Danske Bank Says Billions May Have Been Laundered at Single Branch
A report commissioned by Danske Bank found severe misconduct at a branch in Talinn, Estonia, from 2007 to 2015.CreditCreditInts Kalnins/Reuters
By Martin Selsoe Sorensen
Sept. 19, 2018
COPENHAGEN — When a whistle-blower alleged that employees of a branch of the Danish lender Danske Bank had been knowingly working with customers who had broken the law, it was not the first time that questions had been raised about that particular office. It would not be the last.
Danske Bank said on Wednesday that its headquarters and its Estonian branch failed for years to prevent suspected money laundering involving thousands of customers. The lender said it was unable to estimate the total amount of the suspicious transactions, but its nonresident operation in the Baltic nation improbably had total flows of 200 billion euros, or $234 billion — nearly equivalent to the size of the Danish economy. The chief executive, who had previously headed the bank’s international operations, quickly said he would resign.
In an 87-page report commissioned and paid for by Danske Bank, a Danish law firm, Bruun & Hjejle, found that misconduct took place at the lender’s Estonian branch from 2007 to 2015, involving “objectionable” omissions, inaction and faulty processes at all levels of the bank. That meant the lender “was not sufficiently effective in preventing the branch in Estonia from being used for money laundering.”
“None of us can grasp that this had been going on,” Ole Andersen, Danske Bank’s chairman, said in a news conference on Wednesday.
According to the bank, its Estonian branch was serving many nonresident customers, though it should not have done so. Danske Bank said it suspected that some of its employees in Estonia may have helped those customers. At least eight bank employees have been reported to the police. In all, some 6,200 customers have been investigated so far, many of them Russian individuals and or Russian-owned companies based abroad, “the vast majority” of which “have been found to be suspicious,” the bank said.
Danske Bank said it first received warning of potential misconduct in 2007, when Russia’s central bank warned the Danish lender of possible “tax and custom payments evasion” in its nonresident portfolio in Estonia. The Russian authorities also said they suspected “criminal activity in its pure form, including money laundering” estimated at “billions of rubles monthly.”
According to the lawyer’s report, however, “Danske Bank missed this opportunity.”
In 2013, JPMorgan, the Estonian branch’s correspondent bank for clearing dollar transactions, ended because of the American lender’s concerns with the nonresident portfolio. That prompted Danske Bank to start a review of its clients, but the review was never concluded.
It was only when a whistle-blower raised concerns with executives in Copenhagen in December 2013 that the bank’s board was warned. But it would take almost two years for the bank to get rid of suspicious clients, and a full inquiry did not begin until 2017. By then, the Estonian branch had become the hub of one of Europe’s biggest money-laundering operations.
In the mean time, the bank conducted what Bruun & Hjejle said were “insufficient” investigations, whose findings were improperly reported or challenged by top management.
Danske Bank said it did not know exactly how much money laundering had taken place. But Ole Spiermann, a partner at Bruun & Hjejle, said the firm expected “a large proportion” of some €200 billion that passed through the Estonian branch between 2007 and 2015 to be suspicious.
“It’s perhaps difficult for us in this room to understand,” Mr. Spiermann said at the news conference, “but there was an understanding in the bank that they had this under control.”
The fallout for Danske Bank has been considerable. Thomas F. Borgen, the lender’s chief executive since 2013, said on Wednesday that he would resign, though he will stay in place until a replacement is hired. The authorities in Denmark, Estonia and the United States are investigating the misconduct. The bank’s stock price has fallen about 30 percent this year.
In a statement, the head of Estonia’s financial regulatory agency, Kilvar Kessler, said the report “describes serious shortcomings in the organization of Danske Bank, where risk-appetite and risk control were not in balance.” Denmark’s financial regulator said it would use the law firm’s report in its own inquiries.
https://www.nytimes.com/2018/09/19/busi ... ering.html
Danske Bank boss quits over €200bn money-laundering scandal
Thomas Borgen has resigned as Danske Bank chief executive
The chief executive of Danske Bank has resigned in the wake of a money-laundering scandal involving its Estonian operation.
Thomas Borgen stepped down following an investigation into payments of about €200bn (£177bn) through its Estonian branch.
