Danske Bank Research Articles

Corporate volunteering of employees as a tool to influence the reputation of a commercial bank

Corporate social responsibility (CSR) in commercial banks plays an important role in improving their reputation, increasing employee engagement and developing corporate culture. The article examines the key features of CSR programs of commercial banks in comparison with companies in other industries, as well as analyzes successful examples of corporate volunteerism and its impact on the bank and society. Corporate social responsibility (CSR) of commercial banks is a strategic approach to integrating social and environmental aspects into the daily activities of banks. The main areas of CSR include financial literacy, improving access to financial services for vulnerable groups, sustainable financing and combating fraud. These programs help to improve the reputation of banks, increase employee engagement and satisfaction, and contribute to solving urgent social and environmental problems. Successful examples of CSR programs include the initiatives of Danske Bank, BNP Paribas and Deutsche Bank, which actively participate in corporate volunteering and other social projects, demonstrating their responsibility to society and the environment.

The tale of the Baltics: Experiences, challenges, and lessons from reforming their national Financial Intelligence Units (FIUs)

The banking sector of three Baltic countries, i.e., Lithuania, Latvia and Estonia, was abused by money laundering scandals between 2018 and 2020. The Danske Bank scandal was the largest one and, combined with the other scandals, inevitably triggered a heavy critique of national anti-money laundering (AML) frameworks that govern the supervision of banking sectors. At the European Union (EU) level, weak mechanisms to ensure the EU-wide supervisory consistency, were also identified. As a result of detected flaws, a new body called The Anti-Money Laundering Authority (AMLA) will be established in the EU as of 2027.This context provides an opportunity to scrutinize the rationale behind AMLA’s establishment, by examining the role that the Baltic countries’ Financial Intelligence Units (FIUs) fulfill in financial surveillance, and the scope of AML reforms that took place in the aftermath of those banking scandals. Could those scandals have been prevented by national FIUs and their supervisory bodies? Whether one Baltic model of FIU exists or rather three different national models are visible? Can AMLA fulfill its mandate without relying on the work carried out by national FIUs and supervisory bodies?Based on extensive interviews with the representatives of the three Baltic FIUs, their supervisory authorities, and content analysis of publicly available sources, this paper offers a unique insight into idiosyncratic characteristics of the Lithuanian, Latvian and Estonian FIUs modus operandi. The findings are that each Baltic FIU was confronted with its own set of problems affecting the fulfillment of these agencies’ statutory duties. However, significant “grass-root” reforms of the AML national frameworks in each Baltic country have already been undertaken.11AML Anti-Money LaunderingBL Bank of LithuaniaCFT Combating Financing of TerrorismEU European UnionAMLA Anti-Mooney Laundering AuthorityECB European Central BankLEA Law-Enforcement AuthorityFIU Financial intelligence unitGDP Gross Domestic ProductFL Finance LatviaPPP Public-Private PartnershipSTR Suspicious Activity ReportUTR Unusual Transaction Report

Blockchain solutions with consensus algorithms and immediate finality: Toward Panopticon-style monitoring to enhance anti-money laundering

Banks can reduce resources spent on anti-money laundering (AML) compliance with blockchain-based transaction infrastructure. We consider AML compliance as a superset of know-your-customer (KYC) and transaction monitoring capabilities. We carried out this research with Danske Bank and Concordium, using internal documents and interviews that served as empirical data. We show how storing digital representations of verified IDs with a blockchain can automate tasks and reduce redundant verification in KYC onboarding. Blockchain transparency also improves identifying counterparties, determining funds sources, and creating alerts in transaction monitoring. These reduce time and labor costs for AML compliance, which may lead to smaller banks. When more banks commit to layer-1 blockchain technology, the benefits of blockchain-based AML will increase. We carried out this theory-based qualitative research and encourage ECRA readers to recognize that the emerging technology innovations we study in this article have not yet been widely adopted and implemented by financial services firms. We also include a theoretical model with study hypotheses to make the main constructs that we investigate easily understood by non-technical ECRA readers. The findings we have developed are consistent with early-stage exploration in our research context and are intended to encourage more well-developed empirical results as the passage of time permits such work to be undertaken.

