Experts involved in the internal investigation of possible money laundering through the Estonian subsidiary of Danske Bank, are analyzing operations for $ 150 billion already passed through it from 2007 to 2015. This is indicated by people familiar with the course of the investigation. Most of this amount came from companies associated with Russia and the former Soviet republics.
Suspicious amounts are growing
Analyzing the activities of the largest Danish bank, experts have not decided whether to consider all $ 150 billion of suspicious funds. However, such an impressive cash flow from non-Estonian organizations suggests that the $ 8 billion amount, which was allegedly laundered through the Estonian unit (the first reported by the Danish newspaper Berlingske), could grow.
In August, the Financial Times wrote that in 2013 alone about $ 30 billion had been transferred through it.
The Financial Supervision Authority of Denmark has previously criticized Danske for its lack of proper supervision and ordered an increase in capital by $ 800 million. The Danish and Estonian prosecutors are conducting a criminal investigation against the Estonian unit. Danske shares fell on Friday trading by 7% after The Wall Street Journal reported the scope of the investigation.
The internal investigation is conducted by the legal adviser Danske, and the specialists of PricewaterhouseCoopers and Ernst & Young help him. Both companies did not respond to requests for comment. Promontory Financial Group, owned by IBM, and Palantir Technologies also help in the investigation. They declined to comment.
"Any conclusions must be made on the basis of confirmed facts, rather than isolated pieces of information torn out of context," says Ole Andersen, chairman of the board of Danske Bank, in a statement. "As we reported earlier, it is clear that the issues related to the portfolio turned out to be more serious than we previously thought."
Experts reported an amount of $ 150 billion to the board of directors. This is an impressive amount for Estonia, given that the total amount of deposits in the country is 17 billion euros ($ 19 billion). As for Russia, which received part of the funds, this amount exceeds the aggregate annual profit of Russian companies. According to the person familiar with the investigation, the money coming from the CIS countries did not stay in the accounts in the Estonian division of Danske and quickly left the country, so they were not fully reflected in the official banking statistics.
The circulation of money in Estonia
Most of these accounts were controlled by dummy companies, many of which were registered in the UK; many accounts were related to people in Russia and other former Soviet republics, say people familiar with the situation. The Office of Financial Regulation and Supervision of the United Kingdom (FCA) does not conduct an investigation into Danske, says a person who knows this.
Danske customers usually transferred funds between several companies that had accounts in the Estonian unit, and then transferred them to the banks of Turkey, Hong Kong, Latvia, the United Kingdom and other countries, says a person familiar with the results of the investigation.
The management of Danske ignored the complaints of correspondent banks and its own informants, said in the report of the Danish regulators made this year. Estonian regulators appealed to Danish colleagues in 2012 and two years later prepared a 200-page report detailing how the Estonian unit of the bank did not even collect basic information about the sources of customer income. "There were a lot of alarm signals," says Kilvar Kessler, chairman of the Estonian banking regulator Finantsinspektsioon.
Only after one bank refused to cooperate with the Estonian unit, Danske closed the Estonian accounts of non-residents in 2015. The current general director of Danske, Thomas Borgen, was responsible for international transactions, including in Estonia, when suspicious transactions occurred. He was appointed head of the head bank in 2013. Borgen declined to comment.
Leaky surveillance
Regulators of the EU for many years did not notice the transfers of such large amounts in large part because of the shortcomings of the European system for combating money laundering, says the founder of the Estonian investment company Cicero Capital James Oates. "Everyone looked the other way, because they considered themselves to be protected, and it turned out not to be so," he says.
The US Treasury Department expressed dissatisfaction with how EU financial authorities are fighting money laundering. In February, it stated that money laundering was one of the main activities of ABLV Bank from Latvia, which, like Estonia, became a major center for transferring money from Russia and other CIS countries to the West. The ABLV management denied that the bank was aware of illegal operations, but it was forced to close.
The Estonian division of Danske is not under direct supervision of the ECB, which in any case lacks the authority to investigate money laundering. As the Estonian authorities note, since the local division of Danske operated as a branch, and not a registered subsidiary in Estonia, their powers were limited and they did not have full information.
