In my recent round-up of the top D&O stories of 2024, I noted as one of the key current issues the emergence of geopolitical issues as a source of D&O risk. Among other geopolitical concerns I speculated might contribute to this risk are anti-money laundering (AML) laws. Earlier this month, in the latest example of how AML issues can translate into a D&O claim, a plaintiff shareholder filed a securities class action lawsuit against the money transfer technology company Block and certain of its executives, based on allegations that the company’s failure to maintain basic AML protocols had created a “haven for criminal and illicit activities,” allegedly contrary to the company’s representations. A copy of the January 17, 2025, complaint can be found here.

Background

Block is a mobile payment services company that allows users to transfer money using a mobile phone. Block was co-founded and is currently led by Jack Dorsey, the former CEO of Twitter. In the securities lawsuit complaint, the plaintiff alleges that during the relevant period, the company in its SEC filings and in other public statements claimed that it maintained robust AML and other compliance protocols, designed to prevent the company’s payment systems from “being used to facilitate money laundering, terrorist financing, and other illicit activity.”

The complaint alleges that in a series of published reports by short sellers and whistleblowers, as well as in actions brought by a variety of regulators, it was allegedly revealed that “as defendants knew or recklessly disregarded, Block failed to implement even basic due diligence and know your customer (‘KYC’) protocols, effectively creating a safe haven for criminal and illicit activities on its Square and Cash App platforms.”

The complaint alleges that as a result of these supposed revelations, the company share price declined in a series of steps by a total of 77% from its class period peak.

The Complaint

On January 17, 2025, a plaintiff shareholder filed a securities class action lawsuit in the Northern District of California against Block, Dorsey, and one other Block executive. The complaint purports to be filed on behalf of a class of persons who purchased Block’s securities between February 26, 2020, and April 30, 2024.

The complaint alleges that as a result of the company’s alleged failure to implement appropriate protocols, company customers “used Block products to engage in money laundering, child sexual abuse, sex trafficking, drug trafficking, terrorism financing, contract killings, and illicit payments to entities or persons subject to economic sanctions.” The company, the complaint alleges, “failed to report thousands of suspicious transactions to regulatory authorities, permitted customers subject to sanctions alerts to complete transactions before the alerts were resolved, and failed to screen customer biographies against sanctions key word lists.”

In addition, the defendants allegedly “failed to course-correct, even after senior Block leadership was altered to these deficiencies and despite numerous red flags, ultimately leading to multiple whistleblower complaints and probes and fines by regulators.”

The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks to recover damages on behalf of the plaintiff class.

Discussion

Although I opened this post by noting that this new complaint involves allegations relating to anti-money laundering laws, the underlying allegations in fact relate to a whole host of supposed violations of various cross-border enforcement regimes, including, for example, economic sanctions regimes, as well as AML laws.

Long-time readers know that it is not necessarily a new development that alleged AML law violations or trade sanctions violations can lead to D&O claims activity, including securities class action lawsuits, as discussed, for example, here. There have been, as I have noted, prior securities suits based on alleged underlying AML law violations (as discussed, for example, here) and even based on alleged underlying trade sanctions law violations (as discussed, for example, here).

While it could be argued that the issues underlying this complaint are not new, I believe that in the current environment, all of these issues are now even more complicated than in the past. And they are about to get even more complicated.

For starters, a series of geopolitical tensions create a fraught global business climate. The war in Ukraine; the conflicts in Gaza, Lebanon, and the West Bank; the fall of the Syrian government; the uncomfortable face-offs in the South China Sea; even the current transitional political situations in, among other countries, Canada, France, and Germany, make for an unpredictable and potentially changeable business arena.

All of these complications are about to be even more challenging to the extent that President Trump follows up on his threats to impose sanctions not just on China but also on some of the U.S.’s closest allies, and the likelihood of retaliatory tariffs and other actions the U.S.’s actions undoubtedly would provoke. Among the possibilities is the launch of a full-scale global trade war, making an already complex geopolitical risk environment even more dangerous – which among many other things could contribute significantly not only to operating risks but also to corporate and securities litigation risk for many companies.

In short, while I have long thought that geopolitical risks (including, for example, those arising from AML laws and trade sanctions regimes) represent an important area of corporate and securities litigation risk, that risk could become significantly greater in 2025 and beyond.