Question

What are the facts involved in Danske Bank's Estonian Branch money laundering activities?

Answer 1

We will look at the facts of Danske Bank's Estonian money laundering activities through following questions

1) What was the incident and how much money was laundered?

Money laundering scandal in Danske bank's Estonian branch came to light in 2017-18. It was found that roughly 230 billion euros worth of transaction happened between Russia and Azerbaijan, UK and other nations. Money was laundered between 2007-2015 by employees of the Estonian Branch of Danske Bank. These transactions, linked to the Russian Government, were done through shell companies in United Kingdom, New Zealand and Cyprus. UK was the largest holder of non resident portfolios in which money flowed while another significant non-resident portfolio has been linked to Azerbaijan President and his family. This is considered to be the largest money laundering incident in the world.

In 2007 Danske Bank acquired Estonian branch of Finnish Bank as part of a merger between the two companies. Even after the acquisition the IT system of Estonian branch was not merged with Danske bank and Estonian branch continued to use its old systems. Due to a huge language barrier, Danske bank did not impose its own IT systems on Estonian bank as it believed that changing the IT system might hamper the performance of the Branch, even when it meant that Danske bank would not have enough control in Estonian transactions because of differences in systems. Taking advantage of the difference in IT systems and a huge language barrier between Estonia and Russia, employees of Estonian branch kept laundering money for 8 years.

2) How was it discovered?

The incident first came to light when a whistleblower, Howard Wilkinson, ex head of trading of Estonian Branch claimed that its branch was used to transfer money from the family of Russian president Vladimir Putin and Russian secret service to Azerbaijani. The claims were not looked into properly as Danske bank believed that their Anti-Money laundering measures were sufficient to mitigate risks of transactions in non resident customer account.

Following the report of 2013, JP Morgan stopped all its transactions to its Estonian Branch suspecting that huge amount of money was laundered to Russia by its branch. Following such events the Estonian Financial Supervision Authority (EFSA) started investing the matter and found that "large-scale, long-lasting systemic violations of anti-money laundering rules" had taken place in Estonian branch of Danske bank and reported its findings to Danish authorities.

3)What were the repercussions ?

Investigations continued by Danish authorities till December 2018 when it arrested 10 former employees of Estonia branch,of Danske bank. It further directed the bank to close their Estonian branch in 2019.

In May 2019, the CEO of Danske bank, Thomas Borgen, who had resigned from the company in 2018, was charged by Danish authorities for neglecting his responsibilities. Former finance director of Danske Bank, Henrik Ramlau-Hansen, was also charged for not preventing the suspicious transactions even after the reports of the whistleblower.

The Danish Parliament has subsequently increased the penalties by eight times for money laundering cases, making them the toughest in Europe. It is also expected that they will charge a multi billion dollar fine on Danske bank on top of several other criminal charges. Danske bank's share value shrunk by 50% in 2018 amounting to an erosion of $15 billion.