News

Danske Bank on Thursday disclosed that it anticipates having to pay U.S. and Danish authorities a combined $2.1 billion in penalties to settle allegations that its now-shuttered Estonian affiliate helped criminals launder billions of dollars from 2007 to 2015.

In a 77-page earnings report covering the first nine months of 2022, the Danish lender said that it hoped to reach an agreement with the U.S. Department of Justice, the U.S. Securities and Exchange Commission and the Danish Police Special Crime Unit over the compliance violations by the end of the year.

“On the basis of the current stage of these discussions … Danske Bank is now in a position to reliably estimate with a high degree of certainty the financial impact of a potential coordinated resolution with these authorities, at a total of 15.5 billion Danish kroner [$2.1 billion],” the Copenhagen-headquartered lender said.

Danske Bank said Thursday that it had set aside an additional $1.9 billion—the same amount U.K. lender HSBC agreed to pay U.S. authorities in 2012 for allowing Mexican drug cartels to launder hundreds of millions of dollars—to cover the fines, after earmarking $200 million in 2018 to cover an expected disgorgement of profits.

“Discussions with authorities are ongoing and there is still uncertainty that a resolution will be reached, but Danske Bank is working towards a coordinated resolution before year end,” the bank said. “However, the final timing is not within Danske Bank’s control.”

The bank declined to comment further on the matter.

Despite the size of the expected fine, Danske Bank’s share price jumped 12 percent on the news that the uncertainty over the impact of the bank’s Baltic money-laundering scandal could soon be a thing of the past. Shares are still under half the value they were before the scandal erupted five years ago.

Graham Barrow, a London-based AML investigator and consultant with knowledge of the Danske Bank case, told ACAMS moneylaundering.com that the anticipated penalties “send a powerful message about the extent of wrongdoing” by the bank.

“It also goes some way to show that prioritizing short-term profits [over compliance] can do real, long- term reputational and financial damage,” Barrow said. “Though I would like to see some personal accountability [of senior managers] as well, because it is ultimately the staff and shareholders who will pay that cost.”

News of the Estonian affiliate’s role in moving vast sums for corrupt officials and other shady clients broke in March 2017, when the Danish newspaper Berlingske reported that the bank had handled billions of dollars in payments on behalf of suspicious offshore entities from 2011 to 2014.

In September 2018, Danske Bank disclosed that an external audit found that more than €200 billion in potentially illicit funds, principally from Russia and other former Soviet nations, flowed through thousands of accounts held by nonresident legal entities at its branch in Tallinn from 2007 to 2015. Chief executive Thomas Borgen resigned shortly afterwards.

Five months later, Estonia’s Financial Supervisory Authority ordered Danske Bank to close its local affiliate for committing “profound and material” compliance violations that “seriously damaged” the Baltic nation’s international reputation.

Danske Bank said Thursday it is also facing a criminal investigation by French authorities and several civil lawsuits brought by current and former shareholders in Denmark and the United States over the money-laundering scandal that could see it incur “material” damages.

The lender said it expected a net loss of around 5.5 billion Danish kroner—$741  million—this year, largely as a result of the anticipated AML penalties.

Contact Koos Couvée at kcouvee@acams.org