Suspected money-laundering transactions at Danske Bank A/S's Estonian branch contained bank reference codes which indicated which other banks sent and received the funds, and their identities should be revealed, according to the anti-money laundering expert who first examined the money flows.
Shares in the Danish parent — already down 22% over the past 12 months — fell another 6.5% from the previous day's close to 178.6 kroner at midday London time Sept. 7 after the Wall Street Journal reported that investigators were studying $150 billion of transactions which flowed through the accounts of Danske Bank's Estonian branch between 2007 and 2015, much of it from companies with ties to Russia and other ex-Soviet states. Though it has been reported that the bank has not yet determined how much of that sum should be deemed suspicious, Danske's chairman, Ole Andersen, said it was clear the problems with its Estonian accounts were "bigger than it had previously anticipated."
Graham Barrow is the U.K.-based anti-money laundering specialist brought in by Danish newspaper Berlingske to examine leaked accounts which earlier this year showed $8.3 billion was allegedly laundered through Danske's Estonian branch between 2007 and 2015. Bill Browder, of Hermitage Capital Management Ltd., who has waged a campaign to hold Russian authorities to account for alleged money laundering, and the death of his lawyer Sergei Magnitsky, also concluded the sum was $8.3 billion and has filed criminal charges in Denmark and Estonia against Danske Bank for its alleged involvement.
Barrow has worked with numerous banks on anti-money laundering programs, most recently Deutsche Bank AG. He told S&P Global Market Intelligence the statements for many of the bank accounts from Danske Bank's Estonian branch contained the identification codes, so-called Swift references, which identify the country, city, bank and even branch where the money is transferred.
"With the help of other banks, it would be possible to trace the passage of the money from where it originated to where it ended up. So where did billions of laundered dollars come from and where did it go? It's vital we find this out or else the criminals get to keep the money and nothing changes. But it demands international cooperation and that's not an easy thing to get.
"The problem is that the origin and destination of all these transfers are not within the Danish authorities' parameters. No single body has oversight which is why we have to have a pan-European regime to cover money laundering," said Barrow.
Regulators across the EU are discussing how to tighten anti-money laundering provisions which remain under the jurisdiction of the member state concerned. The European Central Bank, the European Banking Authority and the European Commission met in June to discuss the problem. EBA Chairman Andrea Enria and ECB supervisory board Chair Danièle Nouy both support the creation of a pan-European anti-money laundering body.
The weakness of the regulators' current approach was highlighted when it was left to U.S. authorities in February this year to uncover problems at Latvia's ABLV Bank AS bank, which was directly supervised by the ECB, but which US regulators said was being used to fund North Korea's missile program. Dutch bank ING Groep NV admitted this week that criminals had been able to launder money through its accounts and agreed to pay a €775 million fine. In 2012, ING paid a $619 million penalty to U.S. authorities for allowing Iranian and Cuban clients to make billions of dollars of payments through the U.S. banking system.
Danske Bank, which was alerted to the problems in its Estonian subsidiary by a whistleblower in 2013 but widened its investigation in 2017, has admitted flaws in its controls. In July, it said it would forgo profits made from transactions in Estonia which are subject to money laundering investigations.
The Financial Times Sept. 3 published details based on a leak of a report by Promontory Financial Group LLC commissioned by Danske Bank into the activities of its Estonian branch. This showed $30 billion of Russians and ex-Soviet funds moved through the branch in 2013 alone. Danske Bank has since emphasized the need to distinguish between gross money flows in Estonia and suspicious or illegal flows.
CEO not at risk
Danske Bank used two other banks to clear dollars from its accounts as it did not have a dollar clearing license. One, Deutsche Bank, began rejecting dollar transactions from Danske's Tallinn branch in 2014 and withdrew its services a year later, according to a report on Bloomberg. The other bank has not been named. Deutsche Bank's decision to stop providing services coincided with warnings from the Estonian regulator to Danske Bank that the transactions looked suspicious.
Deutsche was fined more than $670 million in 2017 over artificial trades in Moscow, London and New York which the authorities said were used to launder $10 billion out of Russia.
However, Danske Bank's woes are not likely to unseat CEO Thomas Borgen, who was in charge of international banking at the bank from 2009 to 2012 before taking over the top job, according a note from Jefferies Financial Group Inc.
"Our base case attaches a low probability to U.S. fines/chief executive removal after the report releases next month given suspicious transactions have been reported to relevant agencies as Danske find them post the investigation launch last September, while the board must surely have already ascertained management culpability in the intervening period," said Jefferies.
Danske Bank faces a fine of $670 million over the allegations, according to an estimate compiled by Bloomberg from five bank analysts in July.
As of Sept. 6, US$1 was equivalent to 6.42 Danish kroner.