According to the news report by Bloomberg, US criminal investigators have contacted Deutsche Bank AG as well as Bank of America Corp. regarding information about transactions that the banks had handled for the small branch of Danske Bank A/S in Estonia. This small bank is now at the center of one of the biggest investigations related to money-laundering in history.
The US Justice Department also asked JP Morgan Chase & Co. about the work that it had done with the branch in Tallinn, Estonia.
These banks, among the world’s biggest lenders, were correspondent banks for the Danske Bank branch in Estonia. Denmark’s biggest bank admitted that it had moved almost a quarter of a trillion dollars into the global banking system from its Estonian branch, most of it from possibly illegal activities in Russia.
Danske said that it had used Deutsche Bank, Bank of America and JP Morgan’s global reach to convert its foreign cash into US dollars for its clients from 2007 to 2015.
The US Justice Department in Washington as well as prosecutors from Manhattan’s US Attorney’s Office are investigating whether these three banks gave the right kind of scrutiny to their transactions with Danske’s Estonian branch. This investigation is a part of the broader probe into Danske Bank by the US authorities.
The investigation is currently in its early stages and there is no indication that the banks themselves are targets of the probe. None of the banks have admitted to any contact with the investigating authorities. The banks had only been referred to in an internal probe by Danske Bank, the results of which were released in September this year as well as in regulatory reports. However, they hadn’t been mentioned specifically by name.
One source told Bloomberg that even the Securities and Exchange Commission (SEC) as well as the Treasury Department were investigating the transactions between Danske and the global banks.
JP Morgan Chase & Co. had stopped giving Danske Bank its correspondent services in 2013. However, Bank of America as well as Deutsche Bank continued to provide the Danish lender these services for another 2 years. And of the two, Deutsche Bank handled the larger part of the transactions in that time period.
When contacted by the newspaper, all three of the global banks declined to comment.
Danske Bank’s share prices fell another 1.9% on Friday in Copenhagen after the news of further investigations broke. So far this year, the bank’s shares have plunged 44%.
The investigation into Danske Bank highlights the lack of transparency in the correspondent banking business. This business is a type of circulatory system for the $160 trillion in annual international monetary transactions that buffer the global economy.
Major Banks around the world maintain accounts in other banks. They deposit their funds in those accounts and use those funds to make payments in foreign countries or currencies on behalf of their clients.
The US, when investigating cases where there has been an illicit use of the financial systems, usually treat the dollar-clearing banks as victims. However, in this case, at least one of the correspondent banks already had concerns of money laundering against Danske Bank in 2013, which is what led to it terminating its work with the Danish lender. It is because of this that US authorities are taking a closer look at the roles these global banks played in the money laundering issue with Danske Bank.
According to the laws in the US, correspondent banks have to apply anti-money laundering policies to all foreign banks. These rules also include periodic reviews of all correspondent accounts for suspicious activity.