Estonian authorities have launched a criminal investigation into the local branch of Danske Bank after a U.K. financier accused the lender of laundering most of the proceeds of a tax fraud perpetrated by a Russian crime group and complicit government officials 12 years ago.
Prosecutor General Lavly Perling disclosed the inquiry to the Estonian Parliament’s Legal Affairs Committee on Tuesday after Bill Browder, chief of Hermitage Capital Management, alleged that 26 current and former employees of the Danish lender’s branch in Estonia either knowingly or negligently processed at least $203 million from the fraud against his company.
“The Prosecutor’s Office has studied the documents attached to the report of criminal offense, which was very informative and substantiated,” Perling claimed in an emailed statement. “Now that the criminal investigation has been opened, challenges to tackle are collecting evidence long after the criminal offense was committed, and international cooperation with different countries.”
According to the complaint, which Browder filed July 20, the funds in question transferred into 21 accounts opened for shell companies at Danske Bank in Estonia after transiting through corporate accounts at lenders in Moldova, Lithuania, Cyprus, Ukraine, Hong Kong and Latvia.
The conspirators then allegedly parceled the sum into smaller transactions disguised as legitimate payments to other corporate accounts within the same branch, resulting in an annual turnover of more than $9 billion from 2007 to 2013.
Marko Kairjak, who serves as an attorney and head of banking and finance at TGS Baltic in Tallinn, described the criminal investigation as “exceptional” because the funds did not stay in Estonia and the alleged perpetrators do not appear to have “clear links” to the Baltic nation.
Prosecutors may proceed by dividing staff employees into those suspected of having knowingly opened accounts for offshore firms without ensuring proper due diligence to facilitate money laundering, and those who negligently failed to report suspicious activity to senior managers and the Estonian authorities, Kairjak said.
The first group of employees may face money laundering charges while those in the second group may incur nothing more than a misdemeanor, he said.
Securing the cooperation of authorities in Russia and officials in Panama, the British Virgin Islands and other offshore jurisdictions who may hold information on the beneficial owners of the shell companies used in the scheme constitutes the primary challenge facing Estonian prosecutors now investigating Danske Bank, Kairjak said.
The lender, Denmark’s largest by assets, has acknowledged that flaws in its anti-money laundering program allowed the Estonian branch to process illicit funds for foreign clients from 2007 to 2015, and expects to conclude an internal investigation into the matter by September.
During the hearing on Tuesday, officials and lawmakers discussed plans to shore up Estonia’s anti-money laundering rules, including by enacting unexplained wealth orders—measures that reverse the burden of proof in civil cases to require persons suspected of holding illicit income to demonstrate that their funds are legitimate.
Lawmakers also discussed how to enhance data-sharing between domestic authorities and cooperation with other countries during the course of money laundering investigations, Estonian MP Liisa Oviir told ACAMS moneylaundering.com.
“The lack of exchanging information was probably one of the biggest enablers of the [Danske] situation,” Oviir said, adding that the Legal Affairs Committee may begin considering proposals as early as next month.
The committee also agreed to establish a special panel to investigate the issue of money laundering through domestic banks when Estonia’s Parliament, the Riigikogu, reconvenes in September.
Justice Minister Urmas Reinsalu and representatives of the Estonian Financial Supervision Authority, or EFSA, and Estonian Financial Intelligence Unit also attended the hearing Tuesday.
In July 2015, EFSA ordered Danske Bank to rectify “material and systemic” anti-money laundering violations after examinations unearthed violations of customer due-diligence and transaction-monitoring rules. Danske decided to terminate its highly lucrative nonresident portfolio six months earlier but did not complete the process until January 2016.
Estonian lenders may become more averse to maintaining accounts for foreign national and legal entities in the wake of the scandal involving Danske Bank, Toomas Tuuling, an anti-money laundering lawyer with KPMG in Tallinn, said.
“Big banks will get more conservative than they already are,” said Tuuling. “As a result of these cases banks have significantly reduced business relationships with such clients and in long term very few will be serviced in the future, if any.”
Regulatory pressure has already had a significant impact, according to EFSA.
A spokesperson for the agency told moneylaundering.com in an email that the aggregate value of nonresident deposits in Estonian banks decreased from around 20 percent of the national total in 2014 to just under 10 percent as of this month.
Browder, the U.K. financier, also filed a criminal complaint against Danske Bank in Denmark. He posted on social media Tuesday that Danish authorities have yet to respond to the petition, which he submitted last month.
Estonian prosecutors may also seek to determine whether other banks became “contaminated” with illicit cash after the lender severed ties to nonresident account holders, Kairjak, the Tallinn-based attorney, said.
“If this was a service open to anyone who wanted to launder money, in many cases there will be victims … people from foreign companies that were defrauded and the money was laundered through Danske,” Kairjak said. “That could see lawsuits brought against Danske for years down the line.”
|Topics :||Anti-money laundering , Counterterrorist Financing|
|Source:||Estonia , Russia|
|Document Date:||July 31, 2018|