Working with pride in the shadow of shame: Emotional dissonance and identity work during a corporate scandal

The relationship between emotions and identity work is well established, yet the dynamic between emotional dissonance and identity work remains under-researched in organizational studies. We explore this relationship in the context of organizational scandal, examining the required and experienced emotions of organizational members when ‘working in the shadow of shame’. Drawing on an in-depth ethnographic study of Danske Bank collected at the peak of its money-laundering scandal, the article makes two contributions to the emerging interest in the intertwined nature of emotions and identity in organizations. First, we challenge the literature on emotional dissonance by demonstrating that employees do not attempt to resolve or reduce their emotional dissonance, but instead sustain it. Second, we advance the literature on identity work by showing how emotional dissonance can be understood as a trigger and resource for strategic and preferred identity work to maintain a positive social identity and self-identity.

НАПРЯМИ ВИКОРИСТАННЯ ШТУЧНОГО ІНТЕЛЕКТУ У БАНКІВСЬКИХ УСТАНОВАХ

Today many banking institutions have faced various challenges related to the impact of the financial and economic crisis, the crisis due to the coronavirus pandemic, the unstable political situation of countries, etc., which in turn has led to the undermining of the efficiency of the financial sector of states. The answer to each of these negative factors was the rapid development of digitalization, which was characterized by the creation of new information and communication technologies aimed at optimizing the work of financial institutions, including banks.Thanks to such innovations, banks are able to work online, simplify work with large data sets, improve protection against cyberattacks and fraud, implement scoring systems, etc. That is why the authors' appeal to this topic is relevant and in demand today.The purpose of the research is to define, describe and describe in detail the key directions of using artificial intelligence in banking institutions of Ukraine and the world based on examples of real banks.Within the framework of this article, the main directions of using artificial intelligence (AI) in banking institutions were revealed, the key ones of which are: cyber security, chatbots, credit solutions, analysis of market trends, data collection and analysis, analysis of customer experience, risk manage-ment, compliance with regulations requirements, predictive analytics, process automation. Examples of the use of AI technologies by the world's leading banks are given, in particular: algorithms based on artificial intelligence, which are able to quickly detect a fraud attempt, used by the Danish bank "Danske Bank"; the use of chatbots, for example, the technological chatbot"Erica", which is implemented in the operations of the American bank "Bank of America"; scoring, examples of the use of this technology are the "ZAML" platform, which was developed by the American company "ZestFinance", as well as the scoring platform of the Swedish company "BehavioSec", etc. Taking this into account, the consequences of the introduction of artificial intelligence in the banking sphere for the banking institution, investors, customers and employees were revealed

Approaching the Danske Bank Scandal in a “Tragedy of the Commons” Perspective: Implications for Anti-Money Laundering Institutional Design and Regulatory Reforms in Europe

Abstract Policy- and law-makers worry increasingly about how recent money laundering scandals unfolded. There is widespread confusion, though, about what went wrong – “the failures” – and uncertainty as to how to control and cope with them. This article offers a conceptual framework and legal analysis for examining the underpinning “failures”, what causes them, and how, if at all, those failures interact with each other. In doing so, it disentangles three layers, namely “corporate failure”, “supervisory failure”, and “political failure”. Historically, scholars have tended to think of each of those failures separately. However, we believe that a greater focus should be devoted to whether and how the three failures exhibit interactions and even feed on one another. This holistic perspective reveals that scandals such as the one in Danske Bank might result from a type of “tragedy of the commons” in which each layer – corporate, supervisory, and political – generate significant asymmetries of information between parties and actors, exacerbating the agency problems which pervade financial markets. The article will apply Elinor Ostrom’s IAD (Institutional Analysis and Development) framework as to account for the complexity and interconnection in financial markets. Such framework is used to examine the recent developments in policy- and law-making in European anti-money laundering legislation. Not only does the IAD framework explain how the supervisor failure escalated and spilled over but it also sheds new light on why it happened. Together these insights are critical in a legal policy evaluation as they allow scholars to look pass the mere effects of the supervisory failure and focus diligently on the underlying causes. From a purely methodological perspective, it thus demonstrates the added value of incorporating an institutional analysis in doctrinal legal research.

