2d 39 (D.C. Cir. 1991) 1, 7, 18, 23

* Lipsig v. National Student Marketing Corp.

663 F.2d 178, 181 (D.C. Cir. 1980)........ 40

Lowe v. FDIC

958 F.2d 1526 (11^th Cir. 1992)........ 31

Pierce v. Underwood

487 U.S. 552 (1988). 18, 19

Qi-Zhuo v. Meissner

70 F.3d 136, 139 (D.C.. Cir. 1995) ....... 30

Ramah Navajo Sch. Bd., Inc. v. Babbitt

87 F.3d 1338 (D.C. Cir. 1996)........ 30

Reiter v. Sonotone Corp.

442 U.S. 330 (1979)....... 27

* Roadway Express, Inc. v. Piper

447 U.S. 752 (1980)....... 26

Scott v. National Transp. Safety Bd.

114 F.2d 305, 306 (D.C. Cir. 1997).......... 1

Shepherd v. American Broadcasting Cos., Inc.

62 F.3d 1469 (D.C. Cir. 1995)........ 34

Sierra Club v. Sec'y of the Army

820 F.2d 513 (1st Cir.1987)................. 21

Sullivan v. Hudson

490 U.S. 877 (1989)....... 35

United Brotherhood of Carpenters and Joiners of America, Local 2848 v. NLR B

891 F.2d 1160 (5^th Cir. 1990)................. 18

United States v. 2,116 Boxes of Boned Beef

726 F.2d 1481 (10^th Cir. 1984), cert. denied, 469 U.S. 825(1984). 19

* United States v. Community Bank & Trust Co.

768 F.2d 311 (10th Cir. 1985)........ 19

* United States v. Yoffe

775 F.2d 447 (1^st Cir. 1985)........... 19, 21

Federal Statutes ^[2]

* 5 U.S.C. § 504(a)(1)... 21

* 5 U.S.C. § 504(c)(2) 1, 18

* 5 U.S.C. §§ 706(2)(A) 25, 34

* 5 U.S.C. §§ 706(2)(C) 25, 34

* 12 U.S.C. § 1813(c)..... 33

* 12 U.S.C. § 1813(q)..... 33

* 12 U.S.C. § 1813(u)..... 33

12 U.S.C. §1818(b)... 27

12 U.S.C. §1818(c)... 27

* 12 U.S.C. §1818(i)(2)........... passim

* 12 U.S.C. § 1818(i)(2)(C)................. 32

* 12 U.S.C. § 1818(s)(1)... 7, 27

* 12 U.S.C. § 1818(s)(3)... 6, 16, 17, 28, 29

28 U.S.C. § 1920........ 26

28 U.S.C. § 1927......... 26

31 U.S.C. § 5313......... 11

31 U.S.C. § 5318......... 27

31 U.S.C. § 5318(a)(1). 32

* 31 U.S.C. § 5321... 16, 17, 26, 29, 31, 32

* 31 U.S.C. § 5321(a) 31, 32

* 31 U.S.C. § 5321(e) 32, 33

31 U.S.C. § 5321(e)(1). 33

42 U.S.C. § 1988......... 26

42 U.S.C. § 2000e-5 (k) 26

Federal Regulations

12 C.F.R. § 19.5(b)(7)... 5

12 C.F.R. § 19.29.......... 4

* 12 C.F.R. § 21.21.. passim

31 C.F.R. Part 103 11, 14, 28

* 31 C.F.R. § 103.22 11, 21

* 31 C.F.R. § 103.56...... 33

* 31 C.F.R. § 103.57...... 31

* 31 C.F.R. § 103.57(d). 31

* 31 C.F.R. § 103.57(h) . 31

Legislative History Materials

* 135 Cong. Rec. S2379 at 2393 (March 8, 1989)

1989 W.L. 171463

[Excerpt of Section 902(a)(13) and (14) in section-by section analysis of FIRREA

amending section 8(i) of FDIA to authorize CMP for “violation of any law or

regulation” and establishing three-tiered CMP penalty structure prepared by

Treasury Department and presented to United States Senate by Sen. Jake Garn]......... 29

* H.R. Conf, Rept. No. 103-652 at 190

1994 U.S.C.C.A.N. 1977 at 2020-21

1994 W.L. 280287

[House Conference description of purpose of Section 406 of the Riegle Community

Development and Regulatory Improvement Act of 1994 regarding purpose of new

paragraph (e) in 31 U.S.C. § 5321 requiring Treasury to delegate power to impose

CMP authority for BSA related violations to federal banking agencies]... 33

* 1994 W.L. 224698

[Testimony of Assistant Secretary of Treasury for Enforcement before the Committee

on Treasury Initiatives of the Senate Committee on Banking, Housing and Urban

Affairs on behalf of the Department of the Treasury regarding S.1664, with portion

pertaining to provisions that were later codified at 31 U.S.C. 5321(e) highlighted.] 33

Miscellaneous Materials

63 Fed. Reg. 30227 ( June 3, 1998)

1994 W.L. 224698

Interagency Policy Statement Regarding the Assessment of Civil Money Penalties

Adopted by the Federal Financial Institutions Examinations Council...... 23

GLOSSARY OF ABBREVIATIONS AND ACRONYMS ^[3]

(Alphabetical)

15-Day Letter Letter [JA 1] from the OCC dated August 22, 2000, advising Washburn that unless he provided a satisfactory reply within 15 days of his receipt of the letter, the OCC intends to institute a CMP Action against him based upon the violations of BSA and the CTR Regulation cited in the ROE 2000.

ALJ Cook Administrative Law Judge Ann Z. Cook, who presided over the CMP Action and EAJA Action.

Amended Answer Supplement and Amended Answer [JA 136] filed by Washburn on July 18, 2001 challenging the authority of the OCC to institute the CMP Action.

