The Danish bank has been reprimanded by the country's financial regulator following a money laundering scandal in the lender's Estonia operations.

Denmark’s financial regulator yesterday told Danske Bank it needs to bolster its capital by DKK5 billion ($803 million), and imposed eight orders and eight reprimands on the lender following a money laundering scandal at the bank’s Estonian branch.

"Our investigation shows that there have been serious deficiencies in the bank's governance. The bank acted too late on information concerning the lack of anti-money laundering measures and on suspicion of criminal activities of customers, which it received from sources that include an internal whistle-blower," Jesper Berg, director general of the Danish FSA, said in a statement. 

"The bank's governance has not ensured that the problems in Estonia have been handled in a satisfactory way, including by reporting suspected crime to the relevant authorities," Berg said.

Danske Bank has found itself at the epicentre of a money laundering scandal in the Baltic region, drawing criticism from its shareholders and executive board. Estonia’s financial watchdog in February said it would open an investigation into the lender after media reports claimed it had been aware of money laundering allegations at its Estonian business as far back as 2013. (As reported last week, earnings tumbled at the lender.)

Explaining its view that Danske Bank needs to boost its capital buffer, the FSA said: “The Danish FSA also notes in the decision that the conduct of Danske Bank's management has damaged the bank’s reputation.”

The bank said that in addition to the initiatives already taken in recent years, it will launch further measures to ensure that it complies with all orders.

“We take the criticism expressed by the FSA very seriously,” Thomas F Borgen, chief executive, said.

“We agree that we should have understood the depth and scope of the problems in Estonia at an earlier stage and should have reacted faster and more forcefully. As the FSA’s decision states, beginning in 2014, we took a number of initiatives to reduce the risk and improve controls. But today, it is also clear that we did too little too slowly. There is unfortunately nothing we can do to change that. Instead, we need to ensure that it cannot happen again. That is one of the reasons why we launched thorough investigations in autumn 2017,” he said.  

Danske said the he non-resident portfolio in Estonia, which was at the centre of the problem, has been closed down. The bank added it has “invested massively in compliance activities”.

“As the FSA also states, we have strengthened our AML efforts in recent years,” Borgen said. “Today, Danske Bank has more than 900 employees working to combat financial crime. Our governance and control functions have been significantly strengthened and we have made considerable IT investments and have strengthened competencies in a number of support functions. Today, the situation is quite different from what it was at the time. So we believe that we have come a long way towards addressing the issues covered by the orders. Now we need to work resolutely and systematically to ensure that we comply with all orders.”

As a result of organisational changes announced in early April, Danske’s compliance unit reports directly to Borgen, the bank’s statement continued.

Danske said the FSA’s call for more capital “should be viewed in light of a total capital ratio of 21.4 per cent at 31 March 2018”.

Danske Bank had concluded that in the period from 2007 to 2015 it was not sufficiently effective in preventing the branch in Estonia from potentially being used for money laundering and that this was due to critical deficiencies in governance and controls.

Continued investigations are expected to be completed no later than September this year, Danske said.