Review of Danske Bank Case Study: Money Laundering and Terrorist Financing Risks

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1. What indicators in the case would make you suspicious of money laundering or terrorist financing?

2. What weaknesses can you identify in Danske Bank’s Anti-Money Laundering (AML)/Counter-Financing of Terrorism (CFT) compliance framework?

3. What should/could Danske Bank had done to minimize its exposure to money laundering and terrorist financing risks?What measures has Danske Bank taken to minimize future exposure to money laundering and terrorist financing risks?

4. More recent global money laundering issues stem from illegal wildlife trade and human trafficking.What are some measures that global financial institutions can take to ensure that they are not used as intermediaries in facilitating financial flows relating to these areas?  Feel free to support your response with references to appropriate narrative such as newspaper articles, books, parliamentary discussions of public record, published or audio commentary, etc.  The page limit excludes the list of references.

The Estonian branch of Danske Bank, Denmark’s biggest bank, closed the accounts of several companies in 2013 after realizing they had been used by a member of Vladimir Putin’s family and Russia’s intelligence service, the FSB, to launder huge amounts of money, according to a leaked report.

A whistleblower had informed the bank’s Executive Board that the anti-money laundering procedures at its Estonia branch had completely failed and that the bank may “have committed a criminal offense” by aiding a company that had made several suspicious transactions and whose actual owners “included the Putin family and the FSB.”

While Danske began its own investigation last September, its senior management is currently facing outrage from Danish politicians as to why the bank did not act more quickly in addressing long-standing concerns over the operations of its Estonian branch.

In the most recent development, Estonian prosecutors declared on 27 February that they would open an investigation into whether Danske had failed to inform the country’s financial authorities about money laundering linked to key Russian politicians and the FSB. Estonian financial regulators first investigated Danske over such allegations in 2014.

Danske Bank Estonia is already implicated in other money-laundering schemes, involving billions of dollars from Azerbaijan flowing through the branch, some of which ended up in the pockets of European politicians who praised the Baku regime, a chronic human rights abuser.

Another investigation — the Russian Laundromat — revealed that US$20–80 billion was moved out of Russia through a network of global banks, including Danske.

The latest revelations come from the whistleblower report that was recently obtained by the Danish newspaper Berlinske and shared with the OCCRP and the Guardian.

It says that the company Lantana Trade LLP had in 2013 falsely reported to the UK Companies House that it had a low turnover and was dormant. In fact, huge sums of money passed through Lantana’s account with Danske Bank on a daily basis – the account, opened in 2012, had operated for 11 months.

Questions in the Case Study

The branch failed to establish who controlled the company which had made “suspicious payments just under compliance control limits,” according to the whistleblower's account.

Asked how serious the bank’s failure was, International financial investigator, L Burke Files, said “on a scale of 1 to 10 — it was an 11.”

“The activity in the account was in every way indicative of money laundering – many large transactions and all of them done in one or two days — money did not linger,” he explained.

Up to ten million dollars could have been laundered through the scheme on a daily basis for the period of the account’s operation.

Only after the transfers were already made, the branch launched an internal investigation that revealed who the company’s owners really were. The report says that the owners, hidden behind offshore management firms in the Marshall Islands and Seychelles, “have been involved with several Russian banks that had been closed down in recent years.”

One of the banks mentioned was the little-known Promsberbank, based near Moscow, that lost its license in 2015, the same year Lantana was dissolved. Promsberbank then collapsed in 2016 after it transpired that some three billion rubles had disappeared from its accounts.

One Promsberbank’s board members was Vladimir Putin’s cousin, Igor Putin, who also sat on the board of the Russian Land Bank, RZB, which was involved in the Russian Laundromat scheme.

Among Promsberbank’s shareholders were Alexei Kulikov, who was arrested in 2016 for “large-scale fraud” and Alexander Grigoriev, a banker with FSB ties and one of the masterminds behind the Russian Laundromat. He was arrested for money laundering in 2015.