Answer Answer to the Notice of Assessment [JA 74] filed by Washburn on April 6, 2001, denying all charges of wrongdoing and requesting a formal hearing.

Application Application for an Award of Attorneys’s Fees and Related Legal Expenses [JA 185] under EAJA filed by Washburn on September 25, 2001.

Bank Peoples National Bank, Seneca, Missouri.

Board Board of Directors of the Bank.

BSA Bank Secrecy Act, 31 U.S.C. §§ 5311-30.^[4]

BSA-based

regulations Regulations adopted by Treasury and the federal banking agencies (OCC, FDIC, FRB, OTS and NCUA) to implement statutory requirement in section 8(s)(1) to further compliance with BSA. Such regulations include 31 C.F.R. Part 103 [Treasury] and 12 C.F.R.§§ 21.21 [OCC], 208.63 [FRB], 326.8 [FDIC], and 748.2 [NCUA]. See 52 Fed. Reg. 2858 (1987) announcing the simultaneous promulgation of the foregoing regulations.

BSA related

violations Violations of a requirement or limitation provided in BSA and in any BSA-based regulation.

CEO Chief Executive Officer.

C&D Order Cease and Desist Order issued pursuant to either section 8(b) or 8(c) of FDIA, 12 U.S.C. §§ 1818(b) and 1818(c).

CMP Civil money penalty imposed pursuant to 12 U.S.C. § 1818(i).

CMP statute Provisions of 12 U.S.C. § 1818(i)(2), as amended by FIRREA.

CMP Action The adverse adjudication action instituted by the OCC against Washburn on February 13, 2001 with the issuance of the Notice of Assessment.

Comptroller Comptroller of the Currency.

CTR Currency Transaction Report - a standardized report the Bank is required to prepare pursuant to 31 U.S.C. § 5313, as implemented by 31 C.F.R. § 103.22, with regard to certain types and sizes currency transactions.

CTR regulation Provisions of 31 C.F.R. § 103.22 promulgated by the Treasury to implement the requirements in 31 U.S.C. § 5313

Durham Debbie Durham, former Head Teller of the Bank.

Durham Affidavit Sworn affidavit [JA 444] executed by Durham on December 3, 2001, and submitted as a supporting documentary exhibit to the Supplementation of the Application^[5] filed by Washburn.

Durham Statement Written statement [JA 8] executed by Durham on September 6, 2000, and submitted to the OCC as a supporting documentary exhibit to Washburn’s reply to the 15-Day Letter.

EAJA Equal Access to Justice Act, as codified at 5 U.S.C. § 504.^[6]

EAJA Action Action instituted by Washburn on September 25, 2001 for an award of certain fees and expenses he incurred in defending the CMP Action.

EIC Examiner-in-Charge of a bank examination, who is responsible for the preparation of a final report of examination that includes findings regarding, inter alia, compliance with all applicable federal laws and regulations.

EIC Allman OCC Examiner Julie Allman, who was the Examiner-in-Charge of the OCC examination of the Bank conducted in June of 2000, and who was primarily responsible for preparation of the ROE 2000.

Exit Review

Meeting Meeting conducted on August 9, 2000 at the Bank between senior OCC examiner and management personnel and the Board to discuss the findings and conclusions of the OCC examination conducted in June 2000.

FDIA Federal Deposit Insurance Act, as codified at 12 U.S.C. §§ 1811 et seq.

FDIC Federal Deposit Insurance Corporation.

Final Order Final Decision and Order [JA 551] issued and entered by the Comptroller on May 2, 2002 that denied and finally disposed of the Application.

FIRREA Financial Institutions Regulatory, Reform, Recovery, and Enforcement Act of 1989 [Section 907 of FIRREA amended the CMP provisions in FDIA and is codified at 12 U.S.C. § 1818(i)(2).]

FRB Board of Governors of the Federal Reserve System.

Holman Joseph Y. Holman, a charter member of the Board who also serves as the Bank’s Legal Counsel, and who provided some of the legal services on behalf of Washburn (with permission from the Board) claimed in the Application.

Holman Affidavit Sworn affidavit [JA 508] executed by Holman on December 4, 2001, and submitted as supporting documentary exhibit to the Supplementation of the Application^[7] filed by Washburn.

Holman Statement Letter [JA 511] dated September 1, 2000 signed by Holman addressed to the Board and attached as a supporting documentary exhibit to Holman Affidavit.

Initial Decision Initial Decision of ALJ Cook [JA 514] issued on February 2, 2002 regarding the merits of the Application.

JA Joint Appendix.

MOU Memorandum of Understanding [JA 424] executed by the Board and the OCC on August 9, 2001.

NCUA National Credit Union Administration.

Notice of

Assessment Notice of Assessment of a Civil Money Penalty [JA 66] issued by the OCC on February 13, 2001, pursuant to 12 U.S.C. § 1818(i)(2)(A)(i) for the assessment of a CMP against Washburn.

Notice of

Dismissal Notice of Dismissal [JA 147] filed by the OCC on August 6, 2001.

Notice of

Settlement Notice of Settlement [JA 143] filed by the OCC on August 6, 2001.

Notice of

Withdrawal Notice of Withdrawal [JA 174] filed by the OCC on August 27, 2001.

OCC Office of the Comptroller of the Currency, a bureau of Treasury.

OCC Answer Answer to the Application [JA 224] filed by the OCC on October 25, 2001.

OCC Reply Reply ^[8] to Washburn Response to OCC Answer to the Application [JA 309] filed by the OCC on December 3, 2001.

Order of Removal Final order [JA 184] issued by ALJ Cook on August 30, 2001, accepting the Notice of Withdrawal as a final OCC order that dismissed the CMP Action.

OTS Office of Thrift Supervision.

ROE Final written Report of Examination that includes the findings, conclusions and comments of OCC examiners regarding, inter alia, the examined bank’s compliance with all applicable federal banking laws and regulations.

