Civil Liability to Private Parties

As we previously blogged, the District of Massachusetts held in AER Advisors Inc. v. Fidelity Brokerage Services, LLC, that the safe harbor provision of the Bank Secrecy Act (BSA) provides unqualified protection to financial institutions and their employees from civil liability for filing a Suspicious Activity Report, or SAR. An update: the First Circuit recently upheld this ruling in an opinion which, consistent with the holdings of most other federal courts, clearly found that the safe harbor protections for SAR filings are absolute.
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More Allegations of Nordic Malfeasance Surface as Private Party Lawsuits Beset Danske Bank and SwedBank Gets Sucked into Unfolding Scandal

“Something was indeed rotten in the state of Denmark.” – Olav Haazen

In what is perhaps the least surprising development in the sprawling, continuously unfolding Danske Bank (“Danske”) money laundering scandal, investor groups have filed private securities fraud actions against the Denmark-based bank and its top executives: first in the United States District Court for the Southern District of New York then, most recently, in Copenhagen City Court in Denmark. These suits coincide with an announcement from the Securities and Exchange Commission (“SEC”) that it, too, was opening its own probe of potential securities and Anti-Money Laundering (“AML”) violations at Danske that could result in significant financial penalties on top of what could be the enormous private judgments. More significantly, the Danske shareholder suits and SEC investigation illustrate a second front of enormous exposure from a securities fraud standpoint for banks involved in their own money laundering scandals and a rock-solid guaranteed template for future investors similarly damaged by such scandals.

As we have blogged here, here and here, the Danske scandal – the largest alleged money laundering scandal in history – has yielded criminal and administrative investigations in Estonia, Denmark, France and the United Kingdom and by the United States Department of Justice. Those investigations have focused primarily on Danske’s compliance with applicable AML regulations, as well as the implementation and effectiveness of those regulations. The SEC and civil plaintiffs now have opened a new line of inquiry focusing less on the institutional and regulatory failures that yielded the scandal and responsibility for them and more on the damage those failures have caused Danske investors.

Meanwhile, banking stalwart Swedbank is reacting, with mixed success at best, to allegations that suspicious transactions involving billions of Euros passed from Danske’s Estonian branch through Swedbank’s own Baltic branches — allegations which have produced a controversial internal investigation report, a law enforcement raid, the loss of the bank’s CEO, and plunging stock value.

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The Danske Bank money laundering scandal continues to reveal its many permutations and confirm its status as the largest money laundering case in history. We summarize here certain events since November 2018, since we last have blogged about the case (see here, here, and here). Proving that no one is immune from the potential taint, notable events include an investigation announced by the Estonian financial regulator; an investigation into that same Estonian regulator itself; the commencement of the inevitable investor lawsuit; and scrutiny of what some have described as the “cleanest” bank in the world, Swedbank, one of the most important banks in Northern Europe.
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As we have blogged, courts have held that financial institutions generally do not owe a duty of care to a noncustomer and that no special duty of care arises from the duties and obligations set forth in the Bank Secrecy Act (“BSA”), absent a special relationship or contractual relationship. Moreover, there is no private right of action stemming from the BSA. Nor does the BSA define a financial institution’s standard of care for the purposes of a negligence claim.  A majority panel of the Eighth Circuit (“the Court”) very recently confirmed these principles in a detailed opinion which affirmed summary judgment in favor of a bank which had provided services to the alleged perpetrators of a $193 million Ponzi scheme, thereby rejecting claims brought by a Receiver on behalf of defrauded investors that the bank had aided and abetted fraud, breach of fiduciary duty, and other claims.

After dissecting the record in detail, the Court determined in Zayed v. Associated Bank, N.A. — over a vigorous dissent — that the Receiver failed to present direct or circumstantial evidence that the bank actually knew about the Ponzi scheme being perpetrated by its former customers, much less that it substantially assisted the scheme. The Court emphasized the fact that evidence of possible “sloppy banking” and the existence of potential red flags fell short of the high bar required to sustain a claim for aiding and abetting a fraud against the third party non-customers.

Although the Zayed opinion is one of many cases rejecting AML-inspired tort claims by defrauded investors against a financial institution which had done business with a fraudster, it is notable for its methodical treatment of the facts — many of which appear in one form or another in other cases — regarding the various red flags which the Receiver claimed that the bank had missed, or the alleged misconduct which the Receiver claimed that bank personnel had perpetrated.  The list of alleged compliance failures discussed and found insufficient to establish potential liability in Zayed demonstrates that, however rigorous AML/BSA obligations and programs may be for financial institutions, their alleged violations often fail to pave a path to recovery for civil plaintiffs.
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Congress enacted the safe harbor provision of the Bank Secrecy Act (BSA), codified at 31 U.S.C. §5318(g)(3)(A), to shield financial institutions, their officers and employees from civil liability for reporting known or suspected criminal offenses or suspicious activity by filing a Suspicious Activity Report, or SAR. More particularly, the safe harbor provides immunity to

In February 2017, we blogged about a whistleblower complaint filed against Bank of the Internet (“BofI”) by its former internal auditor. The blog post addressed what the whistleblower believed was BofI’s wrongdoing in relation to responding to a subpoena from the Securities and Exchange Commission (“SEC”), and when dealing with a certain loan customer in potential violation of the Anti-Money Laundering (“AML”) rules of the Bank Secrecy Act (“BSA”).