The Complexities of VAT Grouping

This article deals with developments in 2021 in respect of the impact of VAT grouping on the VAT treatment of intercompany transactions. The main development in 2021 was the ECJ decision in Danske Bank in which it was ruled that a transaction between a Danish VAT group and a Swedish branch was in scope of VAT. The decision makes it more important to determine whether a VAT fixed establishment is in place and whether a VAT group is in place. The Italian tax authorities appear to be going even one step further by also treating transactions between a local fixed establishment and a non-EU VAT group as being in scope of VAT. The implementation of a VAT grouping regime in France also broadens the implications of Danske Bank. A pending case at the Dutch Supreme Court may change this, as it is being questioned whether the current limitations under the concept of VAT grouping may form a breach of fundamental EU principles on freedom of establishment, but proceedings have not been in the taxpayer’s favour so far.

Behind the Stigma Shield: Frontline Employees’ Emotional Response to Organizational Event Stigma at Work and at Home

AbstractWe investigate how frontline employees manage their emotional experiences of organizational event stigma as an implication of organizational wrongdoing. Our research is based on a longitudinal case study of Danske Bank, which was involved in a money laundering scandal of historical magnitude. We evoke Goffman’s epistemological understanding of stigma as arising in social interactions in all aspects of life. We analyse the emotionally straining spill‐over effects of stigmatization at home, as event stigma blurs individuals’ work–home boundaries. Our study shows how frontline employees develop a ‘stigma shield’, that is, emotional detachment strategies used at work and at home to protect against the negative implications of event stigmatization and maintain their organizational pride and loyalty. Interestingly, we find that the stigma shield enables identity protection rather than identity restructuring in response to the identity threat posed by the scandal. We contribute to the literature on organizational event stigma and identity threat by offering a theoretical lens focusing on individual‐level emotional responses to ‘felt’ stigmatization among frontline employees in an organization facing scandal.

Danske Bank: Will EU VAT Grouping Survive to Reverse Skandia?

In this article, the author explores a number of issues arising from the recent decision of the European Court of Justice (ECJ) in Danske Bank. Following this judgment, intra-entity supplies fall, in principle, within the scope of VAT if one establishment is a member of a VAT group, thereby recognizing the so-called “reverse Skandia” doctrine. The impact of the case is significant from a theoretical standpoint, although it remains to be seen whether it will actually change the current approach to Skandia in the European Union. In any event, the current state of ECJ jurisprudence will not make taxable persons’ VAT affairs any easier in the absence of legislative intervention. In the meantime, the judgment in Danske Bank is likely to bring new pressures to bear on taxable persons making use of branch structures across the European Union. If irrecoverable VAT charges start hitting internal flows that used to be disregarded, taxable persons may legitimately wonder if, in some cases, it may be better to de-VAT group or not VAT group at all.

Извинения в современном датском языке и культуре

The article examines the communicative phenomenon of apologizing in the context of the Danish culture as revealed in contemporary Danish serials, novels and the corpus of the Danish language. The Danish communication style, which derives from such cultural values as equality, naturalness, downrightness, and the craving for hygge unhampered by discord, affects the use of different forms of apologizing in various instances of communication. Undskyld, the most frequent apology formula, is taken as the most sincere acknowledgment of one’s fault, and occurs in metalanguage apologies, conventional and true apologies. Another frequent formula, jeg er ked af, carries not only an apology but also a compassion. Phrases jeg er ked af, jeg beklager often occurring in official parlance, written communication and public apologies testify to the urge to shun a moment of awkwardness, while shedding responsibility for misconduct. The adverb virkelig ’really’, as well as the use of the modal ma, which adds insistency to the apology, act as major intensificators in apologies. The article analyzes public apologies made by prime-ministers on behalf of the State, as well as those made by representatives of the Danske Bank and statesmen. Of paramount importance in public apologies made on behalf of the State is the type of communication (mass, public, group) as well as political aims which determine communicative strategies. Public apologies made by well-known persons and organizations are largely aimed to win the public trust and to restore the lost prestige.

