Monday

15th Oct 2018

Denmark's image 'damaged' by bank scandal

  • More than a third of the bank's share value has been wiped out (Photo: danskebank.com)

Denmark, the EU's cleanest country on paper, got confirmation Wednesday (19 September) that its top bank perpetrated Europe's biggest-ever money-laundering scandal.

Danske Bank, which holds a third of Danish people's savings, saw its share value plunge.

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  • Bank's resigning CEO still expects his bonus (Photo: danskebank.com)

The affair could see the country's sovereign debt rating downgraded due to loss of faith in its financial system, raising national borrowing costs.

The Danish government, which ignored warnings, tried to contain political fall-out by tabling new laws.

But the bad news, which centres around dirty Russian money, is set to keep coming, amid ongoing criminal investigations and threats of US fines.

Denmark was last year ranked second only to New Zealand worldwide in anti-corruption terms by Transparency International, an NGO.

But its good name was dragged through the mud on Wednesday when Danske Bank chiefs told press in Copenhagen its Estonian branch had done business with at least 6,200 "suspicious" clients and had handled "around €200bn" in the period under suspicion.

To put things in perspective, that figure was larger than the GDP of Portugal or last year's EU budget.

It was also nine times larger than the GDP of Estonia and should in itself have rung alarm bells in Danske Bank's HQ.

Alarm bells were rung by Estonian, US, and Russian regulators and by internal bank staff.

But the bank's CEO, 54-year old Norwegian Thomas Borgen, did nothing about it for years.

He did not "come across anything that could give rise to concern" he said at one board meeting in March 2010, according to bank minutes revealed on Wednesday.

Senior staff told him they "were comfortable with the situation in Estonia with substantial Russian deposits" at another meeting in September 2010.

The information came out in an independent 87-page audit on Wednesday by Danish law firm Bruun & Hjejle.

"I deeply regret this," Borgen, who resigned the same day, said.

"Unfortunately, we can not change the past," Ole Andersen, the bank's chairman, said.

The findings were "unpleasant ... this case in no way reflects the bank that we want to be", Danske Bank added in a statement.

It pledged €200m to create an anti-money laundering foundation in Denmark and Estonia and to "serve only subsidiaries of our Nordic customers and international customers with a solid Nordic footprint" in future.

But its mea culpas did little to reassure markets, which have slashed the value of the bank's shares by 35 percent since the bad news began trickling out and by five percent in initial trading on Wednesday alone.

They might do equally little for S&P, a US ratings agency, which has warned the case might touch Denmark's AAA credit score.

Danish authorities began taking the matter seriously only when whistleblowers and investigative reporters shed light on it last year.

But Rasmus Jarlov, Denmark's trade minister, told press on Wednesday he would start drafting - the same day - "significantly sharper" penalties for money laundering.

"It's important to get one of the toughest levels of fines in Europe to signal we're taking this very seriously, because this case has damaged Denmark's image a lot," Lisbeth Bech Poulsen, an MP from the opposition Socialist People's Party, told the Reuters news agency.

Details

Drilling into detail, the Bruun & Hjejle audit said the vast majority of suspicious clients came from Russia and former Soviet states such as Azerbaijan and Ukraine.

It said the Russian clients "were notably from the Moscow region ... as well as the St Petersburg region".

It said a Danske Bank whistleblower had warned it that some of the shady transactions "included the Putin family and the FSB", referring to Russian leader Vladimir Putin and Russia's main intelligence service.

In another warning, by Estonian authorities, in 2007, the Danish bank was told some of the money likely came from "tax and custom payments evasion" and "criminal activity in its pure form, including money laundering".

At the same time, Danske Bank's Estonian branch failed to do basic checks, such as asking clients where money had originated or running their names through criminal and counter-terrorism databases.

It did this despite the fact 3,500 of the 6,200 "suspicious" clients showed "significant differences between revenue figures and payment activity" and 1,700 of them had been "associated with money laundering schemes in the public domain".

Danske Bank said 70 experts from Bruun & Hjejle had trawled 12,000 documents and 8m emails to get the information.

It said "the total flow of payments [through the Estonian branch] amounted to around €200bn".

The audit could not identify what part of the money was "suspicious" despite its wide scope, the bank said, but added: "Overall, we expect a significant part of the payments to be suspicious."

'Damning'

"Damning conclusions for management, regulators, and police in Denmark, Estonia, and the EU who all did nothing for eight years while hundreds of billions flowed through," Bill Browder, a British human rights campaigner, said on Twitter.

Browder, in earlier remarks to EUobserver, accused Danske Bank of handling "blood money", because some of the funds it laundered were linked to the killing of a Russian activist called Sergei Magnitsky.

But in summing up, the Danish bank's CEO, Borgen, said on Wednesday: "I've lived up to my legal obligations towards Danske Bank".

Andersen, its chairman, said the same.

Danish and Estonian authorities will now decide whether they or others broke national laws in ongoing criminal investigations, which include detailed evidence given by Browder.

But no matter what they say, Borgen, for one, aims to collect his bonus.

Danish news agency finans.dk calculated it would be between €2.8m and €3.6m.

"He'll get the bonus, but we can't confirm the numbers," a Danske Bank spokeswoman told EUobserver.

Investigation

Illicit Russian money poses threat to EU democracy

It cost €11 million to help Le Pen campaign in elections, but it cost the Russian mafia less than €100,000 to hire a former UK attorney general to lobby against EU sanctions.

EU passport sales create 'proud Maltese citizens'

Malta says its 'Golden Visas' scheme attracts families that want to become "proud Maltese citizens". Meanwhile the sales to Russian nationals, and others, have generated over €700m in revenue.

Dutch refuse Polish arrest warrant over judicial fears

A court in Amsterdam has questioned the independence of the Polish judiciary - turning down a Polish request for a European arrest warrant over fears that the suspect would not a get a fair trial in Poland.

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