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Investigations Traps To Avoid When Criminal Wrongdoing Is Alleged

Denmark's largest lending institution, Danske Bank, is being sued over a report that it knew that a false money market was created between April 29, 2014 and September 19, 2018, when it allowed its Estonian branch to help funnel and launder hundreds of billions of euros from countries such as Russia over the course of more than eight years.

After the scheme was disclosed, the company lost its CEO and chairman. It has been the subject of multiple criminal investigations. Danske's shares have plunged 49 percent since last March, wiping around $15 billion from its market value.

Now, the shareholders want their money back. To do so, litigation funder IMF Bentham has teamed up with legal experts Quinn Emanuel and Njord Law Firm and plans to file a shareholder lawsuit against Danske Bank over the 200 billion euro ($230 billion) money laundering scheme. The claim will likely center on allegations that Danske Bank had sufficient knowledge to publish an internal report into allegations of money laundering far earlier than the September 19, 2018 public report and that it delayed an investigation, all to the prejudice of its investors.

IMF's European subsidiary, IMF Litigation Funding Services Limited (IMF LFS), alleged that Denmark's largest lender breached the Danish Securities Trading Act and EU anti money laundering rules by failing to promptly inform large, institutional investors about the true scale of the crisis. The action is designed to compensate shareholders who lost millions of euros in value as a result of perceived errors and omissions committed and over Danske Bank's failure to disclose to the market the circumstances and magnitude of alleged unlawful activities within its Estonian branch.

In the United States, where claimants with a common interest can be automatically grouped together, a New York pension fund has already filed a case against Danske and four former senior executives, seeking class action status and damages for American depositary share holders. "Danske Bank Faces Shareholder Lawsuit over Money Laundering Scandal" www.insurancejournal.com (Jan. 29, 2019).


The suit against Danske Bank will likely focus on what the bank knew and when its executives knew it.

Shareholders allege that bank executives knew enough about the money laundering problem to produce an internal report, but did not give institutional investors that information before the disclosure became public.

Whether it is a money laundering scheme, a criminal investigation, or allegations of wrongdoing by upper level management, when these events become public knowledge, they have a great impact on the value of the company. Shareholder suits are almost inevitable following the disclosure of potentially criminal activity.

Of course, board members must have adequate time to investigate these matters. The question will then become: what is a reasonable time in which to investigate? Releasing the information to the public too soon, before an investigation is complete, can also affect stock prices. Sitting on the information, which will inevitably leak, is equally problematic.

Whether performed by a board, a committee appointed by the board, the human resources department, or ideally, an outside, third-party investigator, some common investigation problems should be avoided. These include:

  • Failing to have an investigation protocol in place
  • Ignoring complaints
  • Delaying
  • Losing objectivity
  • Being overaggressive in interviews
  • Not conducting a thorough investigation
  • Failing to reach a conclusion
  • Failing to create a written report and
  • Failing to follow up with those involved in the matter.

A properly conducted investigation—one that is prompt, thorough and impartial—can help prevent a lawsuit, defend a company in a lawsuit, and build morale and trust among employees and stockholders.

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