Reforma sistema kripto licenci u Estoniji i predlog Uredbe o tržištima kripto imovine

As part of the EU's Digital Finance Strategy, the European Commission's proposed Regulation on Markets in Crypto Assets is currently going through its first readings in the Council. The goals of this regulation include protection of the customers, promoting innovation, unification of the regulation of cryptocurrencies at the EU market, etc. However, in parallel with this normative initiative, Estonia is already mulling the overhaul of its entire system of crypto-licensing. A Danske bank scandal demonstrated weaknesses of the current cryptolicensing and it is now on the Estonian government, as the first EU government to encounter this kind of situation, to try to improve current regulation. In this article, both MiCA and the roots of the potential overhaul of crypto-licensing in Estonia will be analysed.

US sanctions and the right to use bank accounts in European banks for
 non-residents of the European Economic Area

The article considers the decision of the Helsinki County court on the claim of a Finnish citizen to be granted the right to use banking services in Finnish banks from the international law perspective. The Helsinki district court, in its decision promulgated on 13.01.2020, rejected Boris Rotenbergs claim against Svenska Handelsbanken AB, Nordea Bank Abp, Danske Bank, and OP Yrityspankki Oyj. The court recognized the financial risks of a Finnish citizens Scandinavian banks under US sanctions above international law and fair trial guarantees. There is no doubt that this court decision will have further consequences in the judicial proceedings of Western banks for foreigners who do not permanently reside in the European economic area (EEA), and in other similar cases, and in ensuring the judicial practice unity in EU countries. First of all, this applies to any foreigners who do not have the right to permanent residence in the EU countries, but who have real estate in the form of investments or regularly come for a holiday. Previously, buying real estate in Europe was considered a reliable investment of foreign funds and a guarantee for obtaining banking services in Western banks. Based on this legal precedent, the European courts can now recognize the risks of secondary US sanctions against any banks, not only in the case of Russians from the SDN sanctions list, but also on any suspicion of money laundering by bank employees. The courts decision was based primarily on the testimony given by the former head of OFAC, who stated that even before the decision was made in 2017, the US administration already had a legal tool for punishing foreign individuals and legal entities who interact with Russians on the SDN sanctions list. As long as the US dollar is one of the main currencies in the settlements between the states, the US Treasury will control not only the dollar transactions, but also the very principle of the global banking system functioning. This court decision may become the first legal precedent for most European banks in the EU countries wherein the real estate of foreigners who do not live in the EEA countries is located, regardless of their citizenship and residence permit.

The EBA's Relationship with Member States in the Banking Union Framework: Supportive or Disruptive?

The establishment of the Banking Union (BU) and of the Single Supervisory Mechanism (SSM) have pressured the EBA into an ‘existential search’ (Ferran 2016, 286) as to the value of its policy output on the side of supervision. At the same time, these developments have accentuated the ambiguities in the EBA’s internal and external setting. The first relates to the anchoring of the EBA’s executive level to national competent authorities (NCAs) and their capacity to disproportionately influence internal decision-making processes, while the second cautions about the capacity of the ECB to influence SSM-participating countries at the EBA negotiating table. In this context, arguably, the accomplishment of the EBA’s ‘existential search’ depends on its relationship with member states, with the core contention being: do member states support or disrupt the EBA's policymaking on the side of supervision? With this in mind and focusing on the internal dimension of the EBA’s relationship with member states in the BU framework, this paper first departs from Art. 16 of the EBA Regulation examining how NCAs inform the development of guidelines related to the Supervisory Review and Evaluation Process (SREP) – the backbone of the common supervisory culture. It then reflects on Art. 17 of the same regulation that spells out the authority’s supervisory enforcement powers, by analysing the course of action of national authorities in connection to the alleged breach of EU law proceedings in the Danske Bank case. The paper argues that the EBA’s relationship with member states appears supportive on the side of supervisory convergence, whilst the enforcement side reveals an adversarial dimension.