The Danish bank said many of those payments were suspicious.
Mr Borgen said it was clear Danske had failed to live up to its responsibilities, which he regretted.
"Even though the investigation conducted by the external law firm concludes that I have lived up to my legal obligations, I believe that it is best for all parties that I resign," he said.
The bank said it was unable to determine how much money was believed to have been laundered through its Estonian branch between 2007 and 2015.
Shares in Danske fell 7% in Copenhagen following Mr Borgen's resignation and a lowering of its outlook for the full year.
Estonia's Financial Supervision Authority (FSA) said it was now examining the findings of Danske's internal investigation.
"The report describes serious shortcomings in the organisation of Danske Bank, where risk-appetite and risk control were not in balance," said the Estonian FSA's chairman, Kilvar Kessler.
The watchdog and Denmark's financial supervision authority will now consider taking action.
The FSA said that it had carried out thorough inspections of Danske Bank's Estonian branch in 2014.
The following year the FSA said it ordered the bank to rectify flaws in its risk control organisation. That resulted in Danske's Estonian branch no longer serving customers who did not live in the country.
'Massive tax scam'
The branch's handling of Russian and former Soviet money has also been the focus of an inquiry in Estonia itself.
International financier Bill Browder is one of Russian President Vladimir Putin's most public critics.
He has long alleged that Danske's Estonian branch was "one of the main conduits related to the fraud".
Bill Browder has long alleged that Danske Bank played a role in Russian tax fraud
In July 2017, he gave evidence to the US Senate Judiciary Committee pertaining to allegations that Russia interfered with the 2016 US presidential elections.
Mr Browder set up and ran Russia's most successful hedge fund, Hermitage Capital Management, from 1995 to 2005.
In 2005, he claims that the Russian government took over his firm and used it to claim a $230m tax refund.
Mr Browder was refused entry into the country for "national security" reasons, so he moved to London and asked his staff to move with him.
Magnitsky Act
Mr Browder said his lawyer, Sergei Magnitsky, refused to leave as he wanted to investigate evidence of what he said was a massive tax scam by Russian government officials. Mr Magnitsky died in 2009 while in Russian custody.
After Mr Magnitsky's death, Mr Browder embarked on a worldwide campaign asking governments to pass legislation to freeze the assets involved and deny visas to human rights abusers.
In the US, this law was passed in 2012 and is known as the Magnitsky Act. The UK passed a similar bill in February 2017, updating its existing Proceeds of Crime Act.
In 2013, Mr Browder was tried in absentia in Russia and sentenced to nine years in prison for tax fraud.
Russia asked Interpol to arrest Mr Browder, but the international policing agency rejected the claim.
In May, Mr Browder was arrested and detained for two hours in Spain. He was released after Interpol announced that the arrest warrant was politically motivated.
https://www.bbc.com/news/business-45571744
U.S. Probes Danske Bank Over Russian Money Laundering Allegations
Probes are ongoing and are related to transactions at Danske’s tiny Estonian branch over several years through 2015
Drew Hinshaw Sept. 14, 2018 7:28 a.m. ET
Danske Bank’s headquarters in Copenhagen, Denmark. Danish and Estonian authorities have shared information with U.S. counterparts, according to several European officials familiar with the matter.
Danske Bank’s headquarters in Copenhagen, Denmark. Danish and Estonian authorities have shared information with U.S. counterparts, according to several European officials familiar with the matter. Photo: kasper palsnov/Agence France-Presse/Getty Images
U.S. law enforcement agencies are probing Denmark’s largest bank over allegations of massive money laundering flows from Russia and former Soviet states, according to a person familiar with the matter and documents reviewed by The Wall Street Journal.
The Justice Department, Treasury Department and Securities and Exchange Commission are each examining Danske Bank DNKEY -2.75% after a confidential whistleblower complaint was filed to the SEC more than two years ago, the person familiar said. The probes are ongoing and related to transactions at Danske’s tiny Estonian branch over several years through 2015. The Journal reported earlier this month that the bank is studying $150 billion that flowed through accounts of non-Estonian account holders at the branch.
