The Office of the Comptroller of Currency (“OCC”) issued an extraordinary announcement regarding the decision of a former bank general counsel – Daniel Weiss, formerly employed by Rabobank, N.A. – to enter into a Consent Order in which Mr. Weiss agreed to be barred from the banking industry and pay a $50,000 fine. The Consent
Proposed Legislation Creates Rewards Program for Whistleblowers of Foreign Government Corruption
Third Post in a Three-Post Series
Newly proposed legislation, if passed, will authorize a whistleblower program for individuals providing law enforcement with information leading to the seizure, forfeiture, and/or repatriation of foreign stolen assets that come within the possession or control of any United States person.
In early March, the House Financial Services Committee released three proposed bills to codify many of the suggested reforms discussed during ongoing conversation among financial agencies, law enforcement, financial institutions, and commentators regarding the Bank Secretary Act (“BSA”) and Anti-Money-Laundering (“AML”) and Combating the Financing of Terrorism (“CFT”) laws. The first two proposed bills are discussed here and here.
In this post, we summarize the last of the three proposed bills, The Kleptocracy Asset Recovery Rewards Act (the “Bill”). The Bill allows the Department of Treasury to provide whistleblowers not only with monetary incentives but also protective measures, including asylum for the whistleblower and his or her immediate family. As we will discuss, the Bill proposes a unique whistleblower program focused on foreign corruption, and which differs in important ways from other, established government whistleblower programs.…
Continue Reading Proposed Kleptocracy Asset Recovery Rewards Act Adds Whistleblower Incentives and Protections
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.…
Continue Reading Massive Danske Bank Money Laundering Scandal Continues to Unfold
Former Bank Employee Testimony Highlights Limited Whistleblower Protections in Europe
In September, the Danish law firm Bruun & Hjejle’s report (“B&H Report”) released its internal investigation report into alleged money laundering conducted through the Estonian branch of Danske Bank (“Danske”). The enormity of the scandal outlined in the report cannot be understated: from 2007 through 2015, at least 200 billion Euros were laundered through Danske. The release of the B&H Report has triggered the predictable cascade of resignations, investigations, hearings, recriminations and stock plunges that have begun playing out over the past eight weeks. These events, in turn, are beginning to illuminate the two principal sides of the scandal: the institutional failures at a large, sophisticated, international bank that allegedly allowed wrongdoing on this scale to go unchecked for eight years; and the efforts countries like Russia will make – and individuals and entities they will exploit – to illegally channel substantial wealth to the West.
As we previously blogged, the B&H Report found that Danske processed 200 billion Euros in suspicious transactions made by thousands of non-resident customers, principally from Russia and former Soviet states. According to the B&H Report, the success of the laundering was due to the near-total failure of the Estonian Danske branch to implement adequate anti-money laundering (“AML”) procedures and the parent Danske Bank Group’s failure to recognize and act upon numerous red flags that should have alerted it to the Estonian branch’s issues. However, while finding that the Estonian branch violated numerous legal obligations in failing to have and implement adequate AML processes and procedures, the B&H Report stopped short of accusing Danske’s Board of Directors, Chairman, Audit Committee, Chief Executive Officer or any executive of violating their legal obligations in regard to these failures.
Recent testimony by former Danske employee turned whistleblower painted a less forgiving picture.…
Continue Reading Danske Bank Money Laundering Scandal: The Tip of the Iceberg(s)
A recent court opinion emphasizes the sensitive issues involved in terminating potentially difficult employees — or, from the employee’s or perhaps the government’s perspective, in terminating whistleblowers who were retaliated against for being willing to point out compliance failures. Although this competing dynamic applies across all industries, a recent opinion from the U.S. Federal District Court for the Eastern District of Louisiana, Kell v. Iberville Bank, addressed such a situation in the Anti-Money Laundering (“AML”)/Bank Secrecy Act (“BSA”) context, in which a bank’s former compliance officer sued her former employer for allegedly terminating her in retaliation for raising uncomfortable issues about claimed insider abuse and the alleged failure to file a Suspicious Activity Report (“SAR”).…
Continue Reading Case Highlights Potential Protections for BSA Whistleblowers
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).…
Continue Reading When A Purported Money Laundering Investigation Turns Into a Class Action Complaint: The Latest Round in BofI’s Fight to Put Money Laundering Allegations in the Rearview Mirror
Employers increasingly face the difficult scenario of employees who misappropriate company data in the pursuit of whistleblower claims alleging misconduct by the employer. Such cases can present a complex mix of regulatory, cybersecurity, and employment issues. These issues were front and center in a recent whistleblower case pitting a bank against its former internal auditor, who engaged in computer-facilitated misappropriation of the bank’s confidential information allegedly to support whistleblower conduct.
The U.S. District Court for the Southern District of California recently declined to summarily adjudicate whether the employee’s confidentiality agreement precluded any whistleblower affirmative defense based on the employee’s alleged violation of computer fraud, contract, and tort laws. The whistleblower laws in question included the Bank Secrecy Act, Sarbanes-Oxley, Dodd-Frank, and the California Labor Code.
In Erhart v. Bofi Holding, plaintiff Charles Matthew Erhart filed a whistleblower complaint against his employer, Bank of the Internet (BofI), alleging BofI retaliated against him for reporting unlawful conduct to the government. BofI, in turn, filed a complaint, alleging that Erhart breached his employee confidentiality agreement by misappropriating confidential data relating to his employer and its clients and disseminating that data to the government, family members, and the national press.
Erhart illustrates the complex and practical problems faced by employers dealing with employees who engage in conduct that would otherwise constitute computer fraud, intellectual property theft, breaches of employment-related agreements and policies, and related tort claims under the mantle of “whistleblower.” A key issue in the case was whether Erhart would be entitled to pursue his retaliation claims before a jury or would be precluded from doing so as a matter of law given his computer-facilitated theft of confidential information.…
Continue Reading Bank Whistleblower Suits Highlight Limits of Employee Confidentiality Agreements
As the world knows, the Panamanian law firm Mossack Fonseca was the subject of a stunning data breach of approximately 11.5 million financial and legal documents in April 2016. These leaked documents, the so-called “Panama Papers,” have been publicized primarily by the International Consortium of Investigative Journalists and allegedly reveal a global system of undisclosed…