Civil Liability to Private Parties

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.

Continue Reading Lessons in Civil Forfeiture and Attachment: U.S. May Seize 650 Fifth Avenue

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 actions by the SEC alleging violations of the securities laws due to underlying violations of the BSA by broker dealers.  This post briefly notes the latest chapter in what seems to be a growing book regarding the convergence of AML/BSA and securities law.

In a complaint, later amended, filed in the Middle District of Tennessee against BancorpSouth Inc., investor plaintiffs alleged that the bank and its CEO, CFO and COO made misleading statements and omissions in SEC filings regarding (1) the bank’s compliance with BSA/AML regulations and the bank’s fair lending practices, and (2) the closing of two pending mergers/acquisitions. Plaintiffs allege that defendants knew at the relevant time that the bank was not in compliance with the AML/BSA regulations, due to a pending “target review” by the FDIC – which later resulted in a consent order between the FDIC and the bank regarding its AML obligations – but nonetheless stated that (1) the bank was in compliance with all banking laws and regulations; (2) they expected the two planned mergers to close in the second quarter of 2014; and (3) they expected to receive regulatory approval for those mergers. The plaintiffs allege that defendants thereby violated Sections 10(b) and 20(a) of the Securities Exchange Act and Rule 10b-5 by making statements which misrepresented or omitted material facts.  According to the plaintiffs, when the AML/BSA problems eventually came to light, these problems allegedly delayed the anticipated mergers, and the bank’s stock value fell significantly, which thereby harmed investors.

As noted, the plaintiffs sued not only the bank itself, but also members of senior management. This approach is consistent with the recent focus on individual liability in AML/BSA matters.  Specifically, the plaintiffs alleged that the individual executive defendants:

. . . . were ultimately responsible for ensuring that the Bank maintained an effective BSA/AML compliance program and that the Company’s program complied with the “4 Pillars” of BSA/AML compliance. In fact, federal regulations specifically require that the Company’s BSA/AML compliance program must be in writing, approved by the Board of Directors . . . , and noted in the board minutes.  Defendants were also responsible for creating a “culture of compliance” to ensure Company-wide adherence to the Bank’s BSA/AML policies, procedures and processes, but failed to do so, instead prioritizing . . . cost-cutting measures.

On Monday, the district court granted, for the second time (after having been initially reversed by the Court of Appeals for the Sixth Circuit), class certification to the plaintiffs against the bank.  The class certification decision involved a review the requirements imposed by Rule 23(a) and Rule 23(b) of the Federal Rules of Civil Procedure and  will not be analyzed here. The point for the purposes of this blog is that it has become clear that, in regards to AML/BSA compliance, publically-traded financial institutions are compelled to wage a multi-front war.  Regardless of the actual merits of the complaint against BanccorpSouth, its mere existence reflects that financial institutions must concern themselves not only with FinCEN, the Department of Justice, and the relevant examiner, but also with putative investor plaintiffs and the SEC – thereby increasing the stakes regarding decisions over the disclosure in SEC filings of possible violations of AML/BSA requirements.

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Settlement of FinCEN Action Against Former AML Chief Compliance Officer Serves as Possible Bellwether of Future Cases

This post discusses individual liability in AML/BSA enforcement, which is an area of increasing attention. Indeed, according to public statements by the government, individual liability is the focus of enhanced scrutiny across the enforcement table.

Man looking over shoulder with suspicionAlthough the raw number of enforcement actions against individuals in the AML/BSA realm (or even in the broader realm of general financial crime) has not climbed dramatically, even a few enforcement actions can have a profound effect on an industry – and that appears to be occurring in the AML realm. We begin our discussion here with a recent settlement of a high-profile enforcement action against a former AML compliance officer, and how it highlights potential individual liability.  Ironically, special scrutiny can apply to the very people specifically tasked with maximizing compliance at a corporation, and such scrutiny can end up pitting them against a company’s management and board. Continue Reading Individual Accountability in AML Cases

The Supreme Court granted certiorari on April 3 to decide whether Jordan-based Arab Bank may be liable for claims including allegations that its New York branch processed transactions for known terrorists. While the central issue before the Court will be the scope of the Alien Tort Statute (“ATS”) – namely whether it permits corporate liability for violations of international law – Jesner v. Arab Bank also illustrates how alleged AML/BSA failures can lead to yet another avenue for secondary legal liability for financial institutions, as we previously have noted in other contexts. Depending on the outcome of the Court’s opinion in Jesner, such U.S. exposures may extend to foreign financial institutions even when the alleged conduct occurs primarily abroad.Detail view of the United States Supreme Court Continue Reading Weighing Corporate Liability under the Alien Tort Statute: What it Means for AML/CFT Controls

 

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. Continue Reading Investor Suits Follow in the Wake of Western Union Settlement of Money Laundering and Fraud Claims