Authorities Begin to Focus on Individual Responsibility

This week, Danish prosecutors charged Thomas Borgen, the former chief executive officer of Danske Bank, for his involvement in the money laundering scandal arising out of Danske Bank’s Estonian branch, involving an astonishing 200 billion euros ($224 billion) in alleged suspicious transactions. Borgen, whose home prosecutors reportedly raided on March 12, oversaw Danske Bank’s international operations, including Estonia, between 2009 and 2012.

Borgen stepped down as CEO of Danske Bank on the heels of a report released by the Danish law firm Bruun & Hjejle that the bank released, which found the AML procedures at the Estonian branch were “manifestly insufficient and inadequate,” resulting in numerous breaches of legal obligations by the Estonian branch. We previously analyzed that report, here, which concluded — in apparent contrast with the perceptions of Danish law enforcement — that Borgen, along with the Board of Directors and Audit Committee, did not violate any legal obligations. However, Borgen resigned in September 2018, stating “Even though I was personally cleared from a legal point of view, I hold the ultimate responsibility. There is no doubt that we as an organization have failed in this situation and did not live up to expectations.”

In November 2018, Denmark’s state prosecutors filed preliminary charges against Danske Bank for violations of the country’s anti-money laundering act in connection with its Estonian branch. Danske Bank is being investigated by authorities in several countries, reportedly including the United States, and is facing tremendous potential fines. (see here, here and here for prior blogs on the investigations). So far, the scandal has led to the closure of bank’s operations Estonia and the seizure of assets from the branch. The scandal has also spread to Swedbank, the largest bank operating in Estonia, which dismissed its CEO, Birgitte Bonnesen, over her handling of allegations that the bank’s Baltic accounts laundered money.

Notably, Borgen is the first person charged in this case. As we often discuss, there is an increased emphasis, at least in the United States, on the government’s stated desire to hold individuals accountable for corporate misconduct, including in the AML context.  Given the magnitude of this scandal and the breadth of the investigations, it is unlikely that Borgen will remain the only executive prosecuted in this scandal.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. To learn more about Ballard Spahr’s Anti-Money Laundering Team, please click here.

I am really honored to be moderating the Practising Law Institute’s 2019 Anti-Money Laundering Conference in New York City on May 14, 2019, starting at 9 a.m.  My co-chairs are Nicole S. Healy of Ropers Majeski Kohn & Bentley PC, and Jamie Boucher of Skadden Arps Slate Meagher & Flom LLP.  PLI’s AML conference in San Fransisco will be held on June 10, 2019, and both conferences will be available throughout the country via webcasts and groupcasts.

The conference will tackle many critical “hot topics” in BSA/AML, all of which this blog frequently has addressed:

We also are lucky enough to have a great line-up of experienced and knowledgeable panelists:

The conference should be both interesting and timely.  For the complete schedule, please see here.  We hope you attend!

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. To learn more about Ballard Spahr’s Anti-Money Laundering Team, please click here.

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. Continue Reading First Circuit Confirms Broad Civil Immunity for Filing a SAR

On April 17, 2019, the United States Attorney’s Office for the Southern District of Florida (the “Government”) announced its non-prosecution agreement (available here) entered into with a Miami-based gold refinery, Republic Metals Corp. (“RMC”), related to the refinery’s failure to maintain a robust anti-money laundering (“AML”) program. RMC is the second American refinery whose AML program has been identified as deficient by the Government as part of its ongoing probe into gold imports from South American countries such as Peru, Bolivia, and Ecuador (dubbed “Operation Arch Stanton”). The Government’s decision to decline prosecution against RMC stands in stark contrast to its prosecution last year of another refinery, Texas-based Elemetal LLC (“Elemetal”), arising from the same probe. Continue Reading Gold and Money Laundering

On April 15, the UK Treasury released proposed steps, entitled a “consultation,” to adopt the EU’s Fifth Money Laundering Directive (“5AMLD”) into national law, while also seeking comments and evidence from stakeholders to inform the final government decisions on adoption of 5AMLD. In certain respects, the exchequer suggests that it might expand the scope of 5AMLD, in part by targeting a perceived gap in stemming the flow of illicit funds in the real property sector. To achieve that goal, it sets forth the possibility of imposing new duties on landlords to carry out extensive due diligence on their tenants, subject to further feedback.

