Danke Bank must pay USD 1.39bn in forfeiture, fine, disgorgement and confiscation levied by the DoJ, the US Securities and Exchange Commission and Denmark’s Special Crimes Unit for anti-money laundering (AML) failures at its Estonia subsidiary. Between 2008 and 2016, the bank offered banking services through Danske Bank Estonia, whose non-resident portfolio generated more than 50% of the subsidiary’s profits. These customers conducted dollar transactions that were processed through US banks. Danske knew by December 2013 that the portfolio was high-risk – the Estonian subsidiary addressed Danish, Estonian and Russian regulators’ concerns by confirming that it had a deliberate policy of attracting high-risk customers and had established corresponding AML practices.

The investigations found that Danske Bank Estonia’s compliance programme was inadequate, and allowed customers to transfer large sums with little oversight. The bank’s staff assisted customers in concealing beneficial ownership by establishing accounts and even creating shell companies for them.

Danske had misrepresented the state of its subsidiary’s AML compliance programme and risk profile to the US banks with which it held dollar accounts – this enabled the subsidiary to facilitate USD160 billion in transactions on behalf of customers between 2007 and 2016. Danske carried out a review of the subsidiary in 2013 that identified red flags, but which nevertheless concluded that the non-resident portfolio’s compliance processes were excellent. Although the bank began to wind down the non-resident portfolio, it still processed USD40 billion of additional transactions through the US between 2014 and 2016, when the portfolio was finally closed.

Fines are rarely insurable (due to public policy reasons and regulatory prohibition). However, a well drafted policy should provide coverage for costs incurred in responding to non-routine regulatory investigations into the provision of professional services.

During FTX's recent bankruptcy proceedings, which started on November 11, reports surfaced that it had been hacked for up to USD659 million – later revised downwards to USD477 million. The sudden outflow of cash was tangled up with its attempt to transfer all funds into offline storage as part of its bankruptcy. FTX’s woes came to light on November 2, with news of potential conflicts of interest and transfers of client funds between FTX and trading firm Alameda Research – both owned by former billionaire Sam Bankman-Fried. Combined with a failed takeover attempt by the Binance exchange, the news sent the FTT token, upon which both firms relied, into a downward spiral and ultimately led to the collapse of FTX.

In place of Bankman-Fried, John Ray, who oversaw Enron’s bankruptcy as chief executive officer, was appointed to perform the same task for FTX. In a statement filed on November 17, as part of the bankruptcy proceedings, Ray said that he had never encountered “such a complete failure of corporate controls and such a complete absence of trustworthy financial information”. The circumstances surrounding the hack and FTX’s collapse have prompted extensive speculation that Bankman-Fried and his associates may have orchestrated the transfer for their own benefit.

Crime insurance for cryptocurreny exchanges and custodians is available in the London market. The core coverage focuses on the theft of physical codes (aka 'cold storage') and the theft of digital assets that are held online (aka 'hot storage').

Swiss commodity trader Glencore has been fined GBP 281 million by the UK Serious Fraud Office. The firm was charged with running a bribery scheme spanning multiple African countries, for which it had already settled with US regulators in May this year. US authorities credited a portion of the May penalty against that of the SFO, reducing Glencore’s recorded UK fine to GBP 162.3 million. After a three-year investigation, Glencore admitted to and was convicted on seven counts of international bribery on June 21. The investigation revealed that Glencore’s London-based West Africa desk operated a USD 29 million bribery scheme in Equatorial Guinea, Côte d’Ivoire, Nigeria, Cameroon and South Sudan. Glencore used local middlemen to make payments into state-owned oil companies and government ministries, and variously recorded the withdrawals as either a ‘service fee’, a ‘signing bonus’ or a ‘success fee’. Some of the funds were recorded as operating expenses for the firm’s South Sudan office, despite limited evidence of any office existing there.

On occasion, Glencore executives would even fly cash over in private jets to pay local government officials and national oil and gas companies. The conviction includes the first-ever use of substantive bribery offences for a company, indicating that senior individuals at Glencore had authorised the bribery. A number of individuals, including business ethics officers and members of Glencore’s business ethics committee, were still under investigation as of November 3.

Fines are rarely insurable (due to public policy reasons and regulatory prohibition). D&O insurance will provide coverage for legal costs incurred by directors and officers in responding to criminal investigations into their conduct. However, no coverage will apply for an individual where established by a court or other decision making body that his or her conduct was dishonest or fraudulent.

UK authorities have fined Santander for failures in AML controls between 2012 and 2017. The bank demonstrated difficulties with identifying money service businesses (MSBs), which often pose higher money-laundering risks, in its portfolio. Its system was unequipped to manage AML responsibilities with regard to MSBs as functions were divided between various teams that struggled with information sharing. Santander had weaknesses in its due diligence and onboarding processes. It failed to obtain sufficient information from customers, and the bank’s risk ratings were often inaccurate. The bank’s automated transaction monitoring system was insufficiently sophisticated and failed to consider important information for customer accounts, such as predicted annual turnover.

Santander’s suspicious-activity reporting unit was also ineffective due to resourcing pressures. Although it took action to monitor any transactions its system had deemed high-risk, it considered all business banking customers to be medium-risk. The UK’s Financial Conduct Authority (FCA) conceded that there had been attempts to improve account closure processes during the period in question, as Santander had been aware of its AML issues since December 31, 2012. The bank made changes to its AML operating model and processes, but these also proved insufficient, and the underlying weaknesses persisted.

Fines are rarely insurable (due to public policy reasons and regulatory prohibition). However, a well drafted policy should provide coverage for costs incurred in responding to non-routine regulatory investigations into the provision of professional services.

