Danske Bank money laundering scandal

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The headquarters of Danske Bank in Copenhagen

The Danske Bank money laundering scandal arose in 2017-2018 around €200 billion of suspicious transactions that flowed from Russian and Azerbaijani sources through the Estonia-based bank branch of Denmark-based Danske Bank from 2007 to 2015.[1][2][3] It has been described as possibly the largest money laundering scandal ever in Europe[4], and as possibly the largest in world history.[5] In the context of the scandal, the OCCRP organization characterized Danske Bank as "a key enabler in the Azerbaijani Laundromat, a general-purpose money laundering scheme and slush fund used by the ruling elite in Baku."[6]

Financial supervision[edit]

Danske Bank, headquartered in Copenhagen, is the largest bank in Denmark. The bank's local branch in Estonia, which was acquired by Danske Bank as part of a merger with Finnish Sampo Bank in 2007, was used for the activities.[3][7] It was under the jurisdiction of both the Financial Supervisory Authority of Denmark (due to the location of the headquarters) and the Financial Supervisory Authority of Estonia (due to the location of the branch), and both have blamed the other side for deficiencies.[8] The Danish and the Estonian supervisory authorities later released a joint press release on collaborating and sharing information on the case.[9] Both were allegedly criticized in a draft prepared by the European Banking Authority, an EU banking watchdog controlled by the national financial supervisory authorities of EU members states. However, the EBA closed its investigation early and did not publish the findings – a decision that itself caused criticism.[8][10]

Events[edit]

In 2007, the Estonian Financial Supervision Authority came out with a critical report on the Danske Bank's activities. In 2013, the first whistleblower disclosed that Danske's branch in Tallinn was knowingly dealing with funds from the family of the Russian President Vladimir Putin (his cousin Igor Putin) and the Russian security service (FSB). The claims were not properly looked into and hence did not catch enough attention.[11]

The local Estonian branch of Danske Bank, after being acquired in 2007, still used its own IT-system and many documents were written in Estonian or Russian. Despite these difference in systems and language, the Danske Bank did not implement changes that would make it easier to control for the headquarters in Denmark.[11] In a 2018 report released by Bruun&Hjejle, a law firm retained by Danske Bank, the bank claimed to have had believed for a "long time" that the high risks represented by non-resident customers were mitigated by proper Anti-Money-Laundering procedures. It had become clear that the AML procedures were not sufficient after being tipped off by an internal whistleblower.[12] The whistleblower was later identified as Howard Wilkinson, former head of trading for Danske Bank in Estonia, Latvia & Lithuania[13]

According to the Danish FSA, non-resident portfolios from Russia in 2012 made up 35% of the profits of the local branch. The overall percentage of Russian clients in the branch was 8%.[14] Some of these transaction have been linked to the Russian Government and were done via shell companies that were registered in the United Kingdom, Cyprus and New Zealand, as well as other banks in Latvia and Moldova.[11] The second highest amount of non-resident portfolios were from the United Kingdom.[12] Another significant non-resident portfolio has been linked to the President of Azerbaijan and his family.[11]

In 2013, US bank JPMorgan Chase halted its services to the Estonian branch of the bank, suspecting it was laundering large amounts of Russian money.[5] Other banks continued providing services into 2015.[5]

In 2014, The Estonian Financial Supervision Authority found "large-scale, long-lasting systemic violations of anti-money laundering rules" in the Estonian branch of Danske Bank and notified the Danish authorities on the findings. According to the Estonian Financial Supervision Authority, the activities decreased after they requested the bank to target the violations.[15]

Results[edit]

Ten former employees in the local branch of the bank were arrested by Estonian authorities in December 2018,[16] and the bank was required by the Estonian government to close its Estonian branch in 2019.[17]

The CEO Thomas Borgen resigned in 2018 following the scandal and was charged for neglecting his responsibilities by the Danish authorities in May 2019.[18] At the same time, Henrik Ramlau-Hansen, the bank's former finance director, was charged by Danish prosecutors for not preventing the suspicious transactions.[19] The Danish Parliament introduced new laws that increased the penalties for money laundering eight-fold, making them some of the toughest in Europe.[8][20]

