Wednesday, January 30th, 2019
Estonia arrested 10 ex-employees of a local branch of Danske Bank, accusing them of laundering €200 billion from non-residents.
The arrests cap an international investigation led by authorities in Denmark, Estonia, Britain, and the United States that continue to investigate payments totaling €200 billion, or $229 billion, that were made between 2007 and 2015 at a tiny Estonian branch of Denmark’s largest bank. The arrests mark the first major move in this evolving money laundering scandal. It was reported on Friday that France also may start a criminal investigation into payments that were handled at Danske Bank.
Since the scandal and word has spread that Danske Bank faces a hefty fine form the U.S. Department of Justice, the financial institution’s shares plunged nearly 50 percent since March. The dive eliminated $15 billion off Danske Bank’s market value.
Estonian authorities have alluded to more arrests in the future, noting that the large money laundering scheme was “systematic, coordinated, and targeted.”
The former employees who were arrested are all citizens of Estonia. When they worked at the bank, they were client managers, who are considered the first line of defense in preventing these types of schemes. All are accused of being participants in a network that facilitated streams of dirty money funneling through the Estonian branch of the bank.
Bank Sued Following the Scandal
On Wednesday, a U.S. shareholder sued Danske Bank and four former top executives, accusing Denmark’s largest bank of defrauding investors and inflating its share price by hiding and failing to stop widespread money laundering at its Estonian branch.
The Glen Falls, New York-based pension fund, the Plumbers & Steamfitters Local 773 Pension Fund, filed a lawsuit in the U.S. District Court in Manhattan by a New York. The pension fund is seeking class-action status, as well as damages for investors in Danske’s American depositary shares from Jan. 9, 2014 to Oct. 23, 2018.
The bank’s former Chief Executive, Thomas Borgen, former chairman, Ole Andersen, and two former chief financial officers were named as defendants in the suit. Borgen resigned last September following an internal probe that uncovered about $231 billion worth of payments being made between 2007 between 2015 through its small Estonian branch and concluded that many payments appeared suspicious.
In the complaint, the pension funds accuses Danske Bank of being “intentionally less than forthcoming” to Danish regulators even after the financial institution was notified of suspected money laundering. At the same time, the bank also overstated its legitimate profitability and ability to prevent misconduct.
There is a lesson to be learned from this scandal. No entity is safe from money laundering, but there things banks can do to thwart some of these scandals. Entities should review and update their compliance programs and avoid the types of actions and governance issues that impacted Danske Bank. Banks also should not turn their heads away from companies that can offer automated technological solutions.
Despite efforts to make the payments industry safer and better regulated, this scandal shows that sector has a lot more work to do.
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