At the heart of a $475 million lawsuit that investors in 19 countries have brought against Denmark’s largest bank is a lesson for legal departments regarding the importance of compliance and disclosure.
“You need to take regulatory compliance very seriously and when you do have problems don’t cover it up. That will only turn it into intentional securities fraud and only makes the problem bigger,” said Olav Haazen, a director at the Wilmington-based law firm Grant & Eisenhofer who represents the group of investors suing Danske Bank.
“They let this blow up into an enormous scandal. This is now the largest money laundering scandal in history,” he added in a phone interview on Tuesday.
Miami-based securities law firm DRRT and Danish firm Halling-Overgaard Advokatfirma also represent the investors. They allege in a suit filed on March 14 in Copenhagen City Court that the investors lost billions of dollars because Danske’s senior executives failed to come clean and take appropriate action after discovering that the bank was involved in “one of the most egregious money laundering scandals in history.”
According to the suit, a 2013 whistleblower report spurred the bank to launch an internal investigation that confirmed in as early as 2014 that Russians had laundered more than $230 billion through a Danske branch in Estonia. But Danske’s senior leadership “did nothing,” according to Haazen.
An attempt to speak with Danske spokesman Kenni Leth about the suit was unsuccessful. But he told Corporate Counsel in January that the bank had “launched a number of initiatives to prevent anything similar from ever happening again, and we are determined to learn the lessons from this case and share our experiences in a broad and constructive cooperation with all relevant stakeholders.”
More than 169 investors, including many of the world’s largest pension funds, lost nearly $9 billion after the alleged money laundering scheme finally came to light when the bank’s internal investigative report was made public last September and the bank’s stock price plummeted. The report cited a lack of risk controls and oversight.
“You need to take regulatory compliance very seriously and when you do have problems don’t cover it up. That will only turn it into intentional securities fraud and it only makes the problem bigger,” Haazen said.
He added, “It also drags it out. If you have a problem that goes back many, many years, that makes the fraud period even longer and the damages get even bigger.”