Less than two months after our blog post, three BofI stockholders brought a putative class action complaint against BofI seeking to represent a class of individuals who purchased BofI stock, in a case captioned Mandalevey v. BofI Holding, Inc. These plaintiffs alleged BofI violated the Securities Exchange Act through, among other alleged misrepresentations, falsely denying the company was under investigation for money laundering violations.  A federal court recently dismissed all claims against BofI.

This post focuses on that decision, the allegations relating to the federal investigation of BofI, and the Court’s interesting reasoning in dismissing these plaintiffs’ claims. Although the bank won this latest round, the saga involving BofI underscores how financial institutions face an increasing risk that alleged AML and Counter-Terrorism Financing (“CTF”) violations will lead to follow-on allegations of securities law violations – allegations brought not only by the government (see here), but also by investor class action suits (see here, here and here).
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But Noncustomer Plaintiffs May Face Uphill Battle Proving Digital Currency Exchange’s Actual Liability

Earlier this week, the Eleventh Circuit affirmed, in an unpublished opinion, that Coinbase Inc., an online platform used for buying, selling, transferring, and storing digital currency, could not compel arbitration on a former customer of Cryptsy, a now-defunct cryptocurrency exchange, in his proposed class action suit alleging that Coinbase helped to launder $8 million of Cryptsy customers’ assets. Leidel v. Coinbase, Inc., Dkt. 17-12728.

In so holding, the Court found that the plaintiff’s allegations emanated not from the User Agreement between Coinbase and Cryptsy’s CEO, Paul Vernon, but from extra-contractual duties “allegedly” found in federal statutes and regulations, specifically the Bank Secrecy Act (“BSA”).  As we previously have blogged, courts have held that financial institutions generally do not owe a duty of care to a noncustomer and that no special duty of care arises from the duties and obligations set forth in the BSA absent a special relationship or contractual relationship. Moreover, there is no private right of action stemming from the BSA. Nor does the BSA define a financial institution’s standard of care for the purposes of a negligence claim.

Coinbase is registered as a Money Services Business with FinCEN, and is otherwise required to comply with the BSA. However, if courts treat Coinbase as it would any other financial institution (which we have no reason to believe that they would not), Plaintiff, having avoided the contractual arbitration provision, has an uphill battle to show that Coinbase had a duty of care to noncustomers to prevent AML failures.
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Second Post in a Two-Part Series

As we blogged earlier this week, Congress is considering a new draft bill, the Counter Terrorism and Illicit Finance Act (“CTIFA”), in committee in the Senate.  The CTIFA proposes the most substantial overhaul to the Bank Secrecy Act (“BSA”) since the PATRIOT Act.

We previously discussed CTIFA’s proposed requirement for legal entities to submit to FinCEN a list their beneficial owners (“BOs”) and the creation of a central directory of these BOs. Today, we discuss CTIFA’s many other major proposed revisions to the BSA. These include:

  • Raising the minimum monetary thresholds for filing Currency Transaction Reports (“CTRs”) and Suspicious Activity Reports (“SARs”), and requiring a review of how those filing requirements could be streamlined;
  • Expanding the prohibition against disclosing SAR-related information to third parties, including in private litigation;
  • Codifying absolute civil immunity for SAR filing;
  • Expanding the scope of voluntary information sharing among financial institutions;
  • Allowing FinCEN to issue no-action letters; and
  • A grab-bag of other proposals, including a safe harbor for AML-related technological innovation; requiring a review of whether FinCEN should assume a greater role in AML/BSA examinations of financial institutions; requiring a review of the costs to the private sector for AML/BSA compliance; and requiring an annual report to the Secretary of the Treasury (“the Secretary”) regarding the usefulness of BSA reporting to law enforcement.


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On June 29, dual trial verdicts in the Southern District of New York paved the way for the government to seize 650 Fifth Avenue, a 36-story building in Manhattan valued at up to $1 billion (“the Property”). The defendants, representing New York entities that trace their roots to Iran, were convicted of violating U.S. sanctions and money laundering. With this decision, the government can lay claim to the largest terrorism-related civil forfeiture in U.S. history and, as promised, provide the sale’s proceeds to terror victims who had previously won $5 billion in judgments against Iran for terror-related activity.


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