ROE 2000 Final OCC Report of Examination of the Bank as of March 31, 2000 based upon the results of an examination conducted by the OCC in June of 2000.

Section 5321 Provisions of 31 U.S.C. § 5321, authorizing Treasury to impose civil money penalties for violations of BSA and its implementing regulations.

Section 8(s)(1) Provisions of 12 U.S.C. § 1818(s)(1), requiring the federal banking agencies to promulgate regulations to further implement compliance with BSA.

Section 8(s)(3) Provisions of 12 U.S.C. § 1818(s)(3), requiring the federal banking agencies to enforce regulations promulgated under section 8(s)(1) by issuing a C&D Order against the regulated institution for any violation of those regulations.

Section 21.21 Provisions of 12 C.F.R. § 21.21 promulgated by the OCC in accordance with the requirement in section 8(s)(1).

Skaggs Frank E. Skaggs, a charter member and Chairman of the Board..

Skaggs Affidavit Sworn affidavit [JA 341] executed by Skaggs on December 4, 2001, and submitted as a supporting documentary exhibit to the Supplementation of the Application^[9] filed by Washburn.

Skaggs Statement Written statement [JA 11] executed by Skaggs on September 6, 2000, and submitted to the OCC as a supporting documentary exhibit to Washburn’s reply the 15-Day Letter.

Treasury Department of the Treasury.

Washburn Dale E. Washburn, former President and Compliance Officer of the Bank.

Washburn Affidavit Sworn affidavit [JA 452] executed by Washburn on December 4, 2001, and submitted as a supporting documentary exhibit to the Supplementation of the Application^[10] filed by Washburn.

Washburn

Response Response ^[11]to OCC Answer to the Application [JA 268] filed by Washburn on November 13, 2001.

Washburn

Statement Written statement [JA 13] executed by Washburn on September 6, 2000, and submitted to the OCC as a supporting documentary exhibit to his reply to the 15-Day Letter from the OCC.

STATEMENT OF APPELLATE JURISDICTION

This is an appeal of a final decision and order (“Final Order”) entered on May 2, 2002 by the Office of the Comptroller of the Currency (“OCC”) that denied an application filed by Appellant, Dale E. Washburn (“Washburn”) under the Equal Access to Justice Act (“EAJA”).

Washburn filed a timely Notice of Appeal on June 3, 2002. This Court has jurisdiction pursuant to 5 U.S.C. § 504(c)(2). Scott v. National Transp. Safety Bd., 114 F.2d 305, 306 (D.C. Cir. 1997), and Kuhns v. Bd. of Governors of Fed. Reserve Sys., 930 F.2d 39, 41 (D.C. Cir. 1991).

APPLICABLE STATUTES AND REGULATIONS

Copies of selected federal statutes, implementing federal regulations, decisions of federal appellate courts, and excerpts of legislative history references are appended to and bound with this Brief as an Addendum in accordance with Circuit Rule 28(a)(5).

STATEMENT OF ISSUES PRESENTED FOR REVIEW

1. Were the charges in the Notice of Assessment issued by the OCC against Washburn substantially justified in fact within the meaning of the Equal Access to Justice Act?

2. Was the institution of an action by the OCC to assess a civil money penalty pursuant to 12 U.S.C. § 1818(i)(2) based upon alleged violations of 12 C.F.R. § 21.21 substantially justified in law within the meaning of the Equal Access to Justice Act?

3. Did the OCC act in bad faith by instituting a civil money penalty action against Washburn for the sole purpose of using the adjudication process as a means to facilitate an illicit plan to impose a financial penalty on Washburn without due process of law?

STATEMENT OF THE CASE ^[12]

I. Institution and Final Disposition of the Underlying CMP Action.

On February 13, 2001, the OCC issued a Notice of Assessment of a Civil Money Penalty (“Notice of Assessment”) against Washburn pursuant to section 8(i)(2) of the Federal Deposit Insurance Act (“FDIA”), 12 U.S.C. § 1818(i)(2) (“CMP statute”). The Notice of Assessment alleged that Washburn “caused, brought about, participated in, counseled, aided, or abetted” an unspecified number of violations of unidentified requirements of 12 C.F.R. § 21.21 (“section 21.21”) that allegedly were committed by the Peoples National Bank, Seneca, Missouri (“Bank”) where Washburn served as President and Compliance Officer. JA 66-73, 67.

On March 6, 2001, Washburn filed an Answer that denied all adverse allegations and requested a hearing. JA 74-81, 82. Administrative Law Judge Ann Z. Cook (“ALJ Cook”) issued pre-hearing orders pertaining to discovery and scheduled the hearing to begin on October 30, 2001. JA 83,120, 121,171. In preparation for that hearing, Washburn conducted extensive discovery over a period of several months (JA 85-109, 110-14, 115-19, 122, 123, 124-28, 129-33, 134, 135) and filed an Amended Answer on July 28, 2001, challenging the authority of the OCC to institute the CMP Action. JA 136-142.

On August 6, 2001, the OCC filed a Notice of Settlement followed by a Notice of Dismissal. JA 143-44, 147-48. Washburn disputed the Notice of Settlement, disavowing a false declaration made therein that the OCC and Washburn had agreed to a settlement (JA 145-46), and responded to the Notice of Dismissal with a Motion for Summary Disposition pursuant to 12 C.F.R. § 19.29, since there was no unresolved issue. JA.149-56. Supplemental pleadings also pointed out that the OCC efforts to abort the CMP Action failed to comply with 12 C.F.R. § 19.5(b)(7) regarding final dismissal action. JA 160-66, 167-70. ALJ Cook later ordered the OCC to either respond to the Motion for Summary Disposition, or file “documentation [showing] the Comptroller has dismissed the proceeding in accordance with § 19.5(b)(7).” JA 172. The OCC chose the latter option and filed a Notice of Withdrawal on August 27, 2001 that summarily withdrew all charges against Washburn. JA 174-75. ALJ Cook accepted the filing as a final dismissal that complied with 12 C.F.R. § 19.5(b)(7) and entered a final order terminating the CMP Action on August 30, 2001. JA 184.

