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Enforcement Edge
February 16, 2023

Danske Bank Plea Demonstrates Continuing Government Focus on Executive Accountability

Enforcement Edge: Shining Light on Government Enforcement

On December 13, 2022, Danske Bank, the largest bank in Denmark, pleaded guilty and agreed to criminal forfeiture of more than $2 billion for conspiring to commit bank fraud as part of a coordinated resolution with DOJ, SEC, and Danish authorities. The charges stemmed from allegations that Danske Bank’s Estonia branch provided services to non-resident companies and individuals, including those in Russia, without adequate compliance with anti-money laundering (AML) procedures. These services enabled its customers to engage in suspicious and potentially criminal transactions through banks in the United States.

According to the statement of facts accompanying the plea agreement, Danske Bank Estonia conspired with customers to shield the true nature of their transactions, including by assisting customers in creating shell companies and helping to conceal beneficial owners by establishing accounts for known shell companies. Through internal reviews, inquiries from numerous regulators, and a whistleblower complaint, Danske Bank allegedly knew its Estonian AML program was deficient and that customers were engaged in potentially criminal transactions. When approached by US banks, Danske Bank executives purportedly lied about its Estonian entity’s customers and their risk profiles, as well as the state of its AML compliance program. These misrepresentations allowed Danske Bank Estonia to maintain US bank accounts through which it facilitated approximately $160 billion in transactions.

As part of its plea, Danske Bank agreed to maintain and implement mechanisms designed to enforce an effective compliance program, including by disqualifying executives when certain compliance standards are not met. Specifically, Danske Bank agreed to the following:

The Bank will implement evaluation criteria related to compliance in its executive review and bonus system so that each Bank executive is evaluated on what the executive has done to ensure that the executive’s business or department is in compliance with the Compliance Programs and applicable laws and regulations. A failing score in compliance will make the executive ineligible for any bonus for that year. The Bank will include in its evaluation criteria and bonus system provisions that allow the Bank to implement measures to incentivize future compliant behavior and discipline executives for conduct occurring after the filing of the Agreement that is later determined to have contributed to future compliance failures, subject to applicable law.

The Danske Bank settlement is the first to tie compliance to executive compensation since Deputy Attorney General Lisa O. Monaco announced DOJ’s new approaches to corporate criminal enforcement last fall. Deputy Attorney General Monaco instructed prosecutors assessing corporate compliance programs to consider whether a given company’s compensation systems include elements “such as compensation clawback provisions—that enable penalties to be levied against current or former employees, executives, or directors whose direct or supervisory actions or omissions contributed to criminal conduct” as well as “affirmative incentives for compliance-promoting behavior” including the use of “compliance metrics and benchmarks” in compensation calculations and performance reviews. The DOJ further intends to devise ways to “reward corporations that develop and apply compensation clawback policies,” as well as other means to “shift the burden of corporate financial penalties away from shareholders . . . onto those more directly responsible.” While this is DOJ’s first use of executive compensation in a plea agreement, it is just the latest in enforcement authorities’ increased emphasis on individual accountability in corporate criminal enforcement. Indeed, in May 2022, as part of Glencore International A.G.’s $1.1 billion plea agreement for bribery and market manipulation, the DOJ required the company’s Chief Executive Officer and Chief Compliance Officer to certify that its compliance programs were reasonably designed, implemented, and functioning effectively.

It remains to be seen whether provisions like those in the Danske Bank and Glencore International plea agreements are better understood as a consequence of the magnitude of the criminal conduct at issue in those specific cases, or whether they flow from new policy-setting within the federal agencies and represent a systematic shift in the focus of corporate criminal resolutions. Regardless, executives should be aware that their companies’ compliance programs may have a direct and personal impact.

If you seek advice on any of the above, please reach out to the authors of this post, their colleagues in White Collar Defense & Investigations and Financial Services, or your usual Arnold & Porter contact.

© Arnold & Porter Kaye Scholer LLP 2023 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.