Danske Bank—A Smorgasbord of Risks

In September 2018, Danske Bank, the largest bank in Denmark and one of the largest in the Nordic region, published a report which detailed that the bank’s board had fallen into lapses in Anti-Money Laundering/Counter Terrorism Financing (AML/CTF) policies at the bank, in particular, within its Estonian subsidiary. The report was devastating in its criticism of AML processes in the Estonian branch, stating that, over a period of several years, “all lines of defence failed” to manage money laundering risks. Soon after the publication of this report, the CEO of Danske resigned, causing the details of the underlying scandal to become public knowledge (although some the issues involved had been aired publicly on a number of occasions previously). It was also revealed that the bank had become the subject of criminal investigations by US authorities. While the events that are covered in the initial report related to failures to manage AML risks, the situation is more complex than merely deficient AML controls in a remote branch. There was a failure to manage a smorgasbord of different types of risks at both the local and group (i.e., headquarters) level, including: strategic risks; technology risks; and especially operational risks. As befits a sophisticated modern financial institution, Danske Bank operates a group-wide enterprise risk management (ERM) framework covering multiple types of risk (credit, market operational, etc.). The fact that the failure to manage the AML risks took several years to come to light casts doubts on the efficacy of their ERM framework and its implementation. Using Turner’s case study approach, this paper considers the Danske Bank case from the perspective of operational risk management with a view to identifying lessons that can be learned from the scandal that can be applied to future, large-scale operational risk events.

The Danske Bank Money Laundering Scandal: A Case Study

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.

VAT Fixed Establishments in 2020: A Call to Action!

With two new interesting referrals to the ECJ in Danske Bank and Bank of China, the field of VAT could seriously be shook once again. In this article, the authors put these new referrals in perspective of the ground-breaking Skandia and Morgan Stanley cases and discuss the potential impact for financial institutions.

The evolving role of compliance: How companies need to enforce their three lines of defence to protect the business

Despite the increasing legal and regulatory requirements for financial institutions within the European Union, scandals surrounding compliance and corporate governance failures are continuously being revealed. Apart from significant fines and monetary losses as well as reputational damage for the concerned organisations, such scandals lead to pressure on legislators and international (supervisory) bodies to again further increase regulatory requirements. This paper describes the Three Lines of Defence Model within organisations in connection with the Danske Bank scandal and outlines key principles that can serve as the basis to strengthen the compliance environment and culture within organisations to prevent major scandals.

The bank-sovereign nexus: Evidence from a non-bailout episode

Abstract We explore the interplay between sovereign and bank credit risk in a setting where Danish authorities first let two Danish banks default and then left the country’s largest bank, Danske Bank, to recapitalize privately. We find that the correlation between bank and sovereign credit default swap (CDS) rates changed with these events. Following the non-bailout events, the sensitivity to external shocks, proxied by CDS rates on the European banking sector, declined both for Danske Bank and for Danish sovereign debt. After Danske Bank’s recapitalization, its exposure to the European banking sector reappeared while that did not happen for Danish sovereign debt. The decoupling between CDS rates on sovereign and private bank debt indicates that the vicious feedback loop between bank and sovereign risk weakened after the non-bailout policies were introduced.

Microservices: Migration of a Mission Critical System

An increasing interest is growing around the idea of microservices and the promise of improving scalability when compared to monolithic systems. Several companies are evaluating pros and cons of a complex migration. In particular, financial institutions are positioned in a difficult situation due to the economic climate and the appearance of agile competitors that can navigate in a more flexible legal framework and started their business since day one with more agile architectures and without being bounded to outdated technological standard. In this paper, we present a real world case study in order to demonstrate how scalability is positively affected by re-implementing a monolithic architecture (MA) into a microservices architecture (MSA). The case study is based on the <italic xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">FX Core</i> system, a mission critical system of Danske Bank, the largest bank in Denmark and one of the leading financial institutions in Northern Europe. The technical problem that has been addressed and solved in this paper is the identification of a repeatable migration process that can be used to convert a real world Monolithic architecture into a Microservices architecture in the specific setting of financial domain, typically characterized by legacy systems and batch-based processing on heterogeneous data sources.

Financial Cash-Flow Scripting: Beyond Valuation (Presentation Slides)

Financial Cash-Flow Scripting: Beyond Valuation (Presentation Slides)