gurstelleg@ballardspahr.com | 612.371.3537 | view full bio

Gretchen guides clients through all stages of federal and state civil, criminal, and regulatory proceedings, from responding to government subpoenas and conducting internal investigations to negotiating with government representatives and litigating any resulting claims or charges. Her practice also focuses on complex civil litigation. Gretchen has represented clients in contract disputes, insurance coverage disputes, and False Claims Act cases. Her white-collar experience includes representing clients facing federal money laundering charges, allegations of federal mail and wire fraud, tax fraud, health care fraud, mortgage fraud, theft, and embezzlement.

Second Post in a Two-Post Series

On March 19, 2020, Swedbank received its first sanction at the conclusion of parallel investigations by Swedish and Estonian authorities for its role in the seemingly non-stop Anti-Money Laundering (“AML”) debacle centered around Danske Bank and its now-notorious Estonian Branch. In the first of what will likely be multiple sanctions, Swedbank AB was ordered to pay a record 4 billion Swedish Krona ($38 million) and its subsidiary, Swedbank AS, has been ordered to improve its AML risk control systems to comply with applicable requirements.

In our first post, we discussed the various public AML-related investigations and enforcement actions plaguing Swedbank. In this post, we discuss the details and implication of the report of internal investigation regarding Swedbank’s alleged deficiencies in its AML processes performed by an outside law firm at the request of Swedbank, which has made the report publically available.

The Report is lengthy and detailed.  As we discuss, however, the Report highlights some basic, evergreen issues in AML compliance and enforcement: the need to implement adequate systems to manage high-risk customers; the need to identify beneficial ownership; the need for top management to understand and truly respect AML compliance; the need for transparency with regulators; and the need for transparency by financial institutions with investors and the public.


Continue Reading AML Problems Plague Swedbank: The Internal Investigation Report

Danske Bank: “If we’re going down, you’re coming with us.”

First Post in a Two-Post Series

On March 19, 2020, Swedbank received the first of what will likely be multiple sanctions regarding alleged deficiencies in its Anti-Money Laundering (“AML”) processes and mishandling of information exchanges with public investigations. At the conclusion of parallel investigations by Swedish and Estonian authorities, Swedbank AB must now pay a record 4 billion Swedish Krona ($38 million) and its subsidiary, Swedbank AS, has been ordered to improve its AML risk control systems to comply with the applicable requirements. These penalties are all prelude to the ongoing investigations by the Latvian Police Department, European Central Bank, Swedish Economic Crime Authority, several United States authorities and, presumably, the inevitable private securities litigation to come.

In this post, we will discuss the various public AML-related investigations and enforcement actions plaguing Swedbank.  In our next post, we will discuss the details and implications of the report of internal investigation regarding these problems performed by an outside law firm at the request of Swedbank, which has made the report publicly available.  The bigger picture: the saga of Swedbank is just part of the larger and seemingly non-stop AML debacle centered around Danske Bank and its now-notorious Estonian Branch.
Continue Reading AML Problems Plague Swedbank

Plaintiffs Failed to Sufficiently Allege Knowledge or Recklessness by Company Concerning AML Compliance Problems, Despite Admissions Made by Company When Responding to Major Government Enforcement Actions 

On February 25, 2020, the Tenth Circuit Court of Appeals upheld the dismissal of shareholders’ securities-fraud class action against the Western Union Company (“Western Union”) and several of its current and former executive officers based on the company’s alleged anti-money laundering (“AML”) compliance failings.

The suit was filed in February 2017 following the announcement of a deferred prosecution agreement (“DPA”) between Western Union and the U.S. Department of Justice. The DPA was based upon Western Union’s alleged willful failure to maintain an effective AML program and aiding and abetting of wire fraud between 2004 and 2012. The DPA, about which we have previously blogged, charged Western Union with filing Suspicious Activity Reports (“SARs”) regarding activity by its customers but failing to file SARs regarding the actions of its own agents who were likely complicit. The DPA and related civil enforcement actions from the Federal Trade Commission and FinCEN required Western Union to pay a combined penalty of $586 million.