All three were linked to the so-called mirror-trades affair at the Deutsche Bank’s Moscow division, which ran a $10 billion scheme that allowed selected Russian clients to convert rubles into dollars.

During the investigation, the Danske Bank's branch conducted, an account manager flew to Moscow to find out who really owns Lantana but left the meeting at the company’s headquarters shaken and reported that the clients were “furious.”

A few days later, bank staff was warned by unidentified Russian-speaking people in Tallinn against "walking home alone at night."

Soon after, the Estonian branch closed the accounts of Lantana and 20 other companies with which it had exchanged very large sums of money — including some involved in the Deutsche Bank scandal.

An email from September 2013 seen by Belingske was sent internally in the Estonian branch to order the closing of Lanatana’s account:

Please do not transfer funds or perform any securities transaction on the following accounts.”

The message also applied to twenty affiliated companies that had accounts in the branch and with which Lantana exchanged very large amounts of money. The companies were dubbed the “The Lantana Group” and amongst them were companies called IC Financial Bridge, Cherryfield Management LTD, Chadborg Trade LLP, and Ergoinvest LLP. These companies were also implicated in the Deutsche Bank “mirror trading” scheme.

According to Berlingske's information the Estonian authorities were notified about the companies.

I am not in a position to comment on specific companies. Generally speaking the purpose of such money laundering schemes is to move the funds out of Russia, to get the money in to the western financial system and do it in an untransparent and secretive manner,” says Madis Reimand, Head of Financial Intelligence Unit of the Estonian Police.

What happened in Estonia?

Danske Bank’s probe into its Estonian branch last year came only after other money laundering affairs there became known — and some believe it is too little, too late.

It is “very bad,” said Files. “Someone chose not to look or investigate.”

Danske said on Monday it was still investigating what was going on in Tallinn and that it had closed the portfolio involving Russian non-residents.

On the basis of what we know now, we should have done this faster,” the bank said in a statement.

Today, we have a very different and stronger control setup in Estonia.”

We have launched a thorough investigation to get to the bottom of the events at that time in our Estonian branch. We are unable to comment the matter further, until the investigation has finalized” — stated Danske Bank when approached for comment.

Furthermore, we are unable to comment on specific customers, but the entire portfolio in question (non-residents) has been closed down. As we have previously said, on the basis of what we know now, we should have done this faster. Today, we have a very different and stronger control setup in Estonia.”

Source: https://www.occrp.org/en/investigations/7698-report-russia-laundered-billions-via-danske-bank-estonia

Recent Update

The Estonian Prosecutor's Office confirmed on Thursday (January 16, 2020) it expanded the investigation into money laundering through Danske bank’s Estonian branch from two to more than 10 cases that are involving suspicious transactions worth US$ 2 billion.

Prosecutors were previously looking into suspect money flows worth $300 million relating to two separate cases.

After media broke the story about extensive money laundering in the Estonian branch of Denmark’s biggest bank, Danske launched an investigation into 15,000 of its customers and 200 billion-euro (US$222 billion) worth of transactions.

In 2018, the bank admitted that it 6,200 customers had hit the most risk indicators and that most of them have been found to be suspicious. Most of the customers were from Russia and other post-Soviet countries.

The scandal triggered worldwide probes and lawsuits.

The bank closed its branches in the Baltics and promised to cooperate with investigators.

The spokesperson of the Estonian Prosecutor's Office, Olja Kivistik, could not tell OCCRP whether this is the final amount of money and cases that will be investigated.

We are not willing to speculate if there will be more cases as this investigation is still ongoing,” she said in a telephone interview.

Estonian authorities are collecting data on possible offenses committed in a number of countries, including Azerbaijan and Georgia, according to the country’s business paper Ärileht.

We of course continue to cooperate with the authorities and make ourselves - and the knowledge we have - available to the investigations,” Danske said in a statement, according to Reuters.

