Regional Report: Danske Bank books nearly $2 billion to settle investigations by authorities at home, abroad in historic money laundering scandal: quarterly report

The Skinny:

• Denmark’s largest bank stated it is setting aside an additional 14 billion Danish kroner (DKr), or roughly$1.9 billion, as a settlement figure to resolve domestic and foreign investigations tied to one of the largest money laundering scandals in history.
• Danske Bank has been under investigation in several countries including the United States over 200 billion euros ($220 billion) in payments through its branch in Estonia between 2007 and 2015, many of which the bank has said were suspicious.
• The money laundering scandal and related investigations have resulted in Estonia booting Danske out of the country and has spawned aggressive investigations by authorities in the Nordic and Baltic regions, Europe and the United States. The Danske bank scandal also spawned parallel probes against institutions leading into or out of Danske, particularly Swedbank and Deutsche Bank, among others.

Denmark’s largest bank stated it is setting aside an additional 14 billion Danish kroner (DKr), or roughly$1.9 billion, as a settlement figure to resolve domestic and foreign investigations tied to one of the largest money laundering scandals in history.

Danske Bank has been under investigation in several countries including the United States over 200 billion euros ($220 billion) in payments through its branch in Estonia between 2007 and 2015, many of which the bank has said were suspicious.

To read the full update in the company’s third quarter report, click here.

The money laundering scandal and related investigations have resulted in Estonia booting Danske out of the country and has spawned aggressive investigations by authorities in the Nordic and Baltic regions, Europe and the United States.

The Danske bank scandal also spawned parallel probes against institutions leading into or out of Danske, particularly Swedbank and Deutsche Bank, among others.

The scandal has sacked some top leaders at banks in Denmark and Sweden and cast regulators in the regions in harsh lights, even as these financial watchdogs work to levy statement-making penalties against the institutions involved.

Not surprisingly, the EU Commission and Parliament have voiced concerns and put forth formal measures to create a pan-bloc AML enforcement body that would put member state regulators, not just banks, in the hot seat for compliance failures.

The latest provision for a pending multijurisdictional settlement takes the total amount of money Danske Bank has booked for scandal-related probes to 15.5 billion DKr, or $2.1 billion, which would make it one of the heftiest anti-money laundering-related (AML) penalties ever.

Some of the largest U.S. AML and sanctions penalties include HSBC at $1.9 billion in December 2012 and BNP Paribas at $9 billion in 2015.

Danske must fear the regulatory reaper – beyond just the U.S.

Nordic and Baltic regulators have also levied significant AML fines in the hundreds of millions of dollars.

In 2018, ING, the Netherland’s largest financial institution, paid Dutch authorities 775 million euros, or $900 million, in a historic settlement for broad failures in its financial crime compliance controls that allowed illicit groups to launder an estimated hundreds of millions of dollars for years.

In the penalty, ING Groep admitted to “serious shortcomings” in its anti-money laundering (AML) programs that allowed criminals to launder money “for years,” according to bank statements and government documents.

In the settlement agreement with the Dutch Public Prosecution Service, ING has agreed to pay a fine of €675 million and €100 million for disgorgement.

The bank violated laws created to stop terror groups and illicit financiers “structurally” by failing to adequately investigate aberrant transactions highlighted by monitoring systems and by giving short-shrift to source of funds and beneficial ownership obligations between 2010 and 2016, according to the actions.

The bank listed a bevy of “broader shortcomings” of the AML compliance program, which it is pledging to correct, including:

• Fumbling files: CDD files missing or being incomplete.
• Risk ranking: Assignment of incorrect risk classifications.
• Out of order: Failure to have the periodic CDD review process in order.
• Timely exit: Failure to exit business relationships in a timely manner.
• Transaction tracking: Insufficient functioning of the post-transaction monitoring system.
• Segmentation frustration: Classifying clients in the wrong segments.
• Data doldrums: Insufficient availability of qualitative and quantitative human resources.

