Danske Bank Says Billions May Have Been Laundered at Single Branch

Posted September 19, 2018 4:22 p.m. EDT

COPENHAGEN — When a whistleblower 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 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 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 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 the relationship 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 whistleblower 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 euros that passed through the Estonian branch between 2007 and 2015 to be suspicious.

“It’s perhaps difficult for us in this room to understand,” 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 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.