Overview and Background of the Danske Bank Money Laundering Scandal
Danske Bank A/S was founded in 1871 as Den Danske Landmandsbank, Hypothek- og Vexelbank i København (The Danish Farmers' Bank, Mortgage and Exchange Bank of Copenhagen). Headquartered in Copenhagen, it is the largest bank in Denmark and a major retail bank in the northern European region with over five million retail customers.
In 2007, Danske acquired the Finnish bank, Sampo Bank, for €4.05 billion. The acquisition gave Danske Bank control of Finland’s third largest bank, but crucially included Sampo’s existing operations in the high growth areas of Lithuania, Latvia, Estonia and Russia.
Just months after the acquisition, Estonia’s financial regulator criticized Danske Bank for underestimating compliance risks and having problems with know-your-customer (KYC) rules. Russia’s central bank also warned Danske that the Estonian branch was being used for dubious transactions either for widespread tax evasion or money laundering to the tune of billions of rubles a month.
In 2010, Thomas Borgen, then head of international banking in charge of Estonia and later chief executive of Danske, advocated for increasing the non-resident business, which was mostly focused on customers from Russia and other ex-Soviet states. Borgen’s advocacy was in spite of serious reservations held by Danske’s executive board regarding the high level of suspicious activity reported from Estonia, but, later in 2010, managers agreed they were “comfortable” with “substantial Russian deposits” and the share of the Estonian branch’s profits coming from foreign money began to increase dramatically.
It is now clear that Danske Bank executives turned a blind eye to their own internal controls around money laundering so the bank could reap the profits from fees associated with the dubious and potentially illegal accounts in the Estonian branch.
In 2018, authorities in Denmark, Estonia, France, and the United Kingdom launched investigations related to large-scale money laundering through Danske Bank. The bank also faces a criminal investigation from the United States Department of Justice related to over €200 billion of illegal money transfer schemes involving non-resident Eastern European and Russian customers in the Bank’s Estonian Branch. It has been reported that a substantial portion of the non-resident money flow can be attributed to money laundering schemes to facilitate kleptocratic capital flight out of Russia.
Information about critical lapses in Danske’s ‘know your customer’ and anti-money laundering internal enforcement policies, and its failure to act upon both internal and external warnings of non-compliance, caused a more than a 40% decline in Danske’s stock price resulting in losses for investors measured in tens of billions of Danish kroner (billions of US dollars).