II. Application for Award Under EAJA and Final Disposition of the Application.

A. Application for an Award of Fees and Expenses Under EAJA.

On September 25, 2001, Washburn filed an Application for an Award under EAJA for the fees and expenses incurred defending the CMP Action (“Application”) contending that: (1) the CMP Action constituted an “adversary adjudication;” (2) there was a “final disposition” of that action; (3) Washburn was a “prevailing party” in that action; (4) Washburn had “incurred” legal fees and expenses defending that action; (5) Washburn was “eligible to receive an award” of such fees and expenses; (6) the OCC was not “substantially justified” in instituting the action; and (7) there were no “special circumstances” that made the award claimed “unjust,” as such terms are used in EAJA. JA 185-94. The OCC filed an Answer ( “OCC Answer”) arguing the Application be denied on three grounds: (1) Washburn was not a “prevailing party;” (2) the OCC position was “substantially justified;” and (3) the fees and expenses claimed in the Application were not “incurred” by Washburn. JA 224-42. The remaining four qualifying grounds alleged in the Application were not disputed and are not in issue in this appeal.

The OCC submitted a copy of a “letter of reprimand” addressed to Washburn ( JA 244-45) to support a finding that Washburn was not a “prevailing party,” arguing that he was “neither victorious nor effective” since the CMP Action was not adjudicated on the merits, and that the “letter of reprimand” was issued in lieu of a CMP.^[13] JA 227-28. In support of the contention the agency was “substantially justified” in fact, the OCC submitted copies of written declarations of two examiners who participated in the June 2000 examination of the Bank.^[14] JA 232-33. In support of the argument that Washburn had not “incurred” the expenses claimed in the Application, copies of a severance agreement and the Bank’s Articles of Association were submitted, arguing that since the expenses in question are subject to possible indemnification by the Bank, they were not “incurred” by Washburn within EAJA. JA 233-35, 252-53, 255-64.

On October 26, 2001, ALJ Cook entered an order, sua sponte, permitting Washburn to file a Response to the OCC Answer, and the OCC to file a Reply to the Washburn Response. JA 265.

Washburn filed a Response^[15] to the OCC Answer, pointing out numerous discrepancies and disputing all of the arguments in the OCC Answer (JA 268-307), and the OCC filed a Reply^[16] to the Washburn Response essentially reiterating the arguments advanced in the OCC Answer. JA 309-27. Notably, however, the OCC failed to include any responsive comment or analysis regarding Washburn’s contention the agency’s power under the CMP statute had been tempered by 12 U.S.C. § 1818(s)(3) where the action (as in Washburn’s case) is based solely on violations of a regulation promulgated pursuant to 12 U.S.C. § 1818(s)(1).

On November 26, 2001, ALJ Cook entered an order, sua sponte, permitting Washburn to file supplemental materials similar to those filed with the OCC Answer based upon this Court’s reasoning in Kuhns v. Board of Governors of the Federal Reserve, 930 F.2d 39, 43 (D.C. Cir. 1991). JA 308. On December 6, 2001, Washburn filed a Supplementation to the Application ^[17] (JA 328-38) that included four sets of sworn affidavits with supporting documentary exhibits of the following persons: Bank Chairman Frank E Skaggs, JA 339-441; former Bank head teller Debbie Durham, JA 442-49; Appellant Washburn, JA 450-502; and Bank Director and Counsel Joseph Y. Holman, JA 503-512. The affidavits are highly detailed, factual, first-person accounts, and were admitted to the record on December 13, 2001. JA 513.

B. Initial Decision on Merits of the Application

On February 4, 2002, ALJ Cook issued an Initial Decision (JA 514-22) regarding the merits of the Application, determining that Washburn satisfied all of the eligibility requirements for an EAJA award, and also that Washburn was a “prevailing party” in the CMP Action. JA 516-18. Nevertheless, ALJ Cook concluded the Application must be denied since she also determined the OCC position was “substantially justified” both in fact and in law. The Initial Decision did not address the issue of whether Washburn “incurred” the expenses claimed in the Application.

Following an unopposed petition by Washburn, the OCC granted the parties permission to file exceptions to the Initial Decision. JA 523-25, 526. Washburn filed exceptions disputing the determination the OCC was “substantially justified” (JA 527-37), and the OCC filed exceptions disputing the finding Washburn was a “prevailing party” and reserving the issue of whether Washburn “incurred” the expenses claimed in the Application. JA 541-50.

C. Final Agency Action on the Application

On May 2, 2002, the Comptroller entered a Decision and Order (“Final Order”) that denied the Application. JA 551-52. The Final Order adopted in toto the determination and analysis in the Initial Decision that the OCC was substantially justified both in fact and in law to institute the CMP Action. The Comptroller, however, declined to either adopt or reject the finding of ALJ Cook that Washburn was a “prevailing party” in that action, reasoning that review of that issue was unnecessary because of the dispositive effect of the determination the OCC was “substantially justified” within EAJA. The Final Order did not address the issue of whether Washburn “incurred” the expenses claimed in the Application.

STATEMENT OF FACTS ^[18]

I. Brief History of the Bank, the Flawed Structure of Executive Management of the Bank, and the Unfortunate Adverse Consequences of that Management Structure.

