The Danske Bank Money Laundering Scandal: A Case Study

Abstract

The case discusses the money laundering scandal at the Estonian branch of Danske Bank, the largest financial institution in Denmark. Danske Bank money laundering scandal is one of the largest money laundering scandal in European history. It began in 2007 following the acquisition from Danske Bank of Finnish Sampo Bank, which also had an Estonian branch. Between 2007 and 2015 over €200bn of suspicious transactions originating from Russia, former Soviet states and elsewhere flowed through its Estonian branch non-resident portfolio. Danske Bank stock price has been declining since March 2017 when the newspaper Berlingske first issued a series of articles on money laundering claims resulting in a significant destruction of shareholder value. Media reports widely misinterpreted the €200bn figure as representing entirely money laundering rather than a combination of legal and illicit transactions. In September 2018, Danske Bank admitted that its procedures for oversight failed completely in this case and that its money laundering controls in Estonia has been insufficient. As a result, the CEO and the Chairman of the Board of Directors stepped down and a number of employees both at the Estonian branch and at Group level were found not in compliance with legal obligations forming part of their employment with the bank and therefore dismissed. On February 2019 the Estonian Financial Supervisory Authority (FSA) intimated Danske Bank to cease its activities in Estonia. At the same time, independently of the notification from the Estonian FSA, Danske Bank decided to cease its activities in Latvia, Lithuania and Russia in line with its strategy of focusing on its Nordic core market. Danske Bank is currently under investigation from a range of authorities and it is expected that Danish, Estonian, European and US regulators will impose penalties. Moreover, twelve former employees in Estonia are under investigation by the Estonian State Prosecutor. Furthermore, in May 2019 the former CEO and other nine group senior managers were preliminarily charged in the case by the State Prosecutor for Serious Economic and International Crime (SOIK). Other European banks (Deutsche Bank, Swedbank, Raffeisen Bank) are being drawn into the case for allegedly helping transfer illicit funds from Danske Bank. It is unclear at this time how long the Danske Bank money laundering case will last or how many entities it will draw in.