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Plans by lenders in the Netherlands to tackle complex international money-laundering schemes together have won support from regulators following a seven-month investigation to assess the Dutch financial sector’s exposure to the scandal that engulfed Danske Bank Estonia.

De Nederlandsche Bank, or DNB, wrapped up the investigation in December after pinpointing and reviewing the transactions of Dutch banking clients who received large incoming wires from Danske Bank Estonia from 2010 to 2018, years that overlap with the Baltic lender’s central role in moving tens of billions of dollars out of Russia and other former Soviet states.

In an interview with ACAMS moneylaundering.com, senior officials at DNB said that the findings of their investigation and the methods used during it could help Dutch financial institutions develop new structures for detecting and halting illicit cross-border transactions like those seen in schemes such as the Russian Laundromat.

“We don’t exclude the possibility that … this type of laundromat activity still goes on,” said Remy Jansen, head of DNB’s integrity department. “We hope that what banks have learned in this exercise is not just to look back—but also whether they can more quickly identify where these risks are moving towards.”

Estonian regulators ordered Danske Bank to close its local branch in February 2019 after an internal audit found that more than €200 billion in suspiciously obtained funds had passed into and through accounts for nonresident legal entities from 2007 to 2015, with nearly a quarter of those transactions originating from Russia.

Earlier reports revealed Danske Bank Estonia’s role in the Russian Laundromat, Azerbaijani Laundromat and the notorious $230 million tax fraud and money laundering scheme in Russia unearthed by Sergei Magnitsky, who died in a Moscow jail cell in 2009 after being beaten and denied medical care.

News of the Dutch financial sector’s exposure to the Russian Laundromat emerged in August 2017, when DNB disclosed findings that a number of local produce and flower exporters sold goods to Russian buyers but received payment from third parties with accounts in the Baltics.

DNB subsequently asked several financial institutions to provide data on any clients who received funds from the Baltic lender during the eight-year period under review. Jansen declined to name the banks who responded.

Data-driven supervision

Axel Gospodinov, a senior supervisor who led the project, told moneylaundering.com that DNB then whittled the data they received down to a list of 400 clients who received the most funds from the Estonian lender, then reviewed those accounts for several risk indicators, such as frequent incoming payments in round numbers and regular transfers in similar amounts.

Payments that arrived from the same accounts at Danske Bank Estonia over a period of three to four months before stopping altogether indicated an “incidental,” potentially suspicious flow of funds, said Gospodinov.

Wires to offshore accounts in the Baltics or Switzerland for no apparent commercial purpose also triggered suspicion, as did transactions that exhibited identical, vague descriptions such as “payment for construction materials.”

Transfers from accounts held by U.K. legal entities that had been dissolved within a few years of being formed also drew scrutiny.

Based on those and other factors, DNB then split the list of 400 clients who received payments from accounts at Danske Bank Estonia into two groups: those who did not make suspicious payments themselves, and those who did. A “substantial portion” fell in the second group, Gospodinov said.

“We managed to map these flows with the idea that the banks could then look into their portfolio and ask themselves: ‘What do I know about this client? What is their main business, and does it make sense, for example, that they’re paying a lot of money to Switzerland for products that they’re apparently also delivering somewhere in eastern Europe?”

The project forms part of a broader move towards data-driven supervision. The regulator also plans to more frequently ask lenders to comb through their client and transactional data to find and flag other countries, financial institutions and categories of customers involved in suspicious transactions.

DNB’s findings could prompt banks to flag almost every transaction that arrived from the Baltics over the last 10 years, and may have fueled a spike in the number of unusual transaction reports to the Dutch financial intelligence unit.

“They [DNB] are talking about a fixed typology, but you might start with a couple of companies and a couple of banks, then you start looking at common business addresses, and that leads you to other companies and the oil slick spreads,” a source familiar with the matter said. “The question is: are they all suspicious?”

Such analysis is necessary, however, particularly for midsize international banks who may find it more difficult to simply terminate all correspondent banking relationships in particular countries or regions, as JP Morgan Chase & Co and Deutsche Bank have done in recent years, the source said on condition of anonymity.

‘Rapid response teams’

The Russian Laundromat, a network of shell companies and bank accounts used to move $21 billion in funds of suspicious origin out of Russia from 2010 to 2014, was uncovered three years ago by the Organized Crime and Corruption Reporting Project, which published a database of 5,000 legal entities with links to the scheme.

Armed with this intelligence, many major European lenders, including Deutsche Bank and Britain’s Standard Chartered Bank, launched costly investigations to measure their exposure to the Laundromat.

The information was published just 10 months after the Panama Papers, the largest leak of incorporation and banking data to date. Those and other leaks did not escape the notice of European supervisors, many of whom now regularly quiz lenders on their processes for cross-referencing leaked data against the names of their clients.

“Banks obviously believe they can be more effective working together, but they also want to adopt a common approach with these investigations,” the source familiar with the matter said.

As a result, several Dutch lenders, including Rabobank, ING and ABN Amro, want to create joint response teams through which compliance officers can exchange ideas for addressing complex money-laundering schemes uncovered through large-scale data leaks and other events.

The DNB’s assessment of the Danske Bank Estonia scandal should serve as a blueprint for financial institutions to conduct event-driven investigations both internally and with each other, said Jansen, head of the regulator’s integrity department.

But it also showed that guarding against financial crime requires something more.

“Banks are more aware of the risks associated with third-party payments, but stopping this type of activity also depends in part on the vigilance by their clients, who could be more alert,” Jansen said. “That is a lesson that hasn’t yet been fully learned.”

Contact Koos Couvée at kcouvee@acams.org