We discuss two recent federal court opinions addressing two issues of increasing frequency and importance: (i) the potential civil liability of financial institutions to non-customers and other third-parties for alleged failures to implement an effective Anti-Money Laundering (“AML”) program; and (ii) the ability of private plaintiffs to sue foreign defendants who allegedly committed offenses against the plaintiffs abroad, and then laundered the proceeds of those offenses in the U.S. This second issue, of course, is relevant to U.S. government actions against foreign persons.
As we shall see, banks are not necessarily liable to anyone impacted by a bank’s alleged AML-related failures. Conversely, foreign defendants may be surprised by the ability of plaintiffs to haul them into U.S. court to redress alleged criminal offenses committed entirely abroad — if those foreign defendants sent the fruits of those offenses to the U.S. The case relevant to the latter point involves allegations of billions of dollars of theft and corruption committed in Kazakhstan as part of a complicated scheme to purchase high-end real estate in New York (a recurring theme in recent money laundering enforcement efforts, and in this blog) via European shell companies, using in part accounts held at the troubled foreign bank FBME, about which we have blogged before.
The BSA Does Not Create a Private Right of Action, and Banks Generally Have No Duty to Non-Customers Impacted by Alleged AML Failures in the Absence of a Special RelationshipAs we have blogged, financial institutions have increasingly been subject to lawsuits alleging that private parties were harmed as a result of the institution’s alleged AML failure – typically, a failure to file Suspicious Activity Reports, or SARs. A recent case exemplifying this increased exposure to liability, Towne Auto Sales v. Tobsal Corp., was litigated in the Northern District of Ohio. The plaintiff, a company which bought and sold used vehicles, negotiated with a defendant trucking business to purchase a car and consequently wired $27,050 to an account plaintiff believed was held by the trucking business. In fact, however, the account was held by another entity, defendant Tobsal Corporation. Plaintiff’s President called the bank receiving the wire and stated that he thought that a fraud was occurring, and that the wire should not be processed. The recipient bank processed the wire anyway. The plaintiff also alleged that the recipient bank had negligently allowed Tobsal to open up an account, in violation of the Bank Secrecy Act (“BSA”). The complaint in part alleged an Ohio state-law claim of negligence per se based on the recipient bank’s violation of the BSA. This count was dismissed.
The district court succinctly summed up the issue and its holding, so we simply repeat it here:
The Patriot Act and the Bank Secrecy Act impose a duty on banks and financial institutions to report suspicious activity indicative of criminal activities to the government of the United States. Spitzer Management, Inc. v. Interactive Brokers, LLC, 2013 WL 6827945 (N.D. Ohio 2013). “Neither of these statutes creates a private cause of action. . . .” Id. at *2; see also In re Agape Litig., 681 F. Supp. 2d 352, 360 (E.D.N.Y. 2010) (“[B]ecause the Bank Secrecy Act does not create a private right of action, the Court can perceive no sound reason to recognize a duty of care that is predicated upon the statute’s monitoring requirements.”); Armstrong v. American Pallet Leasing Inc., 678 F. Supp. 2d 827 (N.D. Iowa 2009) (stating that neither the Bank Secrecy Act nor the Patriot Act impose a...