Danske Bank had the value of its shares cut in half in 2018.[7] The Danske Bank has said they will donate 1.5 billion kroner (c. US$225 million) to a charity and the bank is expected to receive fines of several billion dollars by financial regulators in Denmark, other European countries and the United States.[20]

References[edit]

  1. ^ "Finantsinspektsioon: The internal report of Danske is clear evidence that backs up the earlier actions of the independent Estonian financial supervisor to stop breaches by the bank". www.fi.ee. 2018-09-19. Retrieved 2018-10-15.
  2. ^ "Investigations into Danske Bank's Estonian branch". Danske Bank. 2018-09-19. Archived from the original on 2018-07-11. Retrieved 2018-10-14. Cite uses deprecated parameter |dead-url= (help)
  3. ^ a b Eva Jung; Michael Lund; Simon Bendtsen (13 October 2017). "ENGLISH: Links to dead Russian lawyer behind French money laundering probe against Danske Bank". Berlingske.
  4. ^ Coppola, Frances (2018-09-26). "The Tiny Bank At The Heart Of Europe's Largest Money Laundering Scandal". Forbes. Archived from the original on 2018-09-30. Retrieved 2018-10-14. Cite uses deprecated parameter |dead-url= (help)
  5. ^ a b c Kroft, S. (19 May 2019). "How the Danske Bank money-laundering scheme involving $230 billion unraveled". CBS News. Retrieved 2019-06-05.
  6. ^ OCCRP (5 September 2017). "Denmark's biggest bank hosted Azerbaijani slush fund". OCCRP. Retrieved 2019-06-05.
  7. ^ a b Christian Wienberg (27 December 2018). "Danske Bank Has Half Its Value Wiped Away, But Will 2019 Be Better?". Bloomberg News. Retrieved 29 May 2019.
  8. ^ a b c Jacob Gronholt-Pedersen; Francesco Guarascio (17 April 2019). "EU states force clearing of Estonian, Danish regulators over Danske Bank". Reuters. Retrieved 29 May 2019.
  9. ^ "Joint statement by the Estonian FSA and the Danish FSA". www.fi.ee. Retrieved 2018-10-15.
  10. ^ Jim Brunsden (28 April 2019). "EBA faces calls to reform after dropping Danske Bank probe". Financial Times. Retrieved 29 May 2019.
  11. ^ a b c d Gricius, Gabriella (2018-10-08). "The Danske Bank Scandal Is the Tip of the Iceberg". Foreign Policy. Archived from the original on 2018-10-11. Retrieved 2018-10-14. Cite uses deprecated parameter |dead-url= (help)
  12. ^ a b "Report on the Non-Resident Portfolio at Danske Bank's Estonian branch" (PDF). 2018-09-19.
  13. ^ Jensen, Teis (2018-08-26). "Danske Bank whistleblower was former Baltics trading head:..." Reuters. Retrieved 2018-10-15.
  14. ^ Board of Directors and the Executive Board of Danske Bank A/S (3 May 2018). "Danske Bank's management and governance in relation to the AML case at the Estonian branch" (PDF). Danske Bank. Retrieved 30 May 2019.
  15. ^ "Statement by Finantsinspektsioon, an Estonian financial supervision and resolution authority, on information published in the media about the Estonian branch of Danske Bank". Archived from the original on 2018-03-01. Retrieved 2018-10-14. Cite uses deprecated parameter |dead-url= (help)
  16. ^ Tarmo Virki; Jacob Gronholt-Pedersen; Stine Jacobsen (19 December 2018). "Estonia arrests ten in Danske Bank money laundering inquiry". Reuters. Retrieved 29 May 2019.
  17. ^ Martin Selsoe Sorensen (20 February 2019). "Estonia Orders Danske Bank Out After Money-Laundering Scandal". New York Times. Retrieved 29 May 2019.
  18. ^ Jacob Gronholt-Pedersen (7 May 2019). "Ex-Danske CEO Borgen charged over money laundering case: report". Reuters. Retrieved 29 May 2019.
  19. ^ pymnts (13 May 2019). "Denmark's Ex-Finance Regulator Charged In Money Laundering Scandal". pymnts.com. Retrieved 5 June 2019.
  20. ^ a b Rupert Neate; Jennifer Rankin (20 September 2018). "Danske Bank money laundering 'is biggest scandal in Europe'". The Guardian. Retrieved 29 May 2019.