As we also have blogged, shareholder derivative suits based on alleged AML failures are proliferating, for both U.S.-based and foreign-based financial institutions – as well as their executives. Primary examples include Danske Bank and some of its former executives, as well as Westpac, Australia’s second-largest retail bank, which currently face such lawsuits in the U.S. Such lawsuits now represent predictable collateral consequences flowing from AML-related scandals. Here, Western Union obtained dismissal because the plaintiffs failed to allege sufficient facts regarding the key issue of mental state – that is, facts that would support a strong inference of actual knowledge or reckless disregard that the public statements regarding Western Union’s actual state of AML compliance were false. The detailed Tenth Circuit opinion illuminates the practical contours of the scienter standard regarding AML compliance, or alleged lack thereof. Ultimately, plaintiffs’ arguments based upon a “fraud by hindsight” theory will fail.
Continue Reading Tenth Circuit Rejects Shareholders’ Fraud Claims Against Western Union Based on Alleged AML Failings

Happy New Year! And, happy birthday to Money Laundering Watch, which is entering its fourth year.

Let’s look back2019 has been yet another busy year in the world of money laundering and BSA/AML. We are highlighting 12 of our most-read blog posts, which address many of the key issues we’ve examined during

Bank Accused of Being Asleep at the AML-CTF Switch

On November 20, 2019, AUSTRAC, Australia’s anti money-laundering (“AML”) and counter-terrorism financing (“CTF”) regulator, initiated an action in the Federal Court of Australia seeking civil penalty orders against Westpac Banking Corporation (“Westpac”), Australia’s second largest retail bank, alleging systemic failures to comply with Australia’s AML-CTF laws.  Specifically, AUSTRAC alleges over 23 million breaches of those laws, including activity involving potential child exploitation. As we will discuss, the bank has taken, and continues to take, several steps to try to mitigate and contain the scandal’s consequences.

The Allegations

AUSTRAC’s Statement of Claim focuses on Westpac’s correspondent banking relationships with financial institutions in other countries. Correspondent banking relationships require increased due diligence efforts because of the inherent money laundering and terrorism financing risks associated with cross border movement of funds; dealing with banks in high risk jurisdictions, doing business with banks who themselves do business in, or with, sanctioned or high risk countries; and the limited information about the identity and source of funds of customers of the correspondent banks.
Continue Reading Westpac Banking Corporation Faces Money Laundering Scandal in the Land Down Under

On October 1st, the Office of the Comptroller of the Currency (OCC) published the Fiscal Year 2020 Bank Supervision Operating Plan (“FY 2020 Plan”).

The FY 2020 Plan sets forth the OCC’s supervision priorities and objectives for the fiscal year beginning October 1, 2019 and ending September 30, 2020. The supervision priorities set forth align with the the OCC’s Strategic Plan, Fiscal Years 2019-2023.

The FY 2020 Plan facilitates the development of supervisory strategies for individual national banks, federal savings associations, federal branches, federal agencies, and technology services providers. OCC staff members use the plan to guide their supervisory priorities, planning, and resource allocations.
Continue Reading The OCC Releases Fiscal Year 2020 Bank Supervision Operation Plan

We regularly blog about the conflict between state and federal law related to cannabis and the uncertainty regarding how federal criminal and Bank Secrecy Act (“BSA”) law will, or will not, be enforced against financial institutions providing banking services to marijuana-related businesses (“MRBs”). Because of this continuing uncertainty, many MRBs must operate on a cash-only basis. This creates significant safety and security concerns for both the MRBs and the communities in which they operate, causes regulatory and tax compliance challenges, and handicaps business growth.