The Bank opened for business on March 15, 1996 in the small rural community of Seneca, Missouri. Washburn was instrumental in the Bank’s organization and served as a charter member of the Bank’s Board of Directors (“Board”) and as the Bank’s President and Compliance Officer from March 1996 until September 2000. In granting the Bank’s charter, the OCC expressed strong reservations regarding the managerial experience of Washburn and Kenny Davis (“Davis”) who was also instrumental in organizing the Bank with Washburn. As a result, the Bank operated without a chief executive officer (“CEO”) from September 1996 ^[19] to September 2000. Because of the OCC’s strong opposition to either Washburn or Davis serving as CEO, the Board adopted a management structure that placed Washburn and Davis on the same plane of executive authority and responsibility. The Bank essentially operated for four years with Washburn and Davis acting as de facto co-chief executive officers. JA 341-42, 449n.1, 452-53, 457n.1-3.

Such an arrangement had the unfortunate consequence of polarizing the loyalties and support of all of the Bank’s other eight employees, all of whom worked under the direct supervision of both Washburn and Davis, depending upon their duties. Washburn and Davis were effectively competing for the same position on a winner-take-all basis. As a result of a natural human response to that competition and the daily supervisory interaction of Washburn and Davis with all of the Bank’s employees, the entire operational staff was gradually split into separate, rival factions. That circumstance deteriorated and fostered employee resentments over favoritism and caused periodic open conflict among the Bank’s employees, which in turn, eventually precipitated the resignation of the Bank’s head teller, Debbie Durham. The situation reached a critical low point in June 2000 with an open and defiant display of insubordination to Washburn by Assistant Compliance Officer Lori Hirsch, who had placed her loyalty and support with Davis.^[20] By early summer of 2000, therefore, Bank employee morale was extremely poor and had a adverse impact upon the efficiency of their overall performance. JA 341-42 446-47, 449n.1, 454-55, 457 n.6-7.

In order to fill the CEO void and at the request of the OCC, the Board retained the services of an outside management-consulting firm that provided active, on-site managerial assistance to the Board from September 1996 thru December 1999. Notwithstanding strong objections by the OCC, the Board terminated the services of the firm, effective year-end 1999, and continued the equal executive authority status of Washburn and Davis until Washburn left the Bank in September 2000. At that time, Davis was given the title of President with full CEO authority. Shortly thereafter, Davis promoted Assistant Compliance Officer Lori Hirsch to Compliance Officer. In October 2000, Washburn was employed by a much larger state-chartered bank where he serves today as Vice President, Branch Manager and Senior Commercial Loan Officer of the Community Bank and Trust Company in Joplin, Missouri. JA 342, 345n.1, 452-53, 457n.4.

II. Bank Efforts to Develop, Adopt, and Implement Policies and Procedures Designed to Assure the Compliance with BSA and its Implementing Regulations.

The management-consulting firm provided substantial assistance in the development of operating policies and procedures, including those designed to facilitate compliance with the Bank Secrecy Act (“BSA”). Special emphasis was placed on procedures pertaining to the preparation of a Currency Transaction Report (“CTR”) for currency transactions, as required by 31 U.S.C. § 5313, which is implemented by 31 C.F.R. § 103.22 (“CTR regulation”). Between January 1997 and June 2000, the Board also retained the services of two highly respected certified public accounting firms to conduct quarterly compliance reviews and audit testing of the Bank’s procedures to comply with BSA and all implementing regulations adopted by the Secretary of the Treasury (“Treasury”) in 31 C.F.R. Part 103, and by the OCC in section 21.21 pertaining to compliance with BSA (collectively, “BSA-based regulations”). JA 14, 16-38, 342-43, 345n.2-4, 348-410,455.

During this same period, and with the assistance of the management-consulting and outside auditing firms, Washburn developed procedures specifically designed to facilitate compliance with the CTR regulation and also implement an internal control axiom of avoiding a concentration of control of an internal banking process with any one or two persons. The CTR procedures Washburn developed involved four different Bank employees, including him. Washburn also engaged the employees involved with the CTR process with regularly scheduled training programs. The procedures developed by Washburn and his efforts to provide training for those involved with it were well documented, and were known by the Board, the management-consulting and outside auditing firms, as well as OCC examiners. JA 4-5, 8-9, 13-14, 40-48, 445-47, 449n.2, 453-54, 457n.5, 462. Although the Bank had engaged in an extended, systematic program in concert with qualified outside professionals with the specific intent of facilitating compliance with BSA and BSA-based regulations (JA 16-38, 343-410), criticisms regarding compliance with BSA and Washburn’s performance as BSA compliance officer were made in examinations conducted between 1997 and 1999.^[21] Since some of the criticisms in the 1999 examination were similar to those made in earlier examinations, the Board made a special effort to include provisions in engagement letters with the Bank’s outside accounting firm in August 1999 and January 2000 for the conduct of a special review of the Bank’s BSA procedures, evaluating their effectiveness, and making recommendations for any improvements. JA 342-43, 345n.2-4, 368-84.

On April 21, 2000, the outside auditing firm issued a written report indicating the Bank’s BSA compliance policies and procedures satisfied all applicable requirements in BSA and BSA-based regulations. As of the end of April 2000, therefore, the Board was confident it was executing its responsibilities with regard to BSA in competent manner. JA 342-43, 346n.5, 385-403, 455.

III. The OCC Examination of the Bank in June of 2000 and the Its Aftermath.

Earlier that same month (April 2000), the OCC advised the Bank that it planned to start an examination in early June, and asked that certain actions be taken to facilitate the conduct of that examination. As part of that effort, Washburn instructed Assistant Compliance Officer Hirsch to check and make certain that all records required by the CTR regulation since the last OCC examination were properly filed and accounted for in the same manner that she had done in preparing for previous OCC examinations. Unfortunately, Washburn’s request was never honored. JA 447, 449n.2, 454, 457n.6-7, 464-68.

