Advertisement

Tiny Estonian unit of Danske Bank is focus of latest European money-laundering scandal

Tiny Estonian unit of Danske Bank is focus of latest European money-laundering scandal
A branch of Denmark's Danske Bank in Tallinn, Estonia, in 2017. (Raigo Pajula / AFP/Getty Images)

Danske Bank, the largest financial institution in Denmark, is at the center of yet another European money-laundering scandal.

And at the epicenter is its tiny Estonian unit, which the bank reported on Wednesday handled as much as $234 billion of funds from 2007 to 2015 — a figure that’s almost nine times the Baltic nation’s gross domestic product.

Advertisement

A big chunk of those money flows may involve laundering, the bank’s chairman admitted in a broadcast interview.

“The lead investigator today has informed that he believes there’s reason to believe that a large part [of the $234 billion] potentially can be classified as suspicious,” Chairman Ole Andersen said on Bloomberg Television.

The remarks by Andersen indicate that the scandal appears to be far larger than thought. Previous criminal complaints suggested that some $9.1 billion in illicit funds, mostly from Russia, were laundered in the eight-year period.

Thomas Borgen, 54, the bank’s chief executive, stepped down Wednesday in the wake of a bank-issued report on the scandal, and Andersen, 62, hinted that he may leave as well once the case has been brought to an end.

Danske is the latest in a string of big European banks tainted by money-laundering scandals, prompting authorities in the bloc to look into tougher regulatory measures.

Deutsche Bank was fined almost $700 million last year for helping wealthy Russians move about $10 billion out of their country. ING Group this month agreed to pay about $900 million to settle a laundering case.

Meanwhile, the Danish government and central bank are both 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.

Rasmus Jarlov, Denmark’s business minister and the man in charge of overseeing financial legislation in Danske’s home market, said Wednesday that the bank is potentially facing a fine of as much as $630 million if found guilty.

Analysts surveyed by Bloomberg have estimated that Danske’s total price tag may total even more, about $800 million in fines.

The scandal has triggered widespread indignation across Denmark, where corruption is generally perceived to be low and transparency high.

Official investigations are ongoing in Denmark and Estonia, and Danish media reported last month that the U.S. government is also looking at the case.

The bank said that its review of transactions at the Estonian unit between 2007 and 2015 covers about 15,000 accounts, of which roughly 6,200 have the “highest risk indicators.” The bank said “almost all of these customers have been reported to the authorities.”

Still, analysts and investors said Danske’s report Wednesday 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 $234-billion estimate of total flows through its Estonian unit raises major questions about how serious management was about preventing money laundering.

Advertisement

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 took heart 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.

But investors were not pleased. Shares in Danske fell more than 8% in the Danish capital, bringing losses this year to 32%. Since its latest peak in May 2017, Danske’s market value has plunged by about $14 billion.

Borgen, who was promoted to run the bank in 2013, will continue in his job until a replacement is found. Danske did not 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 a statement. “I deeply regret this.”

Advertisement
Advertisement