This post provides an update on very recent efforts to provide a level of federal protection to financial institutions which provide banking services to MRBs. First, the Senate Banking Committee held a hearing regarding challenges faced by financial institutions and businesses in the cannabis sector. Second, the National Credit Union Administration (“NCUA”) issued guidance regarding servicing hemp producers and the cannabis industry. This NCUA guidance came quickly on the heels of a statement by the chairman of the NCUA that his agency won’t sanction federally-chartered credit unions for working with state-legal MRBs.
Continue Reading Update: Recent Momentum in Efforts to Provide Cannabis Businesses Access to Financial Services

Second Post in a Two-Post Series on the ILLICIT CASH Act

A discussion draft of legislation recently introduced in the Senate, the Improving Laundering Laws and Increasing Comprehensive Information Tracking of Criminal Activity in Shell Holdings (ILLICIT CASH) Act (the “Act”), seeks to modernize federal anti-money laundering (AML) and combating the financing of terrorism (CFT) laws. The Act’s bipartisan drafters assert that the “US AML-CFT laws have not kept pace with the growing exploitation of the global financial system to facilitate criminal activities.” The proposed legislation – which is 102 pages long – would update and expand the tools available to regulators and law enforcement and overhaul domestic AML-CFT policies.

In part one of this series, we blogged about the Act’s proposed new reporting requirements for beneficial ownership information. This post focuses on the Act’s many other proposals for improving the resources available to the Financial Crimes Enforcement Network (FinCEN) and facilitating increased communication between law enforcement, regulators and financial institutions, including provisions regarding “no action” letters by FinCEN and “keep open” letters sent by law enforcement to financial institutions.
Continue Reading Proposed AML Reforms Aim to Enhance and Modernize AML/CFT Enforcement

We are pleased to offer the latest episode in Ballard Spahr’s Consumer Financial Monitor Podcast series — a weekly podcast focusing on the consumer finance issues that matter most, from new product development and emerging technologies to regulatory compliance and enforcement and the ramifications of private litigation.

In this podcast, we review the many recent

The state-legal marijuana industry in the United States continues to grow – as does support for it. Ten states and Washington, D.C. have legalized recreational adult use and 23 other states allow some form of medical cannabis. According to recent polling, 65% of Americans favor legalization of marijuana. Although interest and investment in state-legal cannabis show no sign of slowing, marijuana still remains classified as a Schedule I drug under the federal Controlled Substance Act (“CSA”).

Because marijuana remains illegal under federal law, banks, credit unions, and other financial institutions that provide even basic banking services to marijuana-related businesses (“MRBs”) face signficant regulatory risk, even if the real-world chances of any criminal enforcement currently appear very remote. For this reason, although some credit unions and state-chartered banks are opening accounts for MRBs, most financial institutions, including the largest banks, remain reluctant to do so.

As we previously blogged, the conflict between state and federal law and the uncertainty regarding how federal laws will be enforced against financial institutions leave most MRBs operating on a cash-only basis. Operating solely as a cash business raises obvious safety and security concerns for both the MRBs and the communities in which they operate, and causes regulatory and tax compliance challenges. Additionally, MRBs may struggle to obtain access to financing needed for operations and expansion.

Recognizing these issues, Congress is taking action — possibly.  We discuss here two proposed cannabis reform efforts, the Secure and Fair Enforcement Banking Act of 2019 (“SAFE Banking Act”) and the Strengthening the Tenth Amendment through Entrusting States Act (“STATES Act”). If passed, both bills would provide federal protections to financial institutions servicing MRBs, thereby signficantly increasing MRBs’ access to the banking system. Both bills have received broad bipartisan support, along with support from affected industry groups.  Either of these bills, if passed, would represent a major change.

(Please also check out our related podcast on financial services and the cannabis industry, which more generally reviews the many recent developments in this area, including state approaches to banking services, the status of hemp legalization, the interplay between federal and state cannabis law, FinCEN guidance on Bank Secrecy Act expectations, the status of federal regulatory and enforcement activity.)
Continue Reading Proposed Legislation Aims to Address Safe and Equitable Financial Services in the Growing Cannabis Industry