According to the news report from Bloomberg, Danske Bank A/S’s operations in Estonia were being used to launder money – to the tune of $8.3 billion. This number is more than double the previous estimates, stated Bill Browder, the fund manager and leader of the global campaign for human rights abuses by the Kremlin.
Bill Browder is the man who is pressing the case against Denmark’s largest lender. This disclosure could worsen the bank’s legal problems as well as hurt its reputation even further. Danske Bank had already been reprimanded by financial regulators earlier this year in May for not having monitored transactions for money laundering. The bank escaped without prosecution, but this time, it may not be so lucky.
A quick background to the money laundering allegations would make the situation clearer. Till 2015, Danske Bank was offering banking services to residents of other countries at its Estonian branch. Customers included people from high-risk countries that had weak anti-money laundering laws such as Russia, Azerbaijan and Moldova. According to reports, these customers were using this branch of the bank to launder money for years.
Danske had gotten hints that there was something underhanded going on at its Estonian operations, however, it wasn’t until 2013 that the bank began terminating its businesses with the non-resident client – after it received a report from a whistle blower at the branch. The bank then also launched its own investigation into the issue.
However, it was only in 2017 that the bank broadened the scope of its investigation to look at customer transactions right from 2007 onwards. This the bank did only after the media got wind of the story and the money laundering issue became public knowledge.
The French regulators placed the bank under a formal investigation in October of last year, however, three months later, the bank’s status was changed from suspect to “assisted witness”, meaning the bank was now helping the investigation rather than being the subject of the investigation.
Then, in April 2018, Lars Morch, the head of international banking since 2012, resigned. One month later, the Danish regulator stated that the bank should have seen a red flag when it was getting returns to the tune of 400%.
Now, Danish politicos are demanding tougher anti-money laundering laws and more stern punishments as this scandal had marred the country’s reputation.
Danske’s shares fell by 2.3% in trading in Copenhagen on Wednesday. The bank’s Euro and Dollar bonds also lost value.
The news that Danske’s transgressions may actually be much greater than first imagined comes after the indictment of Latvia’s central banker for bribery as well the US’s accusations of money laundering there. This only underlines the risks of banking in the Baltic region and highlights the need to establish stronger anti-money laundering laws to prevent the flow of Russian money.
Previous leaks indicate that the flow of money has been coming in from Azerbaijan, Moldova and Russia via Danske’s “laundromat”, however, who the kingpin behind these operations may be is still unknown.
Browder was kicked out of Russia in 2005 after his company, Hermitage Capital Management published documents that exposed government as well as corporate corruption. He stated that the latest information that he had unearthed would be used to file a new criminal complaint against Danske, both with the Danish as well as Estonian authorities.
Jesper Nielson, the head of Danske’s banking division in Denmark as well as board member, stated that this investigation is taking up a large amount of the senior management’s time as they are working to clear the company’s reputation as soon as possible.