Deferred Prosecution Agreement

Subscribe to Deferred Prosecution Agreement

FCA Applies Penalty Formulas, Including Thirty Percent Reduction for Early Agreement by Bank

U.K. Enforcement System Provides Contrast to More Open-Ended U.S. System

On June 17, 2020, the Financial Conduct Authority (“FCA”), the non-governmental financial regulator in the United Kingdom, issued a Final Notice to Commerzbank London (the “Bank”), a branch of the large German business bank, assessing it £37.8 million for systemic failures to establish and effectively maintain an anti-money laundering (“AML”) program.

This was not the first large assessment for Commerzbank relating to AML. In 2015, Commerzbank AG and its U.S. affiliate entered into a deferred prosecution agreement with the U.S. Department of Justice to forfeit $563 million and pay a $79 million fine for violations of the International Emergency Economic Powers Act and the Bank Secrecy Act (“BSA”). The FCA noted this fact as an aggravating factor in determining the financial penalty for the Bank.

Despite the egregious nature of the alleged violations, the FCA still provided a 30% discount pursuant to its executive settlement procedures in light of the Bank’s agreement to resolve the matter at an early stage. Without the discount, the financial penalty would have been £54,007,800.

The Final Notice underscores the relatively formulaic penalty regime of the FCA, which presumably provides the value of (some) predictability for industry. It also provides an interesting foil to U.S. enforcement regarding AML violations and the resulting penalties. The Financial Crimes Enforcement Network, or FinCEN, has no formal and mechanistic system for adjusting financial penalties for AML violations. The closest U.S. counterpart appears to be general U.S. Department of Justice (“DOJ”) guidance regarding the prosecution of corporations, and the factors set forth by the Federal Sentencing Guidelines regarding the sentencing of convicted corporate defendants.
Continue Reading  UK Regulator Fines Commerzbank London £37.8 Million for AML Violations

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.
Continue Reading  Tenth Circuit Rejects Shareholders’ Fraud Claims Against Western Union Based on Alleged AML Failings

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

The Western Union Company (“Western Union”) entered into a deferred prosecution agreement (“DPA”) on January 19th with the Department of Justice, based on alleged willful failures to maintain an effective AML program and the aiding and abetting of wire fraud.  The DPA involved a combined $586 million monetary penalty and also involved related civil enforcement actions by the Federal Trade Commission and FinCEN.  The agreement has been well-publicized and its details will not be repeated here; very generally, the DPA rests on allegations involving conduct stretching from 2004 through 2012 and an overall failure by Western Union to detect and prevent a kaleidoscope of illicit behavior by customers, from structured transactions to an international consumer fraud scheme to potential drug distribution.  To be sure, this is a significant agreement – but it echoes the same general sort of facts and allegations which have become almost standard in large AML enforcement actions. However, the Western Union action contains at least one interesting wrinkle.
Continue Reading  The Western Union DPA and the Need to Investigate One’s Own