joskowiczd@ballardspahr.com |  215.864.8311 | view full bio

Diana focuses her practice on complex commercial litigation, including the defense of financial institutions accused of having enabled alleged fraud schemes perpetrated by former customers against investors, consumers, and others.  When litigating these cases, Diana assists in internal investigations and counsels clients on AML and BSA matters, including complicated issues relating to discovery and expert testimony.

It may go too far to say things are looking up for Danske Bank, but the institution was handed a significant victory when the Southern District of New York dismissed an investor lawsuit on August 24, 2020. As we blogged about here, here, here, and here, Danske Bank has been the subject of significant regulatory oversight, which has resulted in a foreseeable onslaught of investor lawsuits.

One such class action securities suit was brought by purchasers of DB American Depository Receipts against Danske and its former officers and board members over alleged misrepresentations about the bank’s financial condition in light of the now well-known anti-money laundering (AML) deficiencies in its Estonia branch, as well as the subsequent fallout. The suit relies heavily on the September 19, 2018 Bruun & Jhejle investigative report, which outlined various internal whistleblower complaints about the Estonia branch’s AML controls that were confirmed by a published audit by the Danish Financial Supervisory Authority. Subsequent investigations followed, including by U.S. authorities, resulting in significant financial blows to the bank.

The Court found that the plaintiffs not only had failed to meet the heightened pleading requirements regarding mental state for securities fraud claims, but had not even alleged facts sufficient to allege a material misrepresentation.  The decision reflects the potential difficulty of alleging (much less proving) a successful securities fraud claim based on alleged AML failures, particularly because it arises out of the globe’s largest and most notorious money laundering scandal.


Continue Reading Danske Bank Gets a (Rare) Break: New York Investor Lawsuit Dismissed for Failure to Sufficiently Allege Misrepresentations or Scienter

FBI Highlights Feared AML Deficiencies in Combating Private Equity Money Laundering

Courtesy of a leaked internal Federal Bureau of Investigation (“FBI”) document, it’s now no secret that the FBI suspects that many investment vehicles, such as private equity firms and hedge funds, are widely utilized for money laundering. The FBI apparently compiled a January 2019 report titled “Financial Crime Threat Actors Very Likely Laundering Illicit Proceeds Through Fraudulent Hedge Funds and Private Equity Firms to Obfuscate Illicit Proceeds.” Now, a recently leaked May 1, 2020 internal FBI report similarly titled “Threat Actors Likely Use Private Investment Funds to Launder Money, Circumventing Regulatory Tripwires” (the “Report”) purports to supplement the January 2019 report “by providing recent reporting of hedge funds and private equity firms used to launder illicit proceeds, and expands the threat context beyond financial threat actors to include foreign adversaries.”

The Report does more than simply identify the financial threat posed by this type of money laundering; it uses some real-world examples to explain the process by which criminals are perceived to be infiltrating the global financial system using hedge funds and private equity firms, and how the current anti-money laundering (“AML”) regulatory regime is ill-equipped to stop them. It’s safe to say the FBI certainly did not intend for this play-by-play money laundering “how to” guide to go public. Investment advisors and firms should consider whether this leaked Report might add at least some momentum to the otherwise moribund (and controversial) effort by FinCEN in 2015 to propose regulations that would have made investment advisors subject to the requirement to create and maintain full AML programs under the Bank Secrecy Act (“BSA”).
Continue Reading Leaked FBI Report Reveals Private Equity Under Enhanced Money Laundering Scrutiny

Federal Register Notice Implicates Debate Over BSA Reporting Burden

As we have blogged (here, here, and here), the Financial Crimes Enforcement Network (“FinCEN”) consistently has stressed the importance of Suspicious Activity Reports (“SARs”) and other Bank Secrecy Act (“BSA”) filing requirements to anti-money laundering (“AML”), counter-terrorism and law enforcement efforts. These vigorous pronouncements can be contrasted with certain critiques by industry groups and some commentators regarding the true operational value (or lack thereof) of BSA reporting requirements to law enforcement and financial institutions’ AML programs, particularly when compared to the overall costs associated with the current and rigorous regulatory regime. Lurking behind this debate is the possibility that some requirements of the BSA maybe reduced – or “reformed,” depending upon one’s perspective – through legislation. A recent regulatory filing by FinCEN illustrates this tension and ongoing debate.

On May 26, 2020, FinCEN issued a notice in the Federal Register (“Notice”) to renew the Office of Management and Budget (“OMB”) control numbers assigned to the SAR reporting regulations. The Notice is required in order to give the financial industry and affected stakeholders an opportunity to comment on existing regulatory requirements, as well as associated burdens. Although FinCEN has encouraged the industry to review the Notice and comment, it likely will not be surprised if at least some industry groups push back and criticize the associated estimates regarding burden. Regardless, the Notice provides interesting insights and statistics into current SAR reporting.
Continue Reading FinCEN Seeks Industry Comments on SAR Reporting Burden and Provides Plentiful SAR Stats

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

On January 29, 2020, the U.S. Government Accountability Office (GAO) publicly released the results of a study which the GAO conducted on trade-based money laundering, or TBML, entitled “Countering Illicit Finance and Trade: U.S. Efforts to Combat Trade-Based Money Laundering” (the Study). The Study – sent upon request to the U.S. Senate Subcommittee on Crime and Terrorism – was commissioned in January 2019 after the U.S. Department of Treasury issued a related report, entitled the 2018 National Money Laundering Risk Assessment, identifying TBML as one of the most commonly-used, and one of the most difficult to detect, methods of money laundering.

According to the Study, U.S. law enforcement agencies believe that the increase in TBML is due, ironically in part, to improved compliance by U.S. financial institutions with requirements under the Bank Secrecy Act (BSA) and related Anti-Money Laundering (AML) regulations. For example, the Study noted a downturn in reported cash seizures throughout the United States, suggesting that international crime has pivoted to utilizing TBML schemes to keep the U.S. government’s hands out of the illegal till. In other words, as one rat hole gets closed, the rats creatively create other holes. This is a familiar story in law enforcement, across all spectrums.

The Study describes the particular vulnerabilities that U.S. financial institutions experience with monitoring trade-based transactions as opposed to other day-to-day activity. The Study further notes that this problem has not gone unnoticed, and suggests that there is hope that developing tools and technologies will stave off those who seek to use U.S. systems for TBML. The Study further draws upon earlier reports, described herein, to acknowledge that the problem is not new.
Continue Reading Trade-Based Money Laundering: GAO Report Stresses Enforcement Challenges