Early in the June 2000 OCC examination, examiners discovered several violations of the CTR regulation. Washburn (not OCC examiners) immediately began an intensive investigation with head teller Durham (in the wake of Ms. Hirsch’s refusal) to determine the nature and scope of the problem, and prepared a report several days later showing that sixty-five (65) violations of the CTR regulation had occurred. Washburn determined that the vast majority of the violations were caused by a change in the methodology used by an outside vendor to prepare computer-generated reports of all banking activities for the previous day, and the vendor’s failure to inform anyone at the Bank of such change for several weeks. The reports constituted a critical part of the CTR reporting procedure Washburn had developed. All of the violations were corrected during the examination, and none involved suspected money-laundering activity. All of the violations involved routine deposits of four local small business customers, all but one of which were later exempted from the CTR requirement. JA 4-5, 8, 13-14,446-47, 455, 457n.7.

On August 9, 2000, the Board met with OCC examiners and senior management officials to review the results of the June examination (“Exit Review Meeting”). The OCC made a special Power-Point slide presentation emphasizing the requirements of BSA and the CTR regulation and asked the Board to execute a Memorandum of Understanding (“MOU”) that contained a comprehensive corrective action program designed to improve the Bank’s compliance with BSA and its implementing regulations. The Board agreed and executed the MOU. Section 21.21 was never mentioned during that meeting. JA 343-44, 346n.6-7, 412-22, 424-34, 455.

On August 22, 2000, the OCC addressed a letter to Washburn advising the agency intended to institute a CMP Action against him based upon his alleged liability for causing the CTR violations discovered at the June examination, unless he provided a satisfactory written response within 15 days. (“15-Day Letter”). In formulating such response, the OCC specifically asked Washburn to complete and execute a financial statement enclosed with the 15-Day Letter. JA 1-2.

Washburn, with assistance from Bank Counsel Joseph Y. Holman, answered the 15-Day Letter on September 7, 2000, arguing against any action and forwarding several affidavits and numerous supporting documentary exhibits, including the quarterly reports from the Bank’s outside auditing firm discussed above. Washburn also complied with the OCC request and included an executed financial statement showing his and his wife’s net worth and sources of income. JA 3-59.

The OCC responded by letter dated November 13, 2000, and informed Washburn (without any comment regarding his response to the 15-Day Letter) the OCC had decided to institute a CMP Action against him, unless he consented to pay a CMP enclosed with the letter. The OCC stated its decision was based on Washburn’s failure “to promptly correct and prevent recurring violations of the Bank Secrecy Act ... and its implementing regulation [sic], 31 C.F.R. Part 103.” JA 60.

After negotiations over the ensuing three months failed to convince Washburn to sign a consent agreement pay a CMP order, the OCC issued formal charges that instituted the CMP Action against Washburn on February 13, 2001.^[22] After renewed negotiations with the OCC in July of 2001 resulted in the same refusal of Washburn to agree to the issuance of a consent order, the OCC summarily dismissed the CMP Action. JA 172, 174.

SUMMARY OF ARGUMENT

It is tempting to say this case is about excessive zeal, overreaching, or letting the end justify the means. But such labels miss the mark. This case is simply about justice and due process of law.

Blinded by the discovery of a large number of reporting violations of the CTR regulation in June 2000, the OCC became obsessed with holding Washburn personally responsible and punishing him accordingly. After written threats failed to convince Washburn to pay a penalty order issued by consent, the OCC issued formal charges to impose a CMP by force. The OCC charges , however, did not accuse Washburn of causing the CTR violations, but with aiding or abetting an unspecified number of violations of unidentified requirements of section 21.21 allegedly committed by the Bank.

The OCC charges were framed in peculiar and often vague terminology that made them seem unusually strained. More importantly, OCC examiners had never mentioned violations of section 21.21 by the Bank in any meeting or discussion during the June 2000 examination, including the Exit Review Meeting with the Board; nor were such violations mentioned in the final written OCC Report of Examination showing the results of that examination (“ROE 2000”). Even more puzzling was the later discovery that the Examiner-in-Charge (“EIC”) of the June 2000 examination who had prepared the final ROE 2000 was one of the examiners who signed a written declaration opining that Washburn caused or aided the Bank’s violations of section 21.21. The plain fact of the matter is that the OCC charges against Washburn were contrived and therefore bogus from the beginning.

The record in the underlying action confirms that conclusion. It shows beyond any doubt that the OCC never had any factual basis for the charges it issued. The opposite determination in the Final Order is erroneous on several counts. First, the finding was not predicated upon a review of all evidence in the record, but was based solely on the evidence offered by the OCC. The Comptroller erroneously disregarded all of the rebuttal evidence offered by Washburn. Second, the determination was not predicated upon a preponderance of evidence in the record. The only material evidence considered by the Comptroller was an abbreviated (two-page) written declaration of a bank examiner that contained, at best, a qualified opinion based upon an assumption, and an even shorter declaration from another examiner agreeing with the other examiner’s qualified opinion. Such evidence, standing alone, cannot possibly satisfy the requisite showing of a preponderance of evidence to support the finding in question . Third, there is no evidence in the record that supports any of the four pivotal factual elements in the charges.

The determination in the Final Order the CMP Action was substantially justified in law based upon the “plain meaning” of the phrase “any law or regulation” in the CMP statute is also wrong. The Comptroller totally ignored the richly detailed legislative history of BSA that shows an unambiguous Congressional intent to establish an enforcement scheme regarding compliance with BSA and BSA-based regulations that flatly contradicts the Comptroller’s determination. The Comptroller dismissed, without comment or analysis, all of the arguments summarized below.

It is undisputed the OCC did not have the authority to impose a CMP for violations of BSA or its implementing regulations prior to the 1989. There are four separate arguments that show why the amendment that added “any law or regulation” to the CMP statute in 1989 cannot be construed as overlapping the pre-existing CMP authority of Treasury under 31 U.S.C. § 5321 (“section 5321”) to impose a CMP for a violation of the BSA or its implementing regulations, including section 21.21.