Nordic Fall
Danske Bank share price
Source: SIX
Note: As of Sept. 19
.Danish kroner
May ’18
July
Sept.
160
170
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The whistleblower complaint identified Deutsche Bank AG DB +2.94% and Citigroup Inc., both overseen by U.S. regulators, as involved with transactions into and out of Danske Bank’s Estonian branch. Deutsche Bank acted as a correspondent bank for Danske, handling dollar wire transfers. Citigroup’s Moscow office was involved in some of the transfers through Danske Bank’s Estonian branch, the person familiar with the probes said.
A spokesman for Danske said the bank often talks to regulators. “However, as a general rule, we do not comment,” the spokesman said.
Spokesmen for Deutsche Bank and Citigroup declined to comment. The SEC, Justice Department and Treasury Department declined to comment.
Danish and Estonian authorities have shared information with U.S. counterparts, according to several European officials familiar with the matter. “There is cooperation, they are watching it very closely,” one of these people said.
Estonian officials are investigating 26 former Danske employees, from low-level staff to the former branch CEO. They are accused of helping to launder $230 million in money from an alleged fraud committed in Russia.
“In this particular case, it’s clearly dirty money from crime,” said Marek Vahing, Estonia’s state prosecutor.
Borrowing Protection
Cost of insuring $10 million of Danske Bankdebt for five years*
Source: IHS Markit
*Using credit-default swaps
.a year
2015
’16
’17
’18
40,000
60,000
80,000
100,000
120,000
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$220,000
Treasury Assistant Secretary for Terrorist Financing Marshall Billingslea visited Estonia in May. Russian illicit transactions into Europe were a particular concern, according to people aware of those discussions. Danske was mentioned only in passing. Mr. Billingslea and other top administration officials have jetted around Europe, pressing regulators to more aggressively police financial flows out of Russia. He visited Denmark in August.
“It is critical that they shore up their anti-money laundering regimes and that they clamp down and tighten down on how they regulate money coming out of Russia,” Mr. Billingslea told a Senate panel last month.
“There’s an enormous amount of money that is still being exfiltrated from Russia by both organized crime and cronies surrounding Putin, ” he told senators, many of whom are seeking to levy new sanctions against Moscow.
U.S. involvement in the case greatly raises the stakes for Danske Bank. It is already facing investigations in Denmark and Estonia over the allegations.
Danske’s share price has dropped sharply this year as the extent of the money laundering probe has emerged. Costs to insure against Danske’s debt, some of which is issued in U.S. markets, has jumped in recent weeks.
The U.S. Treasury can restrict the supply of U.S. dollars to foreign banks who are accused of laundering money, a rarely-used penalty known as the “death blow sanction” because it can send a lender into collapse. So far, the Treasury has mostly used that cudgel against small lenders, including a now-liquidating Latvian bank accused of handling billions of dollars for Russian arms traders and North Korea’s missile program.
The Treasury and Justice Department can also choose to fine banks, punishing the company but sparing its customers, who could lose their deposits if the bank collapsed.
Danske last year initiated an internal investigation into the activity of its Estonian branch and is scheduled to release its own report into money laundering issues on Sept. 19.
https://www.wsj.com/articles/u-s-probes ... 1536924529
Danske Chairman Says ‘Large’ Part of $234 Billion Is Suspicious
Frances SchwartzkopffSeptember 19, 2018, 8:07 AM CDT
The chairman of Danske Bank A/S now says that a “large” part of the $234 billion that flowed through a tiny Estonian unit at the center of a money laundering scandal may need to be treated as suspicious transactions.
Denmark’s largest bank revealed the total figure in a report on Wednesday, in an effort to answer questions about Danske’s involvement in one of Europe’s biggest dirty money sagas. The document also contained the news that Chief Executive Officer Thomas Borgen, 54, will step down for his role in the scandal. Chairman Ole Andersen, 62, hinted that he too may leave once the case has been brought to an end.
Andersen said he is “not going to rule out anything,” regarding the size of suspicious transactions, in comments made during a Bloomberg Television interview with Annmarie Hordern.