Source: https://www.occrp.org/en/daily/11456-estonia-danske-bank-money-laundering-probe-expands

Financial Institutions caught in the Russia Money Launder Scandal globally

Several European banks have been drawn into money-laundering allegations centered on dirty Russian money. Much of the information about their possible involvement was made available to media outfits by The Organized Crime and Corruption Reporting Project, or OCCRP. Investigations into the scandal are under way in the Baltic nations, the U.S., the U.K. and the Nordic countries. Below is a list of the main banks touched by the scandal. The International Monetary Fund has estimated the amount of money laundered globally per year to be 2 percent to 5 percent of global GDP, or as much as $2 trillion.

Denmark’s biggest bank admitted in September that much of about $230 billion that flowed through its tiny Estonian unit between 2007 and 2015 was probably suspicious in origin.

The lender is being investigated by the U.S. Department of Justice and the Securities and Exchange Commission, as well as by authorities in Denmark, Estonia, the U.K. and France.

Swedish broadcaster SVT alleged that almost $6 billion in suspicious transactions flowed between Danske Bank and Swedbank in 2007-2015, linking the Swedish bank to Danske’s

$230 billion money-laundering scandal. The bank is being investigated by the financial supervisory authorities of Sweden and Estonia. It is also being probed by Sweden’s Economic Crime Authority for allegedly breaching insider information rules.

The biggest Nordic bank allegedly handled about 700 million euros in potentially dirty money, with funds arriving from failed Lithuanian bank Ukio Bankas and heading to shell companies in countries such as the British Virgin Islands and Panama, according to Finnish broadcaster YLE. Investor Bill Browder filed complaints with Nordic authorities in October alleging $405 million of suspicious funds flowed via the bank. Sweden decided not to investigate but Finland has yet to say if it will.

The Dutch bank was aware of the potential involvement in money laundering of one of its clients at its Moscow branch, newspaper Trouw reported, with the fresh allegations coming out just months after the lender paid a $875 million fine related to the crime. Hundreds of millions of euros passed through the bank’s Moscow branch as part of a money laundering scheme constructed by Troika Dialog, the newspaper said, citing OCCRP. The company in focus is Cypriot Popat Holdings, which had an account at ING’s Moscow branch from 2006 until at least 2013, Trouw says. The Dutch financial crimes police declined to comment on whether it was investigating the bank.

Between 2005 to 2012 more than 500 transfers of funds from the so-called Troika Laundromat amounting to about $150m were sent to accounts at Credit Agricole in Geneva, newspaper Tages-Anzeiger, a part of the OCCRP, reported. The newspaper said the accounts were registered under five letter box companies, always with the same executives. Credit Agricole said its Indosuez Wealth Management unit respects rules relating to the fight against money laundering, without specifically addressing the details in the report.

More than $889 million went from accounts at Deutsche Bank to those of the so-called “Troika Laundromat” between 2003 and 2017, according to German daily Süddeutsche Zeitung—part of the OCCRP journalist group. The report comes on top of regulatory scrutiny of Deutsche Bank’s role as a correspondent bank in Danske Bank’s money-laundering scandal and a probe by German prosecutors of its involvement in a tax-evasion scheme unmasked by the Panama Papers in 2016.

KBC Group NV

Lithuanian bank Ukio Bankas passed 10 billion euros between 2006-2009 through so-called correspondent accounts at ING Belgium, KBC, and BNP Paribas Fortis, Belgian magazine Knack reported. Belgium’s KBC said it ended the correspondent banking relationship with Ukio in July 2010. It said confidentiality accords prevent it from sharing details about individual customers, and that as a correspondent bank, it’s not supposed to know customers of its respondent banks and may rely on the knowledge of the clients’ activities and the anti- money laundering procedures at that relation bank, while carrying out a risk-based monitoring.

The Austrian bank that’s among the biggest foreign lenders in Russia is the main target of a filing by the Hermitage Fund, detailing $634 million allegedly transferred to it from Lithuania’s Ukio Bankas and from the Estonian unit of Danske Bank. Hermitage said the bank ignored signs that should have triggered money-laundering prevention measures. Raiffeisen has launched an internal probe, yet also points out that Hermitage has filed similar allegations before and that they were dismissed by Austrian authorities.

