ENGLISH: Money-laundering scandal at Danske Bank spreading through the Baltics

The money laundering scandal that has engulfed Denmark’s biggest bank appears to be widening. Anti-money laundering regulations were not just breached in Danske Bank’s Estonian branch - the Lithuanian branch also had large, suspicious sums of money flowing through it. Danske Bank is now promising to examine all three of its Baltic divisions.

Thomas Borgen, topchef i Danske Bank. Fold sammen
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Foto: Linda Kastrup
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Contrary to previous explanations from Danske Bank, the serious money laundering issues that were uncovered at Denmark’s biggest bank have not been limited to its Estonian branch.

Berlingske can now reveal that Danske Bank’s Lithuanian branch also allowed large and highly suspicious transfers of money from a dubious client to pass through an account with the bank.

As with the Estonia branch, this was likely in breach of anti-money laundering rules requiring banks to check their clients for any possible use of money laundering.

»The extent of money laundering through Danske Bank does appear to be far wider and more systematic that we had thought. It makes you wonder just how far this goes,« says Jakob Dedenroth Bernhoft, chief executive of the legal advisory firm Revisorjura.dk and an expert on anti-money laundering law. He has seen the latest information in the case.

Over the past year, as Berlingske revealed that Danske Bank had breached anti-money laundering rules, the bank repeatedly stated that the problems related only to its Estonia branch. But Berlingske has access to documents indicating that the shell company Yellowstone Import Ltd. was a client with Danske Bank Lithuania in 2012 and made several transfers of significant sums of money to an account held by another suspect company at Danske Bank Estonia.

As Jakob Dedenroth Bernhoft points out, Yellowstone is a type of company specifically designed to hide the identity of its true owners. He believes that the company structure in itself, along with the size of the money transfers, should have set off alarm bells at Danske Bank Lithuania:

»Any closer money laundering checks would probably have led to the client being kicked out the door,« Jakob Dedenroth Bernhoft says.

Jeppe Kofod, a Social Democrat member of the European Parliament who is rapporteur for the Parliament’s special committee on tax avoidance, has followed the money laundering case closely. He regards the latest information concerning the Lithuania branch as suspicious:

»With amounts of this size, there’s a real risk that this was crime money and shady business,« Jeppe Kofod says.

»It’s all new to me that the Lithuanian section of the bank was involved in suspicious transactions. Danske Bank did not present this before, and that makes me uneasy. With this sort of new information appearing, it leaves some doubt as to whether they have dealt with the problem,« he says.

Yellowstone Import Ltd. is registered in the British Virgin Islands, a known tax haven, at the same address as a company selling company and fund structures with a high level of discretion for clients. The real owners of Yellowstone Import Ltd. are hidden, but this company also appears in the so-called Offshore Leaks from 2013 when large batches of data from several tax havens were leaked to the press.

Frustrated politicians

Documents held by Berlingske show that, in 2012, this company made several sizeable transfers of money from its account with Danske Bank Lithuania to an account with Danske Bank Estonia held by an equally dubious British company – which also had hidden owners.

According to Berlingske’s information, the top management at Danske Bank was informed of these issues at the Lithuania branch in the winter of 2014, after the bank’s internal auditors uncovered money flows going through Lithuania during an investigation into the Estonian branch.

Joachim B. Olsen, business spokesperson for the Liberal Alliance party, calls it “frustrating that new information keeps turning up”.

»I can only encourage the bank to be as open as possible and use all necessary resources to clean this up once and for all,« he says.

The business spokesperson for the Socialist People’s Party (SF), Lisbeth Bech Poulsen, finds it »deadly tiring and unacceptable that Danske Bank has to be constantly led like a horse to water instead of putting all cards on the table.«

»The management did not report this as a Baltic problem. They said it was purely an Estonian problem. How can the bank’s management expect us to trust them if new information keeps turning up to cast doubt on their explanations?« she asks.

Throughout this case, it has been a central point of Danske Bank’s statements that the breaches of anti-money laundering rules related only to Estonia. As early as March 2017, CEO Thomas Bergen stated to the financial news site FinansWatch that problems were “isolated to Estonia”. And more recently, when the bank launched an extensive investigation into the money laundering issues, the press release indicated only that this review would cover »clients and transactions in the Estonian branch.«

But since Berlingske approached the bank two weeks ago to ask about the Lithuanian money transfers, the bank has now changed its position, stating that it is also now investigating »the other Baltic markets.«

»The anti-money laundering work is complex and extensive, and historically we have not been good enough in this respect, in all areas. There may have been areas in other markets too where we might need to improve our procedures,« says the Danske Bank Head of Group Compliance, Anders Meinert Jørgensen, in an email.

»This case has taught us not to take anything for granted. For that reason, we have already decided to also take a look at the other Baltic markets. And should this review give cause to start an investigation into these markets that is as extensive as what we are doing in Estonia, then of course we will do that,« he states in his email.

The special portfolio

Anders Meinert Jørgensen still maintains that the challenges regarding money laundering controls at branches in other markets should “in no way” be seen as similar to the problems found at the Estonia branch.

“It is still our estimate that the challenges concerning money laundering and non-resident clients (i.e. foreign clients, ed.) relate to a special portfolio which we had in Estonia at that time,” he says.

He does not specifically wish to comment on the information held by Berlingske regarding the Lithuanian client or the indication that the top management was warned of problems in Lithuania as early as 2014.

It is striking for the Danske Bank Lithuania branch to be involved in this case, as the branch was then far smaller than the Estonian branch in terms of both revenues and profits. The Lithuanian branch also did not have foreign clients – »non-resident customers« – to the same extent as the branch in Estonia. Dansk Bank acquired all its present branches in the Baltics with the 2007 take-over of Finnish-owned Sampo Bank.

Berlingske has presented the latest information to Lithuania’s financial regulator, which is part of the country’s central bank, Bank of Lithuania.

The head of this supervisory unit, Vytautas Valvonis, stresses in an email that the country’s legislation prohibits the regulator from publishing information on any company under supervision.

However, he states that the regulator conducted an inspection into anti-money laundering procedures at the Danske Bank Lithuania branch in 2016 and »no basic systemic deficiencies were identified.«

He also states that no enforcement measures have been applied to the Danske Bank Lithuania branch concerning its anti-money laundering controls.

The wider financial sector at risk

The Danske Bank Estonia branch has been under fire for most of the past year:

Last spring, Berlingske along with the Organized Crime and Corruption Reporting Project (OCCRP), the Russian newspaper Novaya Gazeta and other partner media, revealed how billions of kroner had flowed through the bank from companies with ties to the Eastern European country of Moldova in particular.

It is believed that the architects behind the transactions are Russian criminals.

In the autumn, Berlingske, OCCRP and other partners then reported even larger sums of money being moved by the Azerbaijani regime through the bank and on to tax havens and European politicians.

More recently, it was revealed by Berlingske that in 2014 Danske Bank’s own internal auditors had found branch staff to have deliberately concealed the identities of suspicious clients from local authorities. Yet the CEO of Danske Bank, Thomas Borgen, who was Head of International Activities and therefore responsible for the Baltics until 2012, had previously claimed that the opposite was true.

Joachim B. Olsen from Liberal Alliance is concerned that the money laundering scandal has cast a bad light on not just Danske Bank but the entire financial sector as such.

»This case will boost calls for heavier regulation of the sector, which would be unfortunate as it would mean higher costs and in the end cost customers and society a lot of money,« he says.

Translation: Bibi Christensen.