Banks that are subject to regulatory and criminal investigations could face delays due to remote working challenges and coronavirus-related changes in authorities' priorities.

Banks across Europe are under growing regulatory scrutiny, particularly as money-laundering revelations have exposed significant failures in internal controls. Danske Bank A/S has been at the center of a €200 billion dirty money scandal in the Baltics, and is now under investigation by criminal prosecutors in Denmark and Estonia, along with the U.S. Department of Justice and Securities and Exchange Commission.

The DOJ is reportedly investigating Deutsche Bank AG for its role in the same scandal, as is Frankfurt's public prosecutor. Separately, the U.K.'s FCA is probing HSBC Holdings PLC's compliance with the country's money-laundering regulations.

Investigations and enforcement actions are likely to be "drawn out" in the lockdown period, and banks will face "a much slower process" in dealing with their regulators, said Julian Hui, a U.K.-based senior associate in the financial services regulatory practice at law firm Baker McKenzie.

"There is anecdotal evidence that some agencies have slowed their investigations as remote working impacts matter management," said a March 31 report written by attorneys from various global offices of law firm Skadden.

The COVID-19 outbreak has already prompted the Swedish financial watchdog to postpone the conclusions of a sanctions assessment of anti-money-laundering failures at Skandinaviska Enskilda Banken AB.

Other regulators have delayed enforcement activities due to the crisis. The French Anti-Corruption Agency, for one, has suspended all on-site inspections and end-of-inspection closing interviews during lockdown.

In the U.K., the Financial Conduct Authority said it is postponing activity that is deemed "not critical" to protecting consumers and market integrity in the short term.

Investigations are being impacted, said Sven Bates, a senior trade and sanctions associate at Baker McKenzie in the U.K., who has seen delays in interviews that were meant to take place as part of FCA probes.

Hui said he is representing a client that is subject to an investigation by the U.K.'s Prudential Regulation Authority, in which interviews that were scheduled for March and April have been indefinitely delayed.

Even if regulators could conduct virtual interviews, they may decide they do not want to, said Bates.

"In some cases, they want to be there in the room and see the individuals' reactions," he said. "It will depend a little bit on the seniority and severity of the issues that they want to talk to the individual about."

Changing priorities

In the U.S., where authorities have historically handed out the heaviest fines to banks globally, some agencies seem to be adapting to the new working conditions, for example by conducting interviews using video applications, said Terence Grugan, an attorney at Ballard Spahr who represents entities subject to criminal and regulatory investigations by agencies such as the DOJ and the SEC.

Some cases may also lend themselves to the current situation because they involve heavy data analysis and forensic accounting, where fieldwork is not needed, he said.

But the pandemic could mean that government agencies, such as the SEC, will have to deal with a sudden increase in insider trading and disclosure cases as a result of the crisis, Grugan said.

Agencies around the world will also "have their hands full" with overseeing the disbursement of government stimulus programs, he said. In the U.S., for example, the country's largest-ever financial stimulus package, worth $2 trillion, includes everything from lending support and unemployment benefits to aid for hospitals and airlines.

"It's a myriad of economic programs that are regulated by different agencies. That would be one thing that may cause delay to existing cases, particularly if there's not a real-time crunch on resolving them," Grugan said.

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Danske Bank

Danske Bank is currently being investigated by Denmark's State Prosecutor for Serious Economic and International Crime, or SØIK, and was in November 2018 preliminarily charged with violating the Danish Anti-Money Laundering Act. However, there has been no news on the investigation since.

"I am very surprised that the case has not moved on and that we have not heard anything about the indictment yet," said Jakob Dedenroth Bernhoft, a Denmark-based lawyer who specializes in compliance and money-laundering issues.

He said the coronavirus crisis is likely to delay the case, as it will be challenging to complete an investigation of such large scale with social-distancing measures in place. Additionally, officials might choose not to make announcements at the height of the crisis, he said. Neither SØIK nor Danske Bank would comment on the time horizon for the investigation when approached by S&P Global Market Intelligence for comment.

Challenging for banks

Delays could become a problem for banks facing investigations, said Hui at Baker McKenzie. "Quite often with these banks, they don't like the uncertainty of an investigation. And although they obviously don't want a fine, in some ways, they just want to rip off the band-aid and get to the end," he said.

Potential delays will be of particular concern to individuals involved in scandals, who may find it difficult to pursue new career opportunities during a continuing investigation, he said.

Money-laundering scandals in the Nordics have cost several senior executives their jobs, including Thomas Borgen and Birgitte Bonnesen, the former CEOs of Danske Bank and Swedbank AB (publ), respectively.

Hui said any temporary delays in investigations are unlikely to mean that regulators will "go easy" on the banks. There is "a good possibility" that banks will at a later stage face enforcement action related to misconduct during the coronavirus crisis, said Bates.