August 26, 2020

NY federal judge dismisses class action lawsuit against Danish bank accused of AML violations

On August 24, 2020, a judge in the US District Court for the Southern District of New York dismissed a putative securities fraud lawsuit brought by a class of shareholders against Denmark-based Danske Bank A/S (DB) and four of its former executives, that claimed the bank misrepresented its financial condition before disclosing in September of 2018 that its Estonia branch laundered billions of dollars and failed to follow anti-money laundering protocols.  The court dismissed the suit after the class, made up of shareholders who purchased American Depository Receipts and lost money from shares purchased between January 2014 and April 2019, failed to adequately plead that the bank made improper or misleading statements regarding money laundering allegations to its shareholders.  The court also held that plaintiffs failed to allege any actual false or misleading statement made by the bank, and failed to demonstrate that defendants possessed an active intent to deceive or defraud the shareholders.  

According to the Order, from 2007 to 2015 DB’s Estonia branch earned substantial profits in its Non-Resident Portfolio (NRP) department, and after several whistleblower reports in 2013 and 2014 about AML compliance failures, DB’s internal audit group investigated and confirmed multiple failures to implement and follow AML protocols.  By the end of 2015, DB closed its NRP department and the NRP accounts.  Multiple internal and government investigations were launched that continued to uncover AML compliance issues in the Estonian branch, and the value of laundered funds grew from $8.3 billion in July 2018 to $230 billion in February 2019.  After the bank cancelled a share buyback program and announced in February 2019 that it was reducing its dividend in anticipation of potential penalties, DB was ordered to exit Estonia by Estonian authorities and lowered its 2019 outlook, causing the value of DB ADRs to substantially decline, according to the order.

In August 2019, plaintiffs amended their pleadings and filed its Third Amended Complaint after defendants filed their first motion to dismiss.  Because the plaintiffs arguments were not sufficient to sustain a claim after having an opportunity to amend their pleadings in response to defendants’ motion to dismiss, the judge found that the defects in complaint could not be remedied, denied plaintiffs leave to amend, and dismissed the complaint with prejudice.

USNY Memorandum and Opinion | USNY Judgment