Denmark’s largest financial institution has referred eight former employees of its Estonian branch to law enforcement after accusing them of willfully laundering billions of dollars for foreign clients from 2007 to 2015.
In an 87-page report Wednesday, the Danish lender’s auditor, Copenhagen law firm Bruun & Hjejle, linked 15,000 nonresident customers of Danske Bank Estonia during that timeframe to 9.5 million transactions worth a combined €200 billion, with just under a quarter of incoming transfers originating from Russia.
Most of the 6,200 customers examined for the report hailed from Danske Bank Estonia’s nonresident portfolio and the “vast majority” qualified as suspicious, the law firm claimed. “It is expected that a large part of the payments were [also] suspicious.”
Eight former employees of Danske Bank Estonia may now face police investigation for their alleged involvement in what attorneys described as “suspicious behavior to such an extent that criminal activity is rendered probable.” The audit did not unearth any legal violations by the Danish lender’s board or chairman, or by its chief executive, Thomas Borgen.
Altogether, “42 employees and agents have been deemed to have been involved in some suspicious activity,” the law firm claimed in the report. “This is being reported to the Estonian FIU, again in an agreed format and in accordance with Estonian law.”
Borgen, who ran Danske Bank’s international division from 2009 to 2012, announced his resignation Wednesday amid accusations that he ignored multiple warnings, both external and internal, over the vast sums of potentially illicit cash transiting through Danske Bank Estonia.
The report, which the bank commissioned last year, marks the first comprehensive assessment of a scandal that broke in March 2017, when the Organized Crime and Corruption Reporting Project and Danish daily Berlingske identified Danske Bank Estonia as one of several lenders that handled funds from the $21 billion “Russian Laundromat” scheme that ran from 2011 to 2014.
According to the report, Danske Bank Estonia’s anti-money laundering procedures proved “manifestly insufficient and inadequate” for vetting clients and transactions, shortcomings that may have violated Estonian law.
Compliance staff in Estonia often did not take any steps to identify the beneficial owners of legal entities and their source of funds, screen clients against lists of politically exposed persons and report suspicious transactions to Estonia’s FIU.
Danske Bank Estonia also ran its own IT platform, a setup that prevented the Danish lender’s headquarters in Copenhagen from screening the branch’s transfers, noticing suspicious activity and gaining meaningful insight into its customers and their income.
But the Estonian Financial Supervision Authority, or FSA, warned Danske Bank’s directors in Copenhagen about Danske Bank Estonia’s problems as early as 2007, shortly after the Danish lender assumed control over the branch by purchasing Sampo Bank, a Finnish financial institution.
Denmark’s Financial Supervisory Authority separately provided Danske Bank’s board of directors in Copenhagen with “specific information” from Russia’s central bank outlining Danske Bank Estonia’s involvement in “criminal activity in its pure form, including money laundering” to the tune of “billions of rubles monthly.”
The board did not act on either warning, Bruun & Hjejle attorneys wrote in the report.
Danske Bank Estonia only fully parted ways with the riskiest segment of its nonresident portfolio in April 2016, three years after a whistleblower first raised the alarm over money laundering through the branch and two years after an internal audit and a “highly critical” inspection report from the Estonian FSA identified significant anti-money laundering weaknesses.
The branch had lost two correspondent relationships by that point.
That the board was made aware of those problems is “clear,” but reports of the weaknesses were typically accompanied with assurances that compliance upgrades were underway, attorneys claimed.
“This information came from within the bank, where the severity of the situation and the risks facing the bank had not been comprehended. … In hindsight, the question may be raised whether the board of directors or the audit committee could reasonably have done more.”
The investigation identified the potential involvement of 177 Danske Bank Estonia clients in the Russian Laundromat and 75 in the Azerbaijani Laundromat, a corruption scheme that saw $2.9 billion embezzled and moved out of Azerbaijan through accounts held by legal entities with opaque ownership structures.
Most of the legal entities used in these two schemes took the form of limited partnerships and limited liability partnerships domiciled in the United Kingdom, but also in the British Virgin Islands, Hong Kong and Cyprus.
The law firm found that Danske Bank Estonia’s nonresident customers most often hailed from Russia, the United Kingdom and British Virgin Islands.
A Baltic banking source, who spoke on condition of anonymity, told ACAMS moneylaundering.com that Danske Bank may have inherited these issues from Sampo Bank, the Finnish lender.
“My sense has been that in many Baltic countries, when mama bought a new daughter, daughter didn’t report just how bad things were, and when pressure came from mama’s compliance department, daughter would continue to help the worst customers until she got caught.”
Those failures have triggered ongoing criminal and regulatory investigations in Estonia, the United States and Danske Bank’s home country of Denmark, where any monetary penalty against the lender will be the outcome of a criminal process as the country’s primary anti-money laundering regulator, the Financial Supervisory Authority, cannot impose fines independently.
FSA officials said Wednesday that in light of the new information in the report, they may reopen an investigation into Danske Bank’s corporate governance procedures that concluded in May.
A Copenhagen-based AML attorney told moneylaundering.com on condition of anonymity that the case has acted as an “eye opener” for Denmark’s financial sector and may further fuel the current trend towards risk aversion.
“No bank would want to go through a similar process as Danske is right now,” the attorney said.
|Topics :||Anti-money laundering , Counterterrorist Financing|
|Source:||Denmark , Estonia|
|Document Date:||September 19, 2018|