Continue Reading UK’s Anti-Money Laundering Laws May Extend to Private Landlords

UK-based Standard Chartered Bank (“SCB”) announced the terms of significant settlements last week with various U.S. and U.K. governmental agencies, resolving a series of related investigations into the bank’s alleged violations of international sanctions and concomitant failures of anti-money laundering (“AML”) controls over a period stretching from 2007 to 2014. The bank will pay a total of $1.1 billion in combined forfeitures and fines to various national and state agencies in the two countries — and extend, once again, its deferred prosecution agreements (“DPAs”) with the U.S. Department of Justice (“DOJ”) and the New York County District Attorney’s Office (“NYDA”).

Specifically, the bank will pay: a $480 million fine and a $240 million forfeiture to the DOJ; approximately $639 million to the U.S. Treasury Department Office of Foreign Assets Control (“OFAC”); over $292 million to the NYDA; almost $164 million to the Board of Governors of the Federal Reserve System; and $180 million to the New York Department of Financial Services.  The bank also will pay over £102 million (an amount approximately equal to over $133 million) to the U.K.’s Financial Conduct Authority (“FCA”).  After certain payments are credited against some of these penalties, the total will exceed $1 billion.

Continue Reading Standard Chartered Bank Enters Combined $1 Billion+ Settlement with U.S. and U.K. Authorities Over Iranian Financial Transactions

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

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.
Continue Reading And Here Come the Lawyers: Securities Fraud Suits Commence Private Litigation Phase of Danske Bank Scandal

Proposed Legislation Would Require Beneficial Ownership Disclosure at Entity Formation

Second Post in a Three-Post Series

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.  In this post, we summarize one of the proposed bills, The Corporate Transparency Act of 2019 (the “Act”), which seeks to ensure that persons who form legal entities in the U.S. disclose the beneficial owners of those entities.  Although such a law would have broad application, the Act does not  include “formation agents,”—i.e., those who assist in the creation of legal entities such as corporations and LLCs—in the definition of financial institutions subject to the BSA.

As we previously blogged, another proposed bill — entitled, “To make reforms to the Federal Bank Secrecy Act and anti-money laundering laws, and for other purposes” — seeks to reform the BSA and AML laws (the “BSA/AML Reform Bill”) and is divided into three main sections: Strengthening the Treasury; Improving AML/CFT Oversight; and Modernizing the AML System. In our final post in this series, we will summarize the last of the three related bills, the Kleptocracy Asset Recovery Rewards Act, which seeks to create an asset recovery rewards program to help identify and recover stolen assets linked to foreign government corruption.

The Purpose of the Act

The Act focuses on bolstering beneficial ownership disclosure, an issue repeatedly flagged by FinCEN, the U.S. Senate Banking Committee, and the FATF as key in combatting money laundering and terrorist financing. In response to a 2006 FATF report criticizing the United States for failing to collect beneficial ownership information, the federal government repeatedly urged the states to make their incorporation systems more robust by obtaining beneficial ownership information as part of the formation process. Having had little success with voluntary compliance, the Act would amend the BSA to compel the Secretary of Treasury to set minimum standards for state incorporation practices. Thus, applicants forming a corporation or LLC would be required to report beneficial ownership information directly to FinCEN, and to continuously update such information.