The penalty is not the bank’s first rodeo with authorities for AML and sanctions foibles, though ING added that it doesn’t expect the U.S. Securities Exchange Commission, the country’s top trading cop, to follow on with additional penalties.

In 2012, ING paid $619 million to U.S. authorities for moving billions of dollars through the American financial system for blacklisted Iranian and Cuban clients.

Denmark action against Danske will be measured against aggressive regional regulatory actions

Last year, Dutch authorities hit the country’s third largest bank with a penalty of more than a half a billion dollars for longstanding failings in nearly every area of its fincrime compliance program, including lax customer risk scoring, shoddy alert investigations and missed reports of potential suspicious activity.

The NPPS fined Amsterdam-based ABN Amro Bank for 480 million euros, or just less than $583 million, for falling “seriously short” of AML compliance program requirements and being considered “culpable” in aiding criminal groups in cleansing ill-gotten gains.

The settlement, however, while lifting one specter of uncertainty for a banking group more than 300 years old, still left lingering tethers of risk in one of the most feared arenas of compliance enforcement: individual liability.

The NPPS stated at that time the investigation into the individuals responsible is ongoing, but the agency has already identified three former members of the bank’s board of directors as being “effectively responsible” for the AML violations.

The takeaway for bank bigwigs: Depending on the final tally of evidence gathered, top compliance executives, the C-suite and the typically aloof, insulated and protected board members could be criminally prosecuted for money laundering.

Investigators stated that between roughly 2014 and 2020 – and even during a massive retooling, restructuring and staffing ramp up of AML in 2019 – ABN Amro stumbled when it come to compliance.

Those prolonged and pervasive failings – including customer due diligence and risk scoring, alert investigations and dispositions and filing of reports on suspicious activity – gave carte blanche to “clients engaged in criminal activities…for a long time.”

With regulators hitting multiple banks – they band together to survive, see bigger picture

In response to these penalties and regional and international regulatory pressures, some banking groups have started to collapse silos in and outside the bank.

The result: formerly branded banks banding together across institutions to share information on customers – including potentially risky and fraudulent individuals and entities – and interweave AML, fraud and cyber teams to better tackle crimes in a holistic, convergent manner.

In 2019, several of the largest Dutch banking groups chose not to go Dutch when fighting financial crime on the heels of massive European money laundering scandals that have snaked suspicion and scrutiny to regions like Amsterdam and the Netherlands.

Financial services giants including ING Groep NV, Rabobank and ABN Amro Bank NV – all banks in recent years that have been hit by U.S. or home country financial crime compliance penalties – crafted a joint venture to share information.

In the initiative, the institutions started sharing data about transactions occurring across multiple banks and jurisdictions in an effort to better identify the telltale signs of illicit activity and broader ties to larger interconnected organized criminal groups.

The name of the facility, with overarching stewardship from the Dutch Banking Association (NVB), was Transaction Monitoring Netherlands (TMNL).

At that time, NVB estimated that 16 billion euros in funds tainted by criminals is circulating in the Netherlands, most of which is connected to the illicit drugs trade, a “serious social problem.”  

In the new transaction monitoring facility plans, banks would be more aggressively cooperating with the Financial Intelligence Unit (FIU), the Public Prosecution Service, FIOD and for example ministries.

In recent years, under AML obligations, the banks have been reporting nearly 70,000 unusual transactions annually to the FIU, with an estimated 15,000 of these transactions described by the FIU analysts as suspicious.

The five banks involved handle 9.8 billion payment transactions every year, amounting to 27 million transactions every day.

The fight against money laundering and the financing of terrorism is a major priority for the banks.

Apart from the banks taking responsibility themselves, effectively dealing with money laundering requires a national (chain) approach.

“The banks see it as an important public duty to help solve this problem,” NVB Chair Chris Buijink said in a statement at the time of the announcement. “They want to rid their systems of criminality and are investing heavily in” in compliance, technology and monitoring systems to that end.