First, the legislative record of the 1989 amendment expressly states that the amended CMP statute was not intended to overlap the specific CMP authority of Treasury under section 5321. Second, section 8(s)(3) of FDIA, 12 U.S.C. § 1818(s)(3) (“section 8(s)(3)”), has not been repealed. That statute requires the OCC to issue a cease and desist order against any national bank that violates section 21.21. If the amended CMP statute is interpreted as overlapping the CMP authority of Treasury under section 5321, the provisions of section 8(s)(3) will be rendered meaningless. Third, there are irreconcilable disparities regarding vastly divergent standards of proof and authorized penalty amounts between the amended CMP statute and section 5321that would apply to the same violation, making it impossible to rationalize a construction of the former statute as overlapping the latter. Last, the amendment to section 5321 enacted by Congress in 1994 confirms on its face that the OCC did not have authority in 2001 to impose a CMP for a violation of section 21.21 in the absence of a delegation of authority from Treasury. The 1994 amendment added paragraph (e) to section 5321 and requires Treasury to delegate its authority to impose a CMP for BSA related violations to the OCC; however, Treasury has never made a delegation under that statute. The foregoing arguments are corroborated by a rather compelling statistic. Since the CMP statute was amended more than thirteen years ago in 1989, and except for the charges issued against Washburn in 2001, the OCC has apparently never issued CMP charges against an officer of a national bank for violations of BSA or any BSA-based regulation, including section 21.21.

Finally, and most disturbing, the record contains clear and convincing evidence the OCC instituted the CMP Action in bad faith. At the time the OCC issued formal charges, and even though the papers served on Washburn advised he was entitled to a hearing as a matter of right, the OCC was only pretending. From the outset, the OCC never intended the merits of the charges to be adjudicated at a hearing. The sole purpose of instituting the CMP action was to manipulate the enforcement notification process so that the process itself could be used as a weapon to coerce Washburn to pay a consent order, or (failing that) to impose a financial penalty on Washburn in the form of the legal fees and expenses he would incur in preparing for a hearing the agency knew would never occur. In short, the OCC engaged in a wanton, vexatious exercise designed to punish Washburn without regard to the basic precepts of fairness and due process of law.

ARGUMENT

I. Introductory Caveat.

Since the Final Order under review adopted in toto the analysis and conclusions in the Initial Decision that the OCC action against Washburn was “substantially justified” within EAJA, this Brief will cite that portion of the Initial Decision as though it were written into the Final Order.

II. The Charges in the Notice of Assessment Were Not Substantially Justified in Fact.

A. Standard of Review.

The standard of review of the determination that the OCC was substantially justified in fact to issue the charges in Notice of Assessment is whether there is substantial evidence in the record to support the factual basis of such charges. 5 U.S.C. § 504(c)(2). Kuhns v Board of Governors of the Federal Reserve, 930 F.2d 39, 41 (D.C. Cir. 1991) (“Our review of the Board's decision [denying an EAJA application] is limited to determining whether there is substantial evidence to support it.”) The abuse of discretion standard applied in Pierce v. Underwood, 487 U.S. 552, 559-63 (1988) is not applicable where the initial judicial review is conducted under 5 U.S.C. § 504(c).^[23]

B. The Comptroller Failed to Satisfy the Essential Elements to Support a Finding the Charges in the Notice of Assessment Were Substantially Justified in Fact.

The seminal decision of the Supreme Court in Pierce, supra, at 565-66 held the word “substantially” in EAJA means the agency’s position in the underlying proceeding was:

... justified in the main - that is, justified to a degree that could satisfy a reasonable person. That is no different from the ‘reasonable basis both in fact and in law’ formulation adopted by the Ninth Circuit and vast majority of other Courts of Appeals that have addressed this issue.” [citations omitted and emphasis added]

The Pierce opinion cited a list of decisions issued by the Courts of Appeals in all circuits (except those in the Eighth, Federal, and D.C. Circuits)^[24] that had interpreted “substantially justified” as “a reasonable basis both in fact and in law.” A fair reading of those opinions and their progeny have applied the “reasonable basis both in fact and in law” standard by requiring the agency to bear the burden of demonstrating three distinct components: (a) a preponderance of factual evidence in the record that would persuade a reasonable person to conclude the factual aspects of the charges in question are true; (b) the legal authorities and precedents relied upon would persuade a reasonable person to conclude the agency’s legal theory of liability is supported in law; and (c) the factual allegations made by the agency support the agency’s theory. United States v. Community Bank & Trust Co., 768 F.2d 311, 314 (10th Cir. 1985). (“The [agency] must therefore show that it had a reasonable basis for the facts alleged; that it had a reasonable basis in law for the theory advanced; and that the facts supported its theory,” citing United States v. 2,116 Boxes of Boned Beef, 726 F.2d 1481, 1487 (10^th Cir. 1984), cert. denied, 469 U.S. 825(1984)); and United States v. Yoffe, 775 F.2d 447, 450 (1^st Cir. 1985) (“We ... hold that the government has the burden of proving that its position was substantially justified by a preponderance of the evidence.”)

