A recent securities class action filed in the US against a Kazakh bank suggests that investors may be able to bring claims against financial institutions for making misleading statements regarding sanctions compliance.
US class action complaint
On 19 December 2024 an investor filed a class action complaint in the US against Kaspi.kz (Kaspi), a company which, according to the complaint, owns Kaspi Bank, described therein as ‘one of the largest and systematically important financial institutions in Kazhakstan’. The complaint was also filed against the CEO and CFO of Kaspi.kz.
The background to the claim is that Kaspi filed a prospectus with the Securities and Exchange Commission in connection with its 2024 IPO on Nasdaq. The prospectus stated, among other things, that Kaspi: (i) complies with ‘applicable’ US, EU and UK sanctions; (ii) did not have contracts with designated persons; and (iii) had no exposure to Russia or Russian businesses. The complaint alleges that these statements were false, relying in part on a short seller’s investigation report according to which Kaspi had ongoing business with Russian entities and citizens, and there is ample evidence online that Kaspi’s platforms are being used by Russian customers to circumvent sanctions.
Kaspi denies the claims.
This complaint is significant because it is made in the topical context of sanctions compliance, and the extent to which foreign financial institutions – while not always directly bound by the sanctions of the US, EU and UK – may nonetheless be liable for not complying with them.
Could a similar complaint be brought in the UK?
Investors who purchased securities may be able to bring claims if the listing particulars and prospectuses (i) made any untrue or misleading statements, or (ii) omitted requisite information, against companies, issuers and directors who approve or accept responsibility for the contents of these documents. This offence is created by section 90 of the Financial Services and Markets Act 2000 (FSMA). There is no need to show reliance by the claimant or intention from the defendant. Substantial compensatory damages may be available.
Additionally, section 90A and schedule 10A to the FSMA address other published information in relation to securities, such as annual reports or financial statements. They impose liability on an issuer where a person has suffered loss as a result of acquiring, continuing to hold or disposing of the securities in reasonable reliance on untrue or misleading published information or omission of required information.
Alternatively, if the FSMA regime is not available, investors may be able to bring claims in negligent mis-statement and/or deceit (albeit such claims may be more challenging), or they may bring such claims together with FSMA-based claims.
Accordingly, although sanctions compliance statements/information cases do not appear to have been pursued under these provisions to date, such claims may be considered if a financial institution (foreign or domestic) made statements as to sanctions compliance which may have been untrue.
Can similar claims be brought as class actions in the UK?
The UK does not have as favourable a regime for class actions as the US but claims by large numbers of claimants are possible and are regularly pursued in the UK.
Excluding the class action regime available in the Competition Appeal Tribunal (which is unlikely to be available in sanctions-related cases), class actions in the UK can be brought under group litigation orders (GLOs) or as representative actions.
GLOs can be granted by the courts in claims involving common or related issues of fact or law. For example, a class of 5,800 claimants pursued their claim in Sharp v Blank, known as the ‘Lloyds/HBOS Litigation’, under a GLO, ultimately losing at trial. A GLO is an ‘opt-in’ process, meaning claimants need to join the claim individually.
Representative actions are an ‘opt-out’ process but they have so far been difficult to bring. Class actions under this rule require the class members to have the ‘same interest’ in the action. The courts have construed this narrowly. For example, the High Court held that passengers who had booked flights to/from the UK with BA and easyJet between 2016 and 2022 and suffered cancellations or delays did not satisfy this test (Smyth v BA and easyJet [2024] EWHC 2173 (KB)).
Notwithstanding the high threshold set by the representative action procedure, as the Lloyds/HBOS litigation shows, it is possible for shareholders to group together to bring a claim of a sizeable class.
A further sanctions risk for financial institutions?
The complaint filed in the US may lead to investors carefully considering the litigation option if their investments lose value because the financial institutions into which they have invested failed to comply with sanctions, particularly if assurances were made to the contrary.
Additionally, given the comprehensive and complex sanctions regimes imposed to date, financial institutions need to have an in-depth understanding of which regimes they are bound to comply with, which regime they choose to comply with, and ensure that the descriptions of their approach are clear and accurate.
Mikhail Vishnyakov is a partner and Leonore Carron-Desrosiers an associate at Cooke, Young & Keidan LLP, London
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