Danske Bank under investigation in France over money-laundering saga

When Danske Bank was placed under formal investigation in France again over suspected money laundering at its Estonian branch, EU lawmakers said tougher action needs to be taken to stop the dirty flow of money through Europe’s banks.

On 7 February, Danske Bank announced that—for a second time—a French judge has decided the bank should be formally investigated for suspected money-laundering transactions worth €21.6 million (U.S. $24.4 million) committed between 2007 and 2014.

Prosecutors in Paris accuse Danske of having helped launