As we have blogged, the Anti-Money Laundering Act of 2020 (“AMLA”) amended the Bank Secrecy Act (“BSA”) to expand greatly the options for whistleblowers alleging anti-money laundering (“AML”) violations and potentially create a wave of litigation and government actions, similar to what has occurred in the wake of the creation of the Dodd-Frank whistleblower
The AMLA Creates a Significant New Source of Risk for Financial Institutions
Second Blog Post in an Extended Series on Legislative Changes to the BSA/AML Regulatory Regime
As we have blogged, the Anti-Money Laundering Act of 2020 (the “Act”) (part of the National Defense Authorization Act (“NDAA”), passed on January 2, 2021), represents a historic overhaul of the Bank Secrecy Act (“BSA”). One of the most important changes – and certainly one that has attracted great attention by the media and commentators – is Section 6314 of the NDAA, entitled “Updating whistleblower incentives and protections.” The Act’s expanded whistleblower provision is modeled after the Dodd-Frank Act’s whistleblower provisions, and seeks to follow in Dodd-Frank’s footsteps. But, there are some key differences between the Act and Dodd-Frank. The Act also creates a more limited whistleblower program specifically pertaining to foreign corruption.
Aside from expanding the potential monetary rewards, the most significant aspect of the Act is that it explicitly invites internal compliance officers of financial institutions to use the information obtained through their compliance functions in order to pursue a whistleblower reward. This provision highlights the tension between individuals and institutions, and increases the pressure on financial institutions to comply with the law, take whistleblowers seriously, and be ready to deal with employees who purport to be whistleblowers but may be pursuing their own agenda. It also is a prudent time for financial institutions to review their internal complaint procedures and assess whether any changes are warranted given this new development.…
Continue Reading AMLA Adds Robust New Whistleblower Provisions for Anti-Money Laundering Violations
On December 10, 2020, Kenneth Blanco, Director of FinCEN, issued public comments at the American Bankers Association/American Bar Association Financial Crimes Enforcement Conference announcing new FinCEN guidance for covered financial institutions to utilize the voluntary information sharing provisions of section 314(b) of the USA Patriot Act (“Guidance”). The Guidance encourages information sharing under section 314(b) and emphasizes the potential breadth of the provision, which protects compliant financial institutions from civil liability.…
Continue Reading FinCEN Provides New Guidance on Section 314(b) Information Sharing
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.
The Southern District of New York (“SDNY”) recently rejected a retaliation claim brought by a former bank employee under the Bank Secrecy Act (“BSA”), granting summary judgment in favor of the employer bank because the former employee failed to demonstrate that his firing was caused by his act of reporting a potential violation of law to the government. Although the reasoning underlying the Court’s Order is straight-forward, the case provides another reminder of the often difficult employment issues that both financial institutions and potential whistleblowers can face.
Whistleblowing as to alleged anti-money laundering (AML) violations is a growing phenomenon, perhaps best exemplified by the fact that a whistleblower precipitated the colossal Dankse Bank money laundering scandal. Previously, we blogged about a bank whistleblower case producing the opposite result as the SDNY Order here. In this post, we discuss both the BSA whistleblower statute and the SDNY Order, and, more generally, we note steps that financial institutions might take to protect themselves from liability and legitimate whistleblowers from retaliation.…
Continue Reading Would-Be Whistleblower Fails to Show Causation Under the Bank Secrecy Act for Termination
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.
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
AML Scandals Seem to Inevitably Spawn Investor Lawsuits
As we recently blogged, Westpac, Australia’s second-largest retail bank, has been embroiled in a scandal arising from approximately 23 million alleged breaches of Australia’s anti-money laundering/countering terrorist financing (“AML/CTF”) laws and regulations involving nearly $12 billion in transactions. The scandal broke on November 20, 2019 when the Federal Court of Australia filed a Statement of Claim (“SOC”) detailing how Westpac allegedly failed to monitor transactions involving its correspondent banks that, in turn, facilitated child exploitation abroad.
In this post, we discus the Westpac scandal, its massive consequences and the details of follow-on private securities litigation, including in U.S. courts. As we further discuss, the same legal threats continue to bedevil Dankse Bank, the center of the world’s largest AML scandal.…
Continue Reading Investors Bring 10b-5 Action Against Westpac Over Money Laundering Scandal
On September 25, 2019, the Southern District of New York dismissed a complaint brought by victims of rocket attacks in Israel perpetrated in 2006 by Hizbollah, operating in Lebanon. Kaplan v. Lebanese Canadian Bank, SAL, Civ. No. 08 Civ. 7253, 2019 U.S. Dist. LEXIS 162505 (S.D.N.Y. Sept. 20, 2019). The Complaint was brought under the Anti-Terrorism Act, 18 USC 2333 (“ATA”). In it, the Plaintiffs alleged that the Lebanese Canadian Bank, SAL (“LCB”) provided banking services to five members of Hizbollah (“Hizbollah affiliates”), and by doing so, they materially supported an act of international terrorism.
Specifically, the Complaint alleged, among other things, that LCB failed to take certain due diligence measures, including reviewing public sources, and as a result continued to bank with members of Hizbollah. According to the Complaint, the bank’s customers’ afficilation with Hizbollah was “notorious public knowledge” due to news articles, reports, and Hizbollah’s own media sources. The Plaintiffs alleged that, even if the bank did not have actual knowledge, the bank at least should have known because it had a duty to perform due diligence on its customers, monitor and report suspicious or illegal banking activities, and not provide banking services to terrorist organizations.
Although the Kaplan case arises in the context of international terrorism and potential liability under the ATA, its analysis and conclusions can apply to more mundane state law tort claims against financial institutions by investors or consumers defrauded by the institution’s (former) customers. These claims often attempt to bootstrap allegations that a bank knew should have known about the customer’s fraud scheme due to the bank’s anti-money laundering (AML) monitoring and reporting obligations under the Bank Secrecy Act (“BSA”). As we have blogged, courts hold that evidence of an imperfect AML program and potential red flags about a customer fall short of the high bar required to sustain a claim for aiding and abetting a fraud or other tort against third party non-customers.
The United States continues to be plagued by mass shootings, which appear to be increasing in both frequency and lethality. Certain businesses have reacted by adjusting their business models, such as the recent decision by mega-retailer WalMart to stop selling some — but not all — types of ammunition. Likewise, some financial institutions…