Compliance
Editorial Comment: Danske's Dirty Money Settlement Shows Complacency Isn't An Option
We reflect on how, at the end of 2022, US and Danish regulators imposed a $2.06 billion settlement on Danske Bank over the dirty money scandal at its former Estonia branch. The affair, concerning laundering of money out of Russia, came in a year that saw Russia's behaviour under a fierce international spotlight.
The most eye-popping of anti-money laundering fines and
settlements may appear to have passed. The BNP Paribas $8.97
billion
settlement with the US in July, 2014 is an unenviable record.
(That sum was so high it hit US-France relations, and even
Russian President Vladimir Putin, ironically,
complained about it.)
But the case last week of Danske Bank’s $2.06 billion fine,
confiscation and forfeiture settlement with US and Danish
authorities over dirty money in Estonia is a reminder of how
large these cases can be and why the fight against money
laundering goes on.
On 16 December the Copenhagen-listed lender reached final
coordinated resolutions with the US
Department of Justice, the US Securities
and Exchange Commission and the Danish Special Crime Unit.
This followed probes into failings and misconduct related to the
non-resident portfolio at Danske Bank’s former Estonia branch, as
the bank said in its statement. Danske Bank said it
fully accepted the findings and unreservedly apologised. This
contrasts with some settlements where a bank might issue a
statement hedging its level of culpability.
The Baltic scandal has hung like a cloud over Danske – and the
wider European banking industry – for a decade or more, and stems
from outflows of Russia-based money via Estonia and other
countries near the former Soviet Union. It sheds light on the
scale of this financial outflow, which for a time enriched a
number of institutions and financial centres. And coming at the
end of a year that has seen Russia sanctioned by the West - even
Switzerland - for its attempted conquest of Ukraine, the
case underscores how interactions with Russian clients remain a
fraught issue for the wider banking industry.
In its statement, Danske Bank said it cooperated with all
investigations. The settlement, which in Danish kronor is worth
DKK15.3 billion, is covered by the provisions booked in the third
quarters of 2018 and 2022, respectively, it said. Provisions were
also reported in its Q3, 2022 financial results.
Danske Bank said it has taken extensive remediation action to
address those failings to prevent any repeat, including new
leadership and significant investments in systems, controls and
competencies. Over recent years a number of C-suite figures have
left and joined the bank.
In relation to the resolutions with the US authorities, Danske
Bank pleaded guilty to a criminal charge from DoJ of conspiracy
to commit bank fraud. Danske Bank agreed to settle a civil
securities fraud action with the SEC. Under the SCU resolution,
Danske Bank has agreed to accept a fine and confiscation for
violations of the Danish AML Act and the Danish Financial
Business Act.
The breakdown of the settlement with the US and Danish
authorities was as follows: $1.209 billion to the Department of
Justice in the US; $178.6 billion to the SEC, and DKK4.749
billion to Denmark’s SCU.
Widening the net
Regulators have widened the scope of the offences they target in
recent years, such as when investment houses allegedly
“greenwash” their strategies in these days of heightened
concerns about global warming, treatment of workers or slack
corporate governance. Fenergo, a provider of know
your client (KYC) and client lifecycle management (CLM)
solutions, noted this additional activity in an
August report.
The study said that the total size of penalties imposed on
financial firms has recently fallen. (The pandemic and the
associated disruption may have interfered with enforcement and
investigative activity, among other factors.)
It is true that regulators want to control more types of
wrongdoing than a few years ago, and the ESG agenda certainly
adds to the workload. It may cause an enforcement bottleneck on
what might be more “core” types of work, such as AML and KYC
enforcement, although ESG is, to an extent, just another form of
risk management and due diligence.
Whatever the specifics, the Danske Bank settlement last week was
a stark reminder that the battle against dirty money has no end,
and with geopolitical instability front of mind, the banking
industry is very much a part of the agenda. Banks cannot afford
to be complacent.
(As a side-note, this news service was proud to run this sobering interview with a former investment banker, and a venture capitalist, who is based in Ukraine and was engaged in the fighting in defence of that country.)