“The lead investigator today has informed that he believes there’s reason to believe that a large part [of the $234 billion in total flows through the Estonian unit] “potentially can be classified as suspicious,” he said.
The laundromat case has shocked Denmark, a country generally associated with some of the world’s lowest levels of corruption and highest levels of transparency. Criminal complaints against Danske have so far suggested its Estonian unit was used to launder as much as $9.1 billion between 2007 and 2015, with the illicit funds stemming mostly from Russia. Wednesday’s written report didn’t make clear how large a chunk of the total flows might have been laundered.
Dankse’s Money-Laundering Issues Are Far From Over; Fines Loom
Official investigations are ongoing in Denmark and Estonia, and Danish media reported last month that U.S. authorities are also looking at the case. Analysts and investors said that Danske’s report still left a lot of key questions unanswered.
Danske said it can’t provide an accurate number for how much dirty money it may have laundered. But the bank’s $234 billion estimate of total flows through its Estonian unit -- a figure that’s almost nine times the Baltic nation’s gross domestic product -- raises major questions about how serious management was about preventing money laundering.
Danske Investors Still in the Dark After CEO Exit: Street Wrap
The report “unfortunately does not draw a line under the issue as we had hoped,” analysts at Citi Research wrote in a client note. At Jefferies, analysts pointed out that the bank didn’t refer to any sanctions violations, “which is a relief given concerns” of an investigation by U.S. authorities.“It’s unclear what the basis of any fine is at present,” Jefferies said.
Shares in Danske fell more than 8 percent in the Danish capital, bringing losses this year to 32 percent. Since its latest peak in May 2017, Danske’s market value has plunged by about $14 billion.
Why Money-Laundering Case Hits Denmark Close to Home: QuickTake
Thomas Borgen arrives for a news conference on Sept. 19.
Photographer: Freya Ingrid Morales/Bloomberg
Borgen, who was promoted to run Denmark’s biggest bank in 2013, will continue in his job until a replacement is found, Danske said on Wednesday. It didn’t give any indication of how long that might take.
“It is clear that Danske Bank has failed to live up to its responsibility in the case of possible money laundering in Estonia,” Borgen said in the statement. “I deeply regret this.”
The Allegations
The review of transactions at the Estonian unit between 2007 and 2015 covers about 15,000 accounts, of which Danske says roughly 6,200 have the “highest risk indicators.” The bank said “almost all of these customers have been reported to the authorities.”
Danske is the latest in a string of big European banks to have been tainted by money laundering scandals, prompting authorities in the bloc to look into tougher measures. Deutsche Bank AG was fined almost $700 million last year for helping wealthy Russians move about $10 billion out of their country. ING Group NV earlier this month agreed to pay about $900 million to settle a laundering case.
ING Seeks to Calm Money-Laundering Uproar With CFO’s Departure
Potential Fines
Analysts surveyed by Bloomberg have estimated that Danske may need to pay about $800 million in fines for its breaches. The bank made no mention of provisions in Wednesday’s press release.
Denmark Wants 700% Jump in Laundering Fines Amid Danske Scandal
Borgen is leaving after half a decade at the helm of Denmark’s biggest bank. His career spanned a number of key roles at Danske, most notably, as head of its international operations while much of the laundering was taking place. Wednesday’s report shows Danske was warned as early as 2007 that there were suspicious transactions taking place at the Estonian unit, followed by a steady flow of continuous red flags thereafter.
The scandal has triggered widespread indignation across Denmark, with both the government and the central bank warning that Danske’s involvement in laundering could hurt the reputation of Denmark’s entire financial system. S&P Global Ratings even said the case might end up affecting Denmark’s AAA credit rating.
Government Warnings
The government has already made clear that Wednesday’s report won’t be the final word on the case, pointing to ongoing criminal investigations in Denmark and Estonia, which are likely to drag on for several months.
Danske also cut its full-year outlook on Wednesday, partly due to a 1.5 billion-krone ($230 million) so-called donation it plans to make to an independent foundation to support the fight against international financial crime. The amount equals profit from suspicious transactions that took place in the non-resident portfolio of its Estonian branch from 2007 to 2015.
https://www.bloomberg.com/news/articles ... ng-scandal
