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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.

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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.…
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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.…
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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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We are very pleased to be presenting on the topic of SEC enforcement against broker-dealers and mutual funds relating to alleged underlying Anti-Money Laundering and Bank Secrecy Act violations, and associated private class action lawsuits, at the upcoming meeting of the Securities Regulation Committee of the New York State Bar Association on this Wednesday, December…

We previously have observed that financial institutions face an increasing risk that alleged Anti-Money Laundering (“AML”) and Counter-Terrorism Financing (“CTF”) violations will lead to follow-on allegations of securities law violations – allegations brought not only by the government, but also by investor class action suits (see here and here).

This phenomenon of AML law and securities law converging is not limited to the United States, as reflected by a recent class action lawsuit filed against one of the biggest banks in Australia – Commonwealth Bank – which arises out of claims by the Australian government that the bank failed to act adequately on indications that drug rings were using its network of “intelligent” deposit machines to launder tens of millions of dollars.…
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Financial institutions face an increasing risk that alleged violations of the Bank Secrecy Act (“BSA”) and Anti-Money Laundering (“AML”) requirements will lead to follow-on allegations of securities law violations. We have blogged about investor class action suits against financial institutions based on alleged violations of BSA/AML rules.  We also have blogged about recent enforcement…

Neon sign depicting money transfer.

On January 19, 2017, the Western Union Company (“Western Union” or the “Company”) entered into a deferred prosecution agreement (“DPA”) with the Department of Justice (“DOJ”), in which Western Union admitted to willful failures to maintain an effective AML program as well as aiding and abetting of wire fraud schemes.  Western Union agreed to a $586 million monetary penalty which will resolve criminal and civil allegations brought by the DOJ and the Federal Trade Commission against the Company, as well as a related Assessment of Civil Money Penalty by FinCEN against a subsidiary of Western Union.  However, Western Union now faces additional costs and litigation for its admittedly insufficient AML program in the form of shareholder suits brought in federal court following the announcement of this sizeable settlement.  Shareholder derivative suits based on alleged AML failures are becoming increasingly common, and this recent action fits squarely into the apparent trend.…
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