The first component (i.e., a determination the preponderance of evidence in the record would persuade a reasonable person to conclude the factual aspects of the charges are true) is itself comprised of three essential elements: (1) the determination must be based upon all evidence in the record, not just the evidence offered by the agency; (2) the determination must be supported by a preponderance of evidence in the record; and (3) the determination must show that the pivotal factual aspects of the charges are supported by substantial evidence. The Comptroller’s finding that the OCC charges against Washburn were substantially justified in fact failed to satisfy all three requirements. The reasoning of this Court in Alphin v. National Transp. Safety Bd., 839 F.2d 817, 821 (D.C. Cir. 1988) is an instructive starting point:

These passages [in the record]^[25] and the Board's treatment of the evidence indicate that the Board failed to view the “record as a whole” when it determined that the [agency] was substantially justified [within EAJA]. The Board concluded that because [the agency] had presented enough evidence to establish a violation, it was substantially justified in initiating and continuing the proceedings against Alphin. This is not the standard required by the EAJA, however. The Act expressly requires an examination into “the administrative record, as a whole.” Any lesser examination- -such as viewing the government's case in a vacuum, “excluding consideration of a respondent's rebuttal case,” would defeat the purposes of the EAJA. [emphasis added]

Accord Gowen v. Bowen, 855 F.2d 613, 616 (8^th Cir. 1988) (“We find the [agency] has disregarded the overwhelming evidence in the record ...”); Baily v. Bowen, 827 F.2d 368, 371 (8^th Cir. 1987) (“[T]he mere existence of some [supporting] evidence is insufficient to render the [agency’s] position substantially justified.”); and Cornella v. Schweiker, 728 F.2d 978, 984 (8th Cir. 1984) (“We do not believe the government's position can be deemed reasonable in fact when it relied on an isolated part of the evidence and ignored the other overwhelming evidence of disability.”)

1. The finding was not based upon review and consideration of all of the evidence in the record, viewed as a whole.

The Final Order states explicitly the finding of substantial justification in fact was predicated solely upon the evidence offered by the OCC, and that all of the rebuttal evidence offered by Washburn was disregarded since it only constituted evidence of a “persuasive defense” that Washburn might have presented at the hearing: (at JA 521)

An OCC examination disclosed that the Bank had failed to file many large currency transaction reports in violation of [31 C.F.R. § 103.22]. The signed declaration of one of the bank examiners conducting the [June 2000] examination .... stated that the reporting failures might have been averted had the Bank complied with § 21.21. A signed declaration of the examiner-in-charge confirmed the examiner’s conclusions...

Washburn [argues] this information insufficient to constitute a reasonable factual basis for the charges [issued against him, and that the evidence he offered should be considered in making that determination].

Washburn misconstrues the showing required. Reasonable basis in fact is the applicable standard, and is judged at the time the [OCC charges were] issued. The information offered by OCC provides a reasonable factual basis for issuance of the [charges against Washburn]. Examiners are to be given “significant deference” and their opinions carry substantial weight. The fact that Washburn might have presented a persuasive defense does not retroactively affect the reasonableness of the OCC’s decision [to issue the charges in question]. [citations omitted and emphasis added]

Section 504(a)(1) of EAJA expressly requires the determination of substantial justification to be based upon the evidence in “the administrative record, as a whole.” The decision to base a finding of substantial justification in fact solely upon the evidence offered by the OCC is tantamount to “viewing the government’s case in a vacuum” rejected by this Court in Alphrin, supra, at 821. See also Hammock v. Bowen, 879 F.2d 498, 501 (9th Cir. 1989) (“[A] reviewing court must review the record as a whole and consider adverse as well as supporting evidence. We ‘may not affirm simply by isolating a specific quantum of supporting evidence,’ Jones v. Heckler, 760 F.2d 993, 995 (9th Cir.1985).”) Accord Frost v. Barnhart, ___ F.3d ___ (9th Cir. 2002) [2002 WL 31840622].

2. The finding is not supported by a preponderance of evidence in the record.

The second element of substantial justification in fact pertains to the burden of proof of the agency to demonstrate substantial justification by a preponderance of the evidence and is well established. De Allende v. Baker, 891 F.2d 7, 12 (1^st Cir. 1989); Sierra Club v. Sec'y of the Army, 820 F.2d 513, 517 (1st Cir.1987); and United States v. Yoffe, 775 F.2d 447, 450 (1st Cir. 1985). The only evidence offered by the OCC and relied upon by the Comptroller to support the finding the OCC was substantially justified in fact were two abbreviated declarations by OCC examiners who participated in the June 2000 examination. JA 247-50, 521. The declaration of EIC Julie Allman (JA 249-50) merely ratified that of OCC examiner Karen Porter (JA 247-48) (“Porter declaration”). Accordingly, the only evidence the Comptroller actually relied upon was the Porter declaration. By any standard, such evidence standing alone cannot satisfy the requisite standard of proof.

The overwhelming preponderance of evidence in the record actually points in the opposite direction of the finding in the Final Order, and shows the OCC did not have a reasonable (or any) basis in fact to make the charges issued against Washburn. The most compelling evidence in that regard is the “Violations of Laws and Regulations” section of the ROE 2000. JA 436-41. EIC Allman, who was primarily responsible for the preparation of the final ROE 2000, reviewed all of the information contained in that report for accuracy and completeness; however, the cited excerpt does not show any violation of section 21.21 by the Bank, as alleged in the Notice of Assessment.^[26] See Anderson v. Heckler, 756 F.2d 1011,1013 (4^th Cir. 1985) (“We reject the standard [of] some evidence to support the [agency’s] position ... An unexplained, unsupported [statement] in a report neither constitutes substantial evidence nor arguably constitutes substantial evidence when all of the ... other evidence points in the opposite direction.”)

3. The finding is not supported by any evidence in the record that support the pivotal factual elements of the charges in the Notice of Assessment.

The comprehensive analysis and review of all of the evidence in the record made by this Court in Kuhns, supra, at 43-44, regarding each charge made by the agency to determine the issue of substantial justification in fact was never made in this case by the Comptroller. The OCC charges against Washburn contain four pivotal factual elements that require proof: (1) the Bank did or failed to something ; (2) that something had a direct or indirect causal effect that resulted in a violation of one (or more) of the requirements in section 21.21; (3) Washburn did or failed to do something, and (4) that something had a direct or indirect effect that “caused, brought about ... aided or abetted. the Bank’s violations of section 21.21.”