The Troika Laundromat moved about 190 million euros through a unit of the Dutch bank that became part of Royal Bank of Scotland, Dutch newspaper Trouw and magazine De Groene Amsterdammer reported. All assets, data and clients of the unit became the legal responsibility of RBS in February 2008, ABN said. RBS is looking into the allegations of money laundering at ABN Amro entity it acquired during the financial crisis, Chairman Howard Davies said in an interview on Bloomberg Television.

About 43 million euros were paid to the Rabobank account of Dutch yacht builder Heesen for construction of two boats for Russian senator Valentin Zavadnikov, according to newspaper Trouw and magazine De Groene Amsterdammer. The money came from the Troika Laundromat scheme, the media outlets said. The Dutch financial crimes police declined to comment on whether it was investigating the bank.

The Dutch unit of the Turkish bank processed 200 million euros in transactions that came from two Lithuanian banks that were at the center of the Troika Laundromat, the Dutch media outlets reported. It was not immediately clear if it was being investigated.

Source: https://www.bloomberg.com/news/articles/2019-03-06/these-are-the-banks-caught-in-the-russia-money-laundering-scandal

 Timeline Of Events 

Date	Event
8 June 2007	The Russian Central Bank writes to the Danish financial regulator stating concerns that clients of Danske Bank “permanently participate in financial transactions of doubtful origin” estimated at “billions of rubles monthly”. The letter is forwarded to Danske’s executive management and board of directors.
August 2008	Danske Bank decides not to migrate its Baltic banking activities onto the group’s IT platform. As a result, the Estonian branch does not use the AML procedures, transaction and risk monitoring developed at group level.
27 December 2013	A whistleblower in the Estonia branch reported to the board of directors that the branch is “knowingly dealing with criminals”.
March 2016	Danish financial regulator reported Danske Bank to law enforcement for breaching its AML rules.
20 March 2017	Media publicizes transactions at Danske Bank in connection with money laundering case.
5 September 2017	Media publicizes transactions at Danske Bank in Estonia.
21 September 2017	Danske Bank expands investigation of Estonia branch.
11 October 2017	Danske Bank placed under AML investigation in France.
December 2017	Danske Bank fined Kr12.5 million (US$1.9 million) by Danish prosecutors for violating AML rules.
25 January 2018	Danske Bank no longer placed under AML investigation in France.
5 April 2018	Lars Morch, Executive Board member and Head of International Banking Division resigns from Danske Bank
3 May 2018	Danish financial regulator requires Danske Bank to: § hold additional capital to account for compliance and reputational risks; § conduct risk review of customers and transactions; and § Assess the quality of management and employee compliance.
19 September 2018	Danske Bank A/S publicizes that about €200 billion that flowed through its Estonia branch between 2007 and 2015 were suspicious. As a result, the Bank donates Kr1.5 billion (US$0.3 billion) and revises its financial outlook downwards.
1 October 2018	Danske Bank appoints interim CEO (Update: Danish financial regulator rejects the new appointment on October 17).
4 October 2018	US Department of Justice launches a criminal investigation into the Estonia branch.
6 November 2018	Shareholders requests to convene an extraordinary general meeting to change the board of directors. (Update: Board

Date	Event
	Chairman and Chairman of Audit Committee step down on November 11).
19 November 2018	Jesper Nielsen, Acting CEO, participates in money laundering hearings in the Danish and the European Parliaments.
28 November 2018	Danske Bank is preliminarily charged by the Danish State Prosecutor for Serious Economic and International Crime (SOIK) with violating the Danish AML Act in the case relating to the Estonian branch
7 February 2019	Danske Bank is placed under formal investigation again in France.
19 February 2019	Danske Bank closes its banking activities in the Baltics (Estonia – under orders by the Estonian Financial Supervision Authority, Latvia, and Lithuania) and in Russia.