Danske Bank: the story of Europe’s biggest money laundering scandal

As culture in finance keeps going worse from one scam to another, Prof Sean Curley of Staffordshire University in this piece tells us about Danske Bank:

 

In recognition of the extent of the problem, the G7 group of major economies formed the Financial Action Task Force on Money Laundering back in 1989. The idea behind this was to produce a set of standards and guidelines and to monitor progress on anti-money laundering regimes.

The focus is to identify suspicious transactions and report them. For anti-money laundering efforts to be successful, it requires financial institutions to know their customers. This means that banks must be able to identify the ultimate beneficial recipient of a transaction – so the person who takes the profit – of any customer on their books.

This is where Danske Bank ran into trouble. Its Estonian branch came about when Danske acquired Sampo Bank, a small Finnish Bank in 2007. Sampo had a non-resident portfolio in Estonia and it is this that caused the problems.

In the words of the independent report into the scandal, which preempted CEO Borgen’s resignation: “Anti-money laundering procedures at the Estonian branch had been manifestly insufficient and inadequate.” Danske Bank has also admitted there were “major deficiencies in controls and governance that made it possible to use Danske Bank’s branch in Estonia for criminal activities such as money laundering”.

Danske shut down the non-resident portfolio in 2015 after it became clear that the bank’s anti-money laundering procedures at the Estonian branch weren’t working. As a mere branch, Estonia should have been subject to Danske’s own money laundering systems – but the branch had its own IT platform, which meant it was not covered by the same risk monitoring as the bank’s Copenhagen headquarters.

The independent investigation found that more than half of Danske’s 15,000 customers in Estonia were suspicious. The source of funds passing through the portfolio was identified as more than 58% coming from Russia, Estonia and Latvia. The destinations of the funds were worldwide.

The difficulty in identifying the true source of the funds comes from the lack of transparency as to the real owners of the customers in the portfolio. A proportion of them are UK-based companies that are registered as limited liability partnerships – this means they are not required to publish details of their eventual owners. This is a classic case of money laundering where ownership often passes through a series of shell companies before the eventual owner can be identified.

The customers are being investigated by several national authorities including the FBI and the UK National Crime Agency. The Danish regulator is investigating Danske Bank itself. Harsh penalties for the bank could ensue – Denmark’s business minister said the Danish authorities could fine Danske 4 billion Danish kroner (£475m). But it remains to be seen what the long-term damage will be for Danske, if any.

Well…

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