The Act defines a “beneficial owner” as a natural person who “(i) exercises substantial control over a corporation or limited liability company; or (ii) has a substantial interest in or receives substantial economic benefits from the assets of a corporation or limited liability company.” The Act’s definition is similar in some respects to that in the Customer Due Diligence Requirements for Financial Institutions Rule (the “Beneficial Ownership Rule,” about which we blog frequently and have provided practical tips for compliance here and here), but lacks the precision found in the Rule. In fact, the Act completely fails to define the terms “exercises substantial control” or “substantial interest.”

The purpose of the Act is to level the playing field by requiring beneficial ownership information no matter the state of formation. In this way, the Act could motivate states to enact more demanding formation systems, and demotivate persons from forming entities in states which require little information about beneficial ownership.

A Long Time in the Making

The Act has been through several incarnations over the years. Most recently, The Corporate Transparency Act of 2017 was introduced by Representatives Carolyn Maloney and Peter King of New York in June 2017. Subsequently, Senators Ron Wyden and Marco Rubio introduced companion legislation in the Senate. For more on the previous iterations of the Corporate Transparency Act, please refer to our two-part series published September 20, 2017 and September 21, 2017.

An Important Change

Under previous iterations of the Act, “formation agents,”—i.e., those who assist in the creation of legal entities such as corporations and LLCs—would be considered financial institutions subject to the BSA’s AML and reporting obligations. As we blogged previously, this expanded definition of “financial institution” could encompass many individuals and businesses not previously subject to the BSA, including attorneys whose practices involve the formation of legal entities. This, the ABA has contended, “would undermine the attorney-client privilege, the confidential attorney-client relationship, and traditional state court regulation of the legal profession, while also imposing excessive new federal regulations on lawyers engaged in the practice of law.”

In an apparent win by the ABA and other stakeholders, however, the Act in its current iteration has removed references to the proposed “formation agents” classification. The Act, introduced by Representative Maloney, still would primarily serve to bolster the beneficial ownership identification requirements to prevent the use of shell companies for various illicit reasons, including facilitating tax and money laundering schemes as seen in the Panama Papers scandal.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. Please click here to find out about Ballard Spahr’s Anti-Money Laundering Team.

On April 2nd, the New Directions in Anti-Kleptocracy Forum, organized by the Harriman Institute at Columbia University, will identify emerging issue areas relating to kleptocracy. I am excited to be serving as a co-panelist on the forum’s Art Market as a Node of Kleptocracy panel, which will discuss beneficial ownership and the luxury art market. Money Laundering Watch recently addressed the relationship between art and money laundering, a topic of growing interest.

This panel will be part of a day-long forum at the University, co-hosted by Professor Alexander Cooley, Associate Professor Tonya Lee Putnam and Adjunct Professor Matthew Murray. The Forum aims to stimulate in-depth discussion among academics and professionals and generate systemic and innovative solutions to counter the rise of kleptocracy. Other panelists will explore law enforcement and expanding the Foreign Corrupt Practices Act, as well as the challenges of investigating and researching oligarchs. The event will feature leading U.S. experts and scholars from law enforcement, academia, journalism, and finance.

The event is free, but if you would like to attend you must register through this Eventbrite page.  Hope you can attend – it should be a great forum.

The Harriman Institute

Since its founding in 1946, the Harriman Institute, formerly the Russian Institute, has maintained its position as a leading center for the advancement of knowledge in the field of Russian and Eurasian studies through the research conducted by its faculty, students, fellows and visiting scholars and the training of scholars and professionals.

The Harriman Institute strives to facilitate the effective use of the unique resources it possesses to further the work of the diverse community of scholars in residence, students and the more than 60 faculty members who make up the Harriman Institute faculty. Taken together, the library collections of Columbia and the New York Public Library constitute the single largest concentration of Russian-language materials in the country. Moreover, the numerous resources of New York City—the U.N. missions, the many foundations and societies based in the city, the wealth of museums, special collections and archives, to name just a few—ideally complement those of Columbia University.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. Please click here to find out about Ballard Spahr’s Anti-Money Laundering Team.