On 18 February, the European Banking Authority announced it has opened a formal investigation into a possible breach of Union law by the Estonian Financial Services Authority and the Danish Financial Services Authority in connection with money-laundering activities linked to Danske Bank, particularly its Estonian branch.
The commencement of the investigation follows a letter from the European Commission calling on the EBA to use its powers to examine whether there was failure by the Estonian and Danish competent authorities to comply with their obligations under Union law. Before formally opening the investigation, the EBA said it conducted preliminary inquiries with both authorities.
The investigation has been opened under Article 17 of the EBA's founding Regulation. Where an investigation results in a finding of breach of Union law, Article 17 provides that the EBA may address a recommendation to the competent authority concerned setting out the action necessary to comply with Union law.
In a statement, Transparency International said it welcomes the EBA’s decision to investigate the Danish and Estonian financial supervisory authorities concerning Danske Bank. “We expect for this investigation to confirm that both financial supervisors have failed to protect the European Union and, by extension, our interconnected world, from dirty money,” said Maíra Martini, knowledge coordinator at TI.
Following the decision, the Estonian financial supervisor promptly ordered Danske Bank to close its Tallinn branch, which is at the centre of Europe’s biggest money-laundering scandals, stating that the scandal was “the greatest blow to the transparency, trust, and reputation of the Estonian financial market.”
Between 2007 and 2015, around U.S. $230 billion, including U.S. $2.9 billion associated with Azerbaijan’s ruling elite, of illegal money was laundered through the branch. In September 2018, Danske Bank’s internal investigation found its Estonian branch was “misused for suspicious transactions” and that the bank “reacted too late and too slowly,” findings that prompted the resignation of its CEO.
Last year, Estonian and Danish prosecutors launched criminal investigations. In November, Danske Bank was preliminarily charged with breaking Denmark’s AML laws. Investigations in Estonia are still pending.
While both Estonia and Denmark received good marks on the Corruption Perceptions Index 2018, they have become easy targets of individuals and companies behind the illicit U.S. $230 billion funneled through Danske Bank, TI noted.
In 2014, the Estonian financial regulator “had a crucial opportunity to act when their inspections identified the branch’s failure to comply with anti-money laundering rules,” TI noted.
“The response of Estonia’s financial supervisory authority suggests that they do not accept responsibility for supervising banks operating in their territory,” Martini said. “Shutting the branch down years later does not absolve them of the responsibility to investigate and stop billions in dirty money from flowing freely through its accounts. They should investigate and cooperate with the authorities to identify companies and individuals behind the money.”
Denmark’s financial supervisory authorities responded with a statement expressing disappointment that their Estonian counterparts were distancing themselves from a shared responsibility. However, it’s important to emphasise that Danish authorities have a responsibility to ensure all branches of Danish banks meet anti-money laundering standards, and that investigations continue into the failings in this particular case. “The scapegoating and the back-and-forth between the two authorities demonstrates the need for stronger EU-wide anti-money laundering supervision,” TI said.