Denmark, the EU’s cleanest country on paper, got confirmation on Wednesday (19 September) that its top bank perpetrated Europe’s biggest-ever money-laundering scandal.
Danske Bank, which holds a third of all Danish people’s savings, saw its share value plunge.
The affair could see the country’s sovereign debt rating downgraded due to loss of faith in its financial system, raising national borrowing costs.
The Danish government, which ignored warning signs, tried to contain political fall-out by proposing new laws.
But the bad news, which centres around dirty Russian money, is set to keep coming, amid ongoing criminal investigations and threats of US fines.
Denmark was last year ranked second only to New Zealand worldwide in anti-corruption terms by Transparency International, an NGO.
But its good name was dragged through the mud on Wednesday when Danske Bank’s top executives told press in Copenhagen that its Estonian branch had done business with at least 6,200 “suspicious” clients and had handled about €200bn in the period under suspicion.
To put things in perspective, that figure was larger than the GDP of Portugal or than last year’s entire EU budget.
It was also nine times larger than the GDP of Estonia and should in itself have rung alarm bells in Danske Bank’s HQ.
Alarm bells were rung by Estonian, US, and Russian authorities as well as by internal bank staff on several occasions in the past eight years.
But the bank’s CEO, 54-year old Norwegian Thomas Borgen, did nothing about it until years afterward, when he shut down the Estonian branch in 2015.
He did not “come across anything that could give rise to concern” he said at one board meeting in March 2010, according to bank minutes revealed on Wednesday.
Senior staff had told him they “were comfortable with the situation in Estonia with substantial Russian deposits” at another meeting in September 2010.
The information came out in an independent 87-page audit on Wednesday by Danish law firm Bruun & Hjejle.
“I deeply regret this,” Borgen, who resigned on Wednesday, said.
“Unfortunately, we can not change the past,” Ole Andersen, its chairman, said.
The findings were “unacceptable and unpleasant … this case in no way reflects the bank that we want to be”, Danske Bank said in a statement.
It pledged €200m to create a new anti-money laundering foundation in Denmark and Estonia, among other promises, such as making sure that “we will serve only subsidiaries of our Nordic customers and international customers with a solid Nordic footprint” in future.
But its mea culpas did little to reassure markets, which have slashed the value of the bank’s shares by more than 35 percent since the bad news first began trickling out last year and by five percent in initial trading on Wednesday alone.
They might do equally little for S&P, a US ratings agency, which has warned the case might end up affecting Denmark’s AAA credit score.
Both the bank and Danish authorities began taking the matter seriously only when whistleblowers and investigative reporters first shed light on it last year.
But Rasmus Jarlov, Denmark’s trade minister, told press on Wednesday he would hold a meeting the same day to start drafting “significantly sharper” penalties for money laundering.
“It is important to get one of the toughest levels of fines in Europe to signal we’re taking this very seriously, because this case has damaged Denmark’s image a lot,” Lisbeth Bech Poulsen, from the opposition Socialist People’s Party, told the Reuters news agency.
Drilling into more detail, the Bruun & Hjejle audit said the vast majority of suspicious clients came from Russia and from former Soviet states such as Azerbaijan and Ukraine.
It said the Russian clients “were notably from the Moscow region … as well as the St Petersburg region”.
It added that a Danske Bank whistleblower had warned it that some of the shady transactions “included the Putin family and the FSB”, referring to Russian leader Vladimir Putin and Russia’s main intelligence service.
In another warning, by Estonian authorities, as far back as 2007, the Danish bank was told some of the money likely came from “tax and custom payments evasion” and “criminal activity in its pure form, including money laundering”.
At the same time, Danske Bank’s Estonian branch failed to do basic checks, such as asking clients where their money had originated or running their names through international criminal and counter-terrorism databases.
It did this despite the fact that 3,500 of the 6,200 “suspicious” clients showed “significant differences between revenue figures and payment activity” and 1,700 of them had been “associated with money laundering schemes in the public domain”.
Meanwhile, a Danske Bank internal audit, dated 2014, said the Estonian “branch [had] entered into highly profitable agreements with a range of Russian intermediaries where underlying clients are unknown”, but it added “the reason underlying beneficial owners are not identified is that it could cause problems for clients if Russian authorities” got to know who they were.
Danske Bank said on Wednesday that 70 experts from Bruun & Hjejle had trawled through 12,000 documents and 8m emails to get its information.
It said “the total flow of payments [through the Estonian branch] amounted to around €200bn”.
It said the audit could not identify what proportion of the money was “suspicious” despite its wide-ranging scope, but it added: “Overall, we expect a significant part of the payments to be suspicious.”
“Damning conclusions for management, regulators and police in Denmark, Estonia and the EU who all did nothing for eight years while hundreds of billions flowed through,” Bill Browder, a British human rights campaigner said on Twitter.
Browder, in earlier remarks to EUobserver, called the Russian funds “blood money”, because some of the proceeds laundered via Danske Bank were linked to the killing of a Russian whistleblower called Sergei Magnitsky.
But in summing up, the Danish bank’s CEO, Borgen, said on Wednesday: “I have lived up to my legal obligations towards Danske Bank”.
Andersen, its chairman, said the same.
Danish and Estonian authorities will now decide whether they or other bank executives broke national laws in ongoing criminal investigations, which include detailed evidence given by Browder.
But no matter what they say, Borgen, for one, aims to walk away with a bonus for his work.
Danish news agency finans.dk estimated that this would be between €2.8m and €3.6m.
“He will get the bonus, but we cannot confirm the numbers,” a Danske Bank spokeswomen told EUobserver on Wednesday.