Academy Mortgage Corporation has agreed to pay USD 38.5 million to resolve allegations by the DoJ that it had violated the US False Claims Act by improperly originating and underwriting mortgages insured by the Federal Housing Administration. The FHA insures mortgages, and pays the lender if a homebuyer defaults on one. The settlement resolved a lawsuit filed in April 2016 by Gwen Thrower, a former Academy underwriter, on behalf of the DoJ under the False Claims Act’s whistleblower provisions. Thrower alleged that, from January 2008 to April 2017, Academy had encouraged employees to disregard FHA rules and falsely certify compliance with underwriting requirements – this, she claimed, resulted in the US government paying insurance claims on loans that Academy knew were improperly written.

Thrower said Academy pressured its underwriters to approve ineligible loans via false annual and loan-level certifications and to ignore risks for certain applicants who were likely to default. She also claimed it paid commissions to underwriters for approved loans, thus creating a toxic culture. The regulator repeatedly tried to dismiss the suit, which was eventually settled on December 14. Thrower received USD 11.5 million of the proceeds.

Fines are rarely insurable (due to public policy reasons and regulatory prohibition). However, a well drafted policy should provide coverage for costs incurred in responding to non-routine regulatory investigations into the provision of professional services.

Commonwealth Bank of Australia (CBA) has settled class actions over the sale of consumer credit insurance. On June 10, 2020, Slater and Gordon filed a class action lawsuit against CBA, alleging the bank had misled customers over the value of the policies, and had led them to believe that consumer credit insurance (CCI) was compulsory. Specific details of the allegations were unclear as the complaint was under seal as of November 14, 2022. But, according to the law firm, many CBA customers were unaware they would be ineligible to make claims on such insurance as they were unemployed or had pre-existing health conditions at the time that they signed up for CCI.

The repayment of premiums for consumer credit insurance will not be covered under professional indemnity insurance as such payments are very likely to constitute disgorgement: almost all professional indemnity policies have some form of disgorgement exclusion. If part of the settlement of the class actions represents compensatory payments, then it is possible for that element to be covered under professional indemnity insurance.

Australia and New Zealand Banking Group (ANZ) has settled class actions over the sale of consumer credit insurance.The bank’s credit card insurance policies offered numerous benefits covering inconvenience, family trauma, total and permanent disability, critical illness and accidental death. But the bank set strict eligibility criteria for claiming these benefits that resulted in a claims ratio of 6.9% for ANZ credit card insurance policies. In some instances, customers were in fact unaware they had consented to the policies or that they would be charged.

The repayment of premiums for consumer credit insurance will not be covered under professional indemnity insurance as such payments are very likely to constitute disgorgement: almost all professional indemnity policies have some form of disgorgement exclusion. If part of the settlement of the class actions represents compensatory payments, then it is possible for that element to be covered under professional indemnity insurance.

From an unspecified date in 2018 until January 2019, Radiotechbank's then chairman, Alexander Stepanov, approved 1.8 billion rubles of irrecoverable loans. According to Russia’s Federal Taxation Service, Radiotechbank issued the loans to shell companies with nominee managers who agreed to sign relevant documents in exchange for monthly fees of 5,000–20,000 rubles. The bank entered into loan agreements with companies controlled by Stepanov’s co-conspirators. The loans’ ostensible purpose was to finance the purchase of equipment or replenish working capital. However, investigators found the companies had not submitted any tax returns and did not occupy the addresses at which they were registered. The borrowers did not have sufficient collateral to receive the loans, so Radiotechbank allowed other opaque companies to enter into surety agreements with them. The bank then assigned rights of claim to the guarantor companies, which enabled the borrowers to increase their credit limits, and approved the loan agreements.

In some other cases, outstanding debt was simply written off as part of the fraud. Stepanov was sentenced to one year in a penal colony for orchestrating the embezzlement. The Russian Deposit Insurance Agency attempted to retrieve 5 billion rubles from him and a group of former managers and shareholders, although a court rejected its lawsuit.

Crime insurance provides coverage the misappropriation of funds by employees. However, where senior individuals are involved, coverage can be challenging as most policies exclude theft by directors (unless they are acting in an employee capacity). This particular loss involves a Russian bank - insurers in the London market now require policies to include a specific exclusion applying to any assets, entities or persons located in Russia. In addition, insurers will not make payments that breach international sanctions.

Julius Baer had a finder’s policy to compensate those who introduced clients to the bank, which was exploited by several bank employees to establish ties to companies in the Yukos Group. The group comprised several holding companies that owned the residual non-Russian assets of a Russian oil group that went bankrupt in 2006. Dimitri Merinson, a financial executive for several Yukos companies, acted as finder, liaising with Louise Whitestone, former relationship manager on Julius Baer’s Russian and eastern European desk. The two designed a finder’s agreement that would pay an outsized commission to Merinson, to be funded by charging Yukos commissions far in excess of the standard rate. Julius Baer’s relationship with Merinson lasted from 2009 to 2014, generating over USD3 million in finder’s fees for him.

The deals were done under the supervision of Whitestone’s managers, Gustavo Raitzin and Thomas Seiler, who enabled the relationship to continue in spite of the flags raised by the bank’s compliance function. The final decision notice against Julius Baer was issued on February 10, offering the firm a 30% early settlement discount. Whitestone, Raitzin and Seiler, by contrast, referred their decisions to the UK Upper Tribunal.

Fines are rarely insurable (due to public policy reasons and regulatory prohibition). However, a well drafted policy should provide coverage for costs incurred in responding to non-routine regulatory investigations into the provision of professional services.