The head bank of Danske in September 2017 stated that the Estonian unit operates as a "very independent enterprise and has its own systems, procedures and culture of combating money laundering".
Suspicious amounts are growing
Analyzing the activities of the largest Danish bank, experts have not decided whether to consider all $ 150 billion of suspicious funds. However, such an impressive cash flow from non-Estonian organizations suggests that the $ 8 billion amount, which was allegedly laundered through the Estonian unit (the first reported by the Danish newspaper Berlingske), could grow.
In August, the Financial Times wrote that in 2013 alone about $ 30 billion had been transferred through it.
The Financial Supervision Authority of Denmark has previously criticized Danske for its lack of proper supervision and ordered an increase in capital by $ 800 million. The Danish and Estonian prosecutors are conducting a criminal investigation against the Estonian unit. Danske shares fell on Friday trading by 7% after The Wall Street Journal reported the scope of the investigation.
The internal investigation is conducted by the legal adviser Danske, and the specialists of PricewaterhouseCoopers and Ernst & Young help him. Both companies did not respond to requests for comment. Promontory Financial Group, owned by IBM, and Palantir Technologies also help in the investigation. They declined to comment.
"Any conclusions must be made on the basis of confirmed facts, rather than isolated pieces of information torn out of context," says Ole Andersen, chairman of the board of Danske Bank, in a statement. "As we reported earlier, it is clear that the issues related to the portfolio turned out to be more serious than we previously thought."
Experts reported an amount of $ 150 billion to the board of directors. This is an impressive amount for Estonia, given that the total amount of deposits in the country is 17 billion euros ($ 19 billion). As for Russia, which received part of the funds, this amount exceeds the aggregate annual profit of Russian companies. According to the person familiar with the investigation, the money coming from the CIS countries did not stay in the accounts in the Estonian division of Danske and quickly left the country, so they were not fully reflected in the official banking statistics.
The circulation of money in Estonia
Most of these accounts were controlled by dummy companies, many of which were registered in the UK; many accounts were related to people in Russia and other former Soviet republics, say people familiar with the situation. The Office of Financial Regulation and Supervision of the United Kingdom (FCA) does not conduct an investigation into Danske, says a person who knows this.
Danske customers usually transferred funds between several companies that had accounts in the Estonian unit, and then transferred them to the banks of Turkey, Hong Kong, Latvia, the United Kingdom and other countries, says a person familiar with the results of the investigation.
The management of Danske ignored the complaints of correspondent banks and its own informants, said in the report of the Danish regulators made this year. Estonian regulators appealed to Danish colleagues in 2012 and two years later prepared a 200-page report detailing how the Estonian unit of the bank did not even collect basic information about the sources of customer income. "There were a lot of alarm signals," says Kilvar Kessler, chairman of the Estonian banking regulator Finantsinspektsioon.
Only after one bank refused to cooperate with the Estonian unit, Danske closed the Estonian accounts of non-residents in 2015. The current general director of Danske, Thomas Borgen, was responsible for international transactions, including in Estonia, when suspicious transactions occurred. He was appointed head of the head bank in 2013. Borgen declined to comment.
Leaky surveillance
Regulators of the EU for many years did not notice the transfers of such large amounts in large part because of the shortcomings of the European system for combating money laundering, says the founder of the Estonian investment company Cicero Capital James Oates. "Everyone looked the other way, because they considered themselves to be protected, and it turned out not to be so," he says.
The US Treasury Department expressed dissatisfaction with how EU financial authorities are fighting money laundering. In February, it stated that money laundering was one of the main activities of ABLV Bank from Latvia, which, like Estonia, became a major center for transferring money from Russia and other CIS countries to the West. The ABLV management denied that the bank was aware of illegal operations, but it was forced to close.
The Estonian division of Danske is not under direct supervision of the ECB, which in any case lacks the authority to investigate money laundering. As the Estonian authorities note, since the local division of Danske operated as a branch, and not a registered subsidiary in Estonia, their powers were limited and they did not have full information.
The head bank of Danske in September 2017 stated that the Estonian unit operates as a "very independent enterprise and has its own systems, procedures and culture of combating money laundering".
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