Danske Bank: Much has been written about the Danske Bank case with last weeks fine of US$2.1 billion long expected and well trailed. It’s previously been reported that Danske Bank’s Estonia Branch facilitated the movement of around US$227 billion (€200 million), of which US$160 billion was processed via US Banks in New York and a large amount of the balance in Euros in the EU, much of it suspected as originating from Russian sources. These funds came from in aggregate at any one time thousands of non resident accounts in Danske Bank’s Estonia Branch each year which from 2007 until 2015, which made up in total about 10,000 active accounts in this period. Of these accounts, approx 80% were opened in the name of companies from places like the British Virgin Islands & the UK, designed it has been suggested to obscure the true ownership of the funds passing through the accounts. Whilst these funds have often been suspected as laundered funds, how much of this was actually laundering is unclear though the suggestion has always been a significant amount was likely related to kleptocrats, organised crime, tax evaders but a lot was also for those otherwise interested in moving money abroad for reasons that could be described as including capital flight, which entails the same modus operandi as for transferring illicit funds. According to Danish authorities suspicious transfers were as a minimum at around US$2 billion. Others have suggested much larger amounts, but without figures from law enforcement, only speculation is possible. Set out below are some important takeaways and points of interest.
- The overall aggregate fine was US$2.15 billion, which represented the 4th highest AML related fine this century. Taking the amounts related to claims from the Danish authorities at US$678 million, this represented the 3rd largest AML fine outside the US behind Westpac’s US$900 million fine in Australia in 2020 & Goldman Sachs ABC related fines in 2020 for 1MDB in Malaysia, HK & Singapore; And the largest in the Nordics exceeding the Swedbank fine of US$107 million also in 2020. The period concerned where accountable conduct was sanctioned started in 2007/8 and lasted until 2016, which is the equal third longest period of all 80 material AML related fines this century, at 9-10 years with only 2 cases longer at 11 years each.Danske Bank accepting criminal liability for Fraud against US Banks, which follows prior recent guilty pleas, e.g. Goldman Sachs Malaysia in 2020, & Rabobank & US Bancorp in 2018. Because Danske Bank was not present in the US, the usual basis by which a fine & penalty would have been levied was not possible. Bank Fraud charges followed, with Danske Bank defrauding 3 US Banks through lies & misrepresentations in order to maintain US correspondent accounts. This approach has echoes of the case against the CFO of Huawei, Wanzhou Meng who admitted to conspiracy to commit Bank Fraud by misleading Banks about one of Huawei’s subsidiaries activities with Iran. According to the US$678 million fine levied in Denmark, for violations of Danish laws including AML laws, based on weaknesses in AML systems & controls, DBE, “in the period before 31 Jan 2016 carried out transactions for a number of the [DBE’s] suspicious non-resident customers for an amount not less than DKK14 B (US$2B).
- The US Banks, “defrauded” by Danske Bank, were not identified in the recently reported case documents, but have previously been reported as being JP Morgan, Bank of America & Deutsche Bank USA. US authorities reported Danske Bank “lied to US banks about its deficient AML systems, inadequate transaction monitoring capabilities, & its high-risk, offshore customer base in order to gain unlawful access to the US financial system.” According to reports, JP Morgan had banked DBE until 2013, when it decided to exit the relationship, based on AML risks. Danske Bank found another US Bank, who didn’t check with JPM, to take over their role, thought to be Bank of America. Deutsche Bank also exited its relationship later in 2015, as did BoA.
- The case against Danske Bank & the basis upon which the criminal liability was established may impact the US Correspondent banking market. The Wolfsberg Group have published materials (including updated CBR FAQs 2022) on how the arrangements & relationships between correspondents should be maintained which includes the need for, “clear & open communication related to FCC matters & the provision of complete and accurate due diligence information”’ & the Wolfsburg Due Diligence Questionnaire attestation states, “answers provided in this Wolfsberg CBDDQ are complete and correct to my honest belief”. This case suggests corespondents need to ensure AML threats risks & programme weaknesses, as well as actions to close gaps, their status & regular updates are fully disclosed, are accurate & not misleading.
- As the amounts levied against Danske Bank were based on frauds perpetrated on 3 US Banks, the US$1.47 billion has been taken largely as forfeitures in the US. In theory the 3 US banks may have a claim against the US Treasury’s Forfeiture Fund, at least where losses or expenses have been incurred in connection with investigations and enquiries were concerned, as they were the victims of the fraud. Notwithstanding any claims being made, which are frankly unlikely though would make things interesting, the credit to the US Treasury coffers will boost US asset recovery and asset forfeiture figures for 2022 at a time when international focus on asset recovery has never been as important with the new FATF President, making asset recoveries a new focus area.
- Far too many opportunities arose which were missed to address the high risk non resident customers in the Danske Bank Estonia Branch. These started with the merger with the Finnish Sampo Bank in 2007 which included its Estonian subsidiary. Another opportunity arose when the Estonian regulator (EFSA) raised concerns about the business in 2007 (as had the Russian Central Bank) which were confirmed in an examination by EFSA in 2009. The EFSA sent the Danish Financial Supervisory Authority (DFSA) a letter reporting AML concerns in 2012. Many more red flags would still follow, including when a US bank exited CBR accounts in 2013, an internal whistleblower report in 2014, more US bank exits in 2015, audits and investigations confirming the US Banks and whistleblower concerns being reported to regulators which lead to first fines by the EFSA in 2015 and leading the DFSA to report Danske Bank to Danish Police in 2016. US authorities opened a criminal investigation in 2018.
- An internal whistleblower raised concerns in 2014 which in time helped exposed this matter. The whistleblower, Howard Wilkinson has since been lauded by third parties. After years of investigations his allegations have been vindicated. It’s not clear whether Wilkinson has a right to any award under the US SEC’s program for “whistleblowers” as part of the Danske Bank fine which includes fines to the SEC, which since it’s inception in 2012 has paid out US$1.2 billion to 249 individuals. Since the passing of the US AML Act 2020 awards are also available for AML reports. An amendment passing the Senate in December 2022, and if passed into law would see qualified whistleblowers receiving awards of “not less than 10%” of the sanctions collected.
- In 2018 Danske Bank announced it was committed to making a donation equal to the gross income from the none resident customers at its Estonian branch from 2007-2015 which was estimated at DKK1.5 billion/US$200 million to an independent foundation, “which will be set up to support initiatives aimed at combatting international financial crime including money laundering also in Denmark and in Estonia”. Following the announcement of the fine in 2022, Danske Bank announced that, as the full amount (i.e. the DKK1.5 billion), “has been confiscated and/or disgorged by the authorities, the bank will not make a donation towards an independent foundation” but that, “we will, of course, continue to share knowledge, best practice, and insights about combating international financial crime in the relevant fora.”
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