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Danske Bank’s notorious Estonian branch housed hundreds of U.S. taxpayers and businesses amongst its portfolio of suspicious non-resident-customers, states an internal legal memo that Berlingske has access to.
The »comprehensive memorandum« is dated to the beginning of 2019 and was prepared by Danske Bank's lawyers in various countries where the bank was and is being investigated by authorities for failing to comply with anti money laundering rules.
The legal memorandum covers »Danske Bank’s regulatory, criminal and civil exposure from the Estonian Branch’s conduct« and states regarding the ties to the U.S.:
»Initial analyses have been performed per the investigations, and until now 630 NRP (non-resident-portfolio) customers have been identified as having U.S. ties. All 630 NRP customers are subject to ongoing investigation. So far, of the 630 NRP customers, 413 have been identified as U.S. persons,« Sullivan & Cromwell, the bank’s law firm in the USA, writes in the memo.
As the memo is two years old the number of customers as well as other details may have changed in the meantime.
According to the lawyers the existence of customers with U.S. ties points to the risk that the branch – which has already been linked to several high-profile criminal cases – may have been used for tax evasion in the United States. If this is the case it can have serious legal consequences for the bank, the memo states.
»In the event that findings reveal that proceeds of tax evasion were laundered through the Estonian branch, exposure may arise in the United States,« the lawyers write.
»Such exposure may take the form of, among other things, withholdings on U.S. source payments and may lead to charges by U.S. prosecutors as an act in furtherance of tax conspiracy,« the memo says.
The lawyers specifically refer to the American FATCA regulation that prohibits financial institutions all over the world from helping U.S. citizens evade paying their taxes.
»Among other things, a failure to perform in-depth due diligence and collect information necessary to identify ultimate U.S. beneficial owners of financial assets, and the subsequent failure to report, may constitute an independent violation of the U.S. Foreign Account Tax Compliance Act (»FATCA«),« the memo says.
Experts are surprised to learn about the existence of U.S. persons in the Estonian branch which was closed in 2019 as a consequence of the scandal. So far the bank and its Danish lawyers Bruun and Hjejle have described the customers as citizens of Russia and various former Soviet republics such as Azerbaijan or Ukraine while US customers have not been mentioned in public.
»The presence of a sizable number of U.S. persons among the customers of the branch should be a significant red flag to both U.S. law enforcement and regulators,« says Robert Kim, Senior Analyst at Bloomberg Law, part of Bloomberg Industry Group and former manager of the Bank Secrecy Act enforcement program at FinCEN.
He adds that: »The Department of Justice would certainly want to investigate whether any of these U.S. persons used the branch for transactions linked to financial crimes with a U.S. nexus.«
Eleni Tsingou, professor with special responsibilities at Copenhagen Business School says that she is »actually a bit surprised that we haven't heard about the presence of US customers at all.«
»Obviously it is interesting that Danske Bank's own attorneys are flagging this as something important that needs to be considered as a legal risk,« she says.
The report does not state whether tax evasion has in fact been documented in the mentioned cases – and if so, whether the Estonian branch was co-responsible.
Reported to authorities
Danske Bank's chief compliance officer, Philippe Vollot, emphasizes in a written reply to Berlingske that the memorandum is »an external and confidential legal advice, which the bank received more than two years ago in connection with our investigation of the Estonia matter.«
»The facts and findings from our investigation on which this older, legal advice was based have long since been shared with the authorities investigating the bank. As previously reported, we have since continued our investigations and regularly reported all material findings to the relevant authorities,« he says and adds that:
»This situation does not change the seriousness of the Estonia case or our regret for what happened. As we have previously communicated on several occasions, we continue to cooperate with authorities in the United States, Denmark, France and Estonia, and hence we cannot due to legal reasons specifically comment on these matters. We have also kept and will continue to keep the market up to date on significant developments,« says Philippe Vollot, Chief Compliance Officer at Danske Bank.
In the memorandum the law firm in the US, Sullivan & Cromwell, go through Danske Bank’s various other legal risks that may have arisen from several years of breaches of money laundering regulation in the Estonian branch.
According to the lawyers there are plenty of ways for the U.S. authorities to establish so called nexus and investigate the bank for various offenses: This applies, for example, to the large volume of transactions in U.S. dollars through the Estonian branch, and the flow of transactions exchanged directly between customers in the Estonian branch and US taxpayers or companies which in the report is estimated at 10.5 bn. USD in total.
According to the lawyers »criminal proceedings in the U.S could be based on statutes and regulations governing money laundering, sanctions, tax evasion and some other theories of liability.«
A potential fine for money laundering would however require that it can be evidenced that the money was in fact proceeds of crime and that employees of the bank had some sort of knowledge of the illegal activities, the lawyers state.
Since the memo was written the bank has made public that the investigation has found no examples of violation of sanctions and that the U.S authorities have therefore closed this part of the investigation.
Translation Michael Lund and Eva Jung