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Massive Money Laundering Scandal Rocks Denmark, EU

Denmark’s largest financial institution Danske Bank may be in the middle of what could be Europe’s biggest money-laundering scandal yet to hit the European Union threatening Denmark’s AAA credit rating and “could hurt the reputation of Denmark’s entire financial system,” the LA Times reported last week.

“And at the epicenter is its tiny Estonian unit, which the bank reported on Wednesday handled as much as $234 billion of funds from 2007 to 2015 — a figure that’s almost nine times the Baltic nation’s gross domestic product.”

LA Times; September 19, 2018

Danske Bank Group Baltic branches include Lithuania, Latvia, and Estonia and “began operating in 2008 after Finnish Sampo Bank was acquired by Danske Bank Group in 2007,” but announced in April of this year it was leaving the Lithuanian banking market.

An anticipated internal report released September 19 found that the AML, Anti-Money Laundering, procedures “at the Estonian branch were “manifestly insufficient and inadequate,” resulting in numerous breaches of legal obligations,” citing details about “numerous red flags that allegedly should have alerted the parent Danske Bank Group (“Group”) to the issues,” according to Ballard Spahr’s blog Money Laundering Watch.

While the report concluded that none of the Group’s “Board of Directors, Chairman, Audit Committee, or Chief Executive Officer” violated “legal obligations … to detect or stop the suspicious transactions” the CEO Thomas Borgan resigned the day of the report’s release. However, the blog site continues, “the consequences of this colossal money laundering scandal are unlikely to stop with Brogan’s resignation.”

The 87-page report is, in-part, a conclusion of a year’s long investigation which primarily focused on “Non-Resident Portfolios,” which included portfolios that dated back to the 1990s that were a part of the Finnish Sampo Bank Danske Bank Group acquired in 2007 and were managed at the Estonia branch, looking at 10 years’ worth of 10,000 non-resident customers and 87 million transactions from 2007-2015, and conducted interviews with 49 individuals.

From 2007 to 2015 the flow converted into EUR for the 6,200 customers reviewed equaled 200 billion Euros. Investigators say the majority of these transactions are believed to be suspicious.  Further, thousands of more customers — those presenting the fewest risk factors — still remain to be investigated.

In addition, the report notes several notorious money laundering schemes allegedly utilized the Estonian branch, including:

1) Russian shell companies processed funds for a member of Putin’s family and FSB;

2) former Italian member of the Parliamentary Assembly of the Council for Europe, Luca Volontè, processed a bribe from Azerbaijani officials in exchange for orchestrating a 2013 defeat of a resolution regarding political prisoners in Azerbaijan; and

3) allegations made by Hermitage Capital Management that high-ranking officials in the Russian Government laundered $230 million from the tax fraud uncovered by Sergei Magnitsky.

The report does not provide conclusive discussions of these events.

Money Laundering Watch; September 20, 2018

For a full run down scope on suspicious activities, contributing and red flag AML violations, and possible consequences of the internal report investigation of Danske Bank money laundering scandal, read the Money Laundering Watch report here.

Danske Bank is just the latest of several money laundering scandals to rock Europe and the European Union big banks. Another bank in Estonia, Versobank, had its license withdrawn by the European Central Bank (ECB) for “serious breaches of EU Anti Money Laundering rules” in March.

Last year Deutsche Bank was fined almost $700 million “for helping wealthy Russians move about $10 billion of out of their country,” according to the LA Times report, while Bloomberg adds that “may have been key in stalling the Danske’s laundromat” operation.

ING Group, a Dutch multinational banking and financial group located in Amsterdam, agreed to pay almost $900 million in fines this month to end an SEC investigation without any action or enforcement, which came the day after ING agreed to pay a European fine of 775 Euros ($897.3 million), according to a Wall Street Journal report on September 5th, saying the U.S. Securities and Exchange Commission “declined to comment.”

The final total on the Danske Bank scandal is far from determined at this point. Estimates for its European fines are at about $630 million, however, the scandal has spread to the U.K., while the U.S. eyes whether any involved have broken any U.S. sanction laws, but are otherwise willing to let the ECB and European authorities take the lead until further investigations are complete. Final estimates are ranging upwards of possibly $800 million.

Meanwhile, as Denmark lawmakers, the European Union Parliament and the European Central Bank are still being rocked by this latest massive scandal, they are continuing to revamp and tighten their AML laws while this latest scandal produces calls for increases in fines and tougher penalties for banks and financial institutions caught in money laundering schemes.

Denmark’s parliament are agreeing to increases up to 700 percent in fines as the scandal threatens its reputation on the world’s stage as one of the lowest for corruption and rated second in the most transparent and its S&P AAA credit rating is put into jeopardy.

The specter of a sovereign ratings downgrade hung over lawmakers’ heads on Sept. 19 as they agreed on measures that include raising bank fines by 700 percent. Prime Minister Lars Lokke Rasmussen said the same day that the Danske case is far from over. It “doesn’t end here,” he said.

The sense of shock throughout Denmark’s political establishment was palpable as lawmakers across party lines expressed dismay and underscored the need to take a tough stance. The laundromat case has unsettled a country generally associated with some of the world’s lowest levels of corruption and highest levels of transparency. It’s also left the European Union wondering what went wrong.

Bloomberg; September 23, 2018

On A Side Note (Opinion)

Welcome to The Morning Canary! 😀

Basically nothing is changing, except I got a really cool yellow canary picture I am going to start using. We may have to think of a name for him. On weekends, we’ll take our Canary into the In Case You Missed It News, where we can go from any hard news we may have missed, or travel into the silly or the absurd. No telling where that little bird will fly.

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