By Sascha Matuszak
For almost a decade, Danske Bank’s Estonian branch was a go-to for individuals in Russia and the former Soviet Union who needed to legitimize billions in illicit funds. The bank’s CEO, Thomas Borgen, resigned on Septmeber 19th, after the details of a two-year internal investigation were released to the public. According to the investigation, some 6,200 customers accounting for as much as $230 billion in payments were found to be suspicious. If it turns out that Danske Bank did help launder that much money, then it will be far and away Europe’s largest money laundering scandal. The U.S., Denmark, and Estonia have all launched investigations and some analysts believe fines could reach as high as $8 billion, due mostly to years of negligence on the bank’s behalf.
“Danske will struggle to convince anyone it was completely oblivious,” writes Christopher Thompson for CNBC. “Warning lights on its Estonian branch, which it had acquired by taking over Finland’s Sampo Bank, were flashed by the local regulator and even the Russian central bank as far back as 2007.”
The role the Estonian branch played in overall group profits cannot be underestimated. As neighboring banks limped through Europe’s debt crisis with returns ranging from 6% to 70%, Danske’s Estonian branch delivered returns of 402%. Over 9 years of laundering, Estonian funds accounted for up to 10% of the Danske’s pre-tax profits. Even after warnings from Russia and partner bank JP Morgan, as well as a whistle-blower who alerted the board in 2013, Danske Bank waited until 2017 to launch an investigation. The severe lapse in due diligence regarding “non-resident customers” making payments through the Estonian branch allowed criminal activity to continue for years, and has since resulted in a precipitous drop in the bank’s share price in June of this year, when the Baltic chief stepped down. The bank also lowered its expectations for annual net profit to 16 billion-17 billion Danish crowns from 18 billion-20 billion Danish crowns.
Europe has been tightening its money laundering regulations for some time in response to multiple scandals involving European banks and Russian entities. Investigations into several European banks have led to big fines, including ING Group, Deutsche Bank AG, and Commerzbank AG. Germany recently overhauled its anti-money laundering enforcement agency, the U.K. has tightened up its anti-money laundering laws to deal with a large influx of illicit funds from all over the world, while reports on Canadian and U.S. anti-money laundering activities reveal that the problem is widespread, and solving it requires concerted action across borders.
Danske Bank issued a press release summarizing the investigations findings, actions taken against employees believed to have been involved in the money laundering scandals, and also the changes made to company governance to combat money laundering. Below are some the actions taken, both within Danske Bank’s Baltic operations, and overall:
- The portfolio of the non-resident customers in Estonia was closed down in 2015 (a few accounts were closed at the beginning of 2016). As part of our strategy, we will serve only subsidiaries of our Nordic customers and international customers with a solid Nordic footprint.
- Governance and oversight in relation to the Baltics have been strengthened with the introduction of a new pan-Baltic management.
- The independence of control functions in the Baltics has been strengthened and processes and controls have been raised to Group level to ensure the same level of risk management and control as in other parts of the Group.
- The Baltic units have been migrated to a single shared IT platform, which enables increased transparency and oversight.
- initiated a comprehensive AML programme, which has led to major changes in the form of new organisational structures, new routines and procedures, as well as the implementation of new IT systems.
- strengthened and will continue to strengthen the compliance knowledge and culture across the organisation, among other things through a strong management focus and extensive mandatory training. Over the past twelve months alone, internal and external training service providers provided almost 70 different AML training courses across the organisation. Approximately 20,000 employees have been given training.
- implemented risk management and compliance in performance agreements of all members of the Executive Board and senior managers.
- strengthened the whistleblower setup by transferring the responsibility for investigating reports to Group Compliance and implementing a stronger governance setup to handle reports. Furthermore, we have increased information about the whistleblower system to all employees and introduced mandatory training.
- generally strengthened the three lines of defense, which also includes ensuring increased independence of control functions and making sure that whistleblower reports and correspondence with supervisory authorities form part of reporting to the Board of Directors.
“We still have a lot of areas where we can improve and strengthen our ability and efforts, and we will never be in a position where there is nothing more that we can do. Criminals and criminal networks are continuously testing our controls and their methods are getting more and more sophisticated,” said Chairman of the Board of Directors Ole Andersen. “That is why we are working on a number of initiatives to improve our competencies and efforts even more.”