02 Nov 2018
Earlier this month, Danske Bank A/S – Denmark’s largest bank – announced that the United States Department of Justice (“DOJ”) has initiated a criminal investigation relating to the bank’s Estonian branch.
This follows the announcement of a series of high-profile investigations by European regulators and a September 2018 report commissioned by the bank detailing up to €200 billion in potential suspicious payments conducted through the Estonian branch between 2007 and 2015.
Several media sources detail the DOJ investigation as one focused on the Estonian branch’s anti-money laundering controls, and unsurprisingly liken the DOJ’s investigation to that which led to previous large-dollar AML actions against other big banking institutions.
But this one is different.
Money Laundering vs. Anti-Money Laundering
Unlike previous DOJ anti-money laundering (“AML”) investigations against financial institutions, the Danske investigation is likely not focused on AML failures.
Rather, it is likely focused on whether the bank itself assisted in the actual act of money laundering; that is, whether it knowingly facilitated the movement of dirty money – as opposed to not having a program in place to prevent or detect others from using the bank to move dirty money.
Put simply: money laundering vs. anti-money laundering.
The reason for this is a matter of jurisdiction. The United States does not have the ability to prosecute foreign financial institutions who are not operating in the United States for AML failures.
The Bank Secrecy Act (“BSA”), the United States’ federal AML statute, under which previous financial institutions have entered settlements, is a domestic-based statute. Note that the 2012 HSBC settlement of BSA charges was with HSBC North America, and not its London-based parent company.
The affirmative act of money laundering, by contrast, is governed by a different United States law: the Money Laundering Control Act of 1986 (“MCLA”). Unlike the BSA, the MCLA has broad extra-territorial reach.
Money laundering cases are not specific to financial institutions and can be brought against any person or business whose conduct meets the elements of the offense and meets the statute’s jurisdictional requirements for extra-territorial reach.
One of these jurisdictional requirements is that “the conduct occurs in part in the United States.”
Thus, a primary question is what conduct could have occurred in the United States such that the United States would have jurisdiction for a money laundering offense? It seems, based on the various press reports on the investigation, that the sole connection to the United States is the use of banks in the United States to help process transactions.
The accounts at these banks are known as “correspondent accounts.” Such accounts are used to receive deposits from the foreign bank, make payments or other disbursements on behalf of the foreign bank, or handle other financial transactions related to the foreign bank, such as processing wires denominated in United States dollars.
At least one court in the United States has held that the use of such correspondent accounts – that is, “the transfer from a foreign account to an account in a United States financial institution and a transfer from a United States account to a foreign financial institution” – satisfies the MCLA’s conduct in the United States prong.
While the United States may technically have jurisdiction for a money laundering offense against a foreign person operating otherwise entirely outside of the United States, bringing such an action against a foreign financial institution – with the transfer of money through a correspondent bank account as the sole jurisdictional hook – would be something new.
Most extra-territorial money laundering cases have something more than that to establish jurisdiction, such as wires into or out of the United States that are not simply passing through a correspondent account.
Why This Matters
Whether this is an affirmative money laundering case or a BSA-centered AML investigation matters.
First, as mentioned above, without additional links to the United States, this would mark an expansion of the United States’ application of the MCLA’s jurisdictional reach.
Second, while both money laundering and AML offenses carry criminal penalties, the extent of those penalties varies greatly, with the money laundering offense penalties potentially being more severe (in particular with respect to potential prison time for individuals).
Given the lack of financial institutions or other multinational corporations being prosecuted for money laundering (as opposed to AML or sanctions offenses, for example), it is difficult to tell what type of fine to expect should the DOJ bring an enforcement action.
Based on the information available to date, the Danske investigation appears to mark one of the first times the DOJ has pursued a large banking institution for affirmative money laundering.
Moreover, it is doing so against a non-United States entity based on the broad extraterritorial jurisdiction afforded by the MCLA and the potentially minimal nexus between the alleged misconduct and the United States resulting from the use of correspondent accounts.
Further, the reach of the MCLA is not limited to financial institutions.
This investigation brings into focus the fact that any individual or business can be investigated for money laundering if transactions occur in part in the United States (again, provided several other elements are also met).
Therefore, it is important for all business and persons, regardless of nationality or the location of headquarters, to understand the counterparties to their transactions, in particular with respect to source of funds, so that they do not find themselves explaining to United States regulators why they assisted in the movement of dirty money.
Authors: Jonathan Lopez , Amy Walsh, Robert Reznick , Daniel Streim and Matthew Moses
 British company HSBC Holdings plc settled other non-BSA charges with the DOJ. Seehttps://www.justice.gov/sites/default/files/opa/legacy/2012/12/11/dpa-executed.pdf and https://www.justice.gov/sites/default/files/opa/legacy/2012/12/11/hsbc-info.pdf.
 The United States’ sanctions laws also have broad extra-territorial reach. However, there have yet to be public allegations of sanctions violations against Danske’s Estonian branch.
 18 U.S.C § 1956(f).
 See United States v. All Assets held at Bank Julius, 251 F.Supp.3d 82, 9-11 (D.D.C. 2017).
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