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Danske Bank’s Mea Culpa Over Suspicious Payments May Not End Its Troubles
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An internal report into potential money laundering through the Danish bank Danske, accompanied by the immediate resignation of its chief executive, is dramatic. The problem is that the company doesn’t know what unpleasant plot twists lie ahead.
A long-awaited report about potential money laundering from Danske, Denmark’s largest bank by assets, is damning. The 200 billion euros (around $230 billion) of payments that flowed through its Estonia subsidiary between 2007 and 2015 are even bigger than feared. “A large part” of the 6,200 customers that have so far been examined are classified as suspicious — meaning they displayed obvious red flags such as sharing addresses with other entities regarded as suspect, or suddenly yielded unexplained large payments.
Danske will struggle to convince anyone that it was completely oblivious. Warning lights on its Estonian branch, which it acquired by taking over Finland’s Sampo Bank, were flashed by the local regulator and even the Russian central bank as far back as 2007. Plans to migrate the Baltic banking activities onto Danske’s main I.T. systems were scrapped as they were considered to be too expensive — even though the questionable “nonresident portfolio” often generated over two-thirds of the Estonian division’s annual pretax profit, and in 2011 Estonia generated 10 percent of overall group pretax profit. Over a fifth of incoming funds were from Russia.
Danske’s main problem now is that, with a good portion of the suspicious payments made in dollars, it is virtually guaranteed to receive aggressive pushback from the United States. Worse, it can’t be sure how bad the problem really is. In the most extreme scenario — assuming all the transactions were laundered funds and scaling past fines imposed on Deutsche Bank and BNP Paribas proportionately — the penalty could hit 53 billion Danish crowns (about $8.3 billion), analysts at Jyske Bank predict. But that calculation assumed that the number of suspicious transactions amounted to around $150 billion, rather than the potential new total of $230 billion.
Danske has done one thing correctly. Unlike BNP Paribas, whose chair Baudouin Prot only left after the bank was hit by a $9 billion American fine for violating sanctions, heads have rolled pre-emptively. But as head of international banking activities before stepping up to chief executive in 2013, Thomas Borgen would have had to go anyway. Now, Danske should ready itself for a nasty denouement.
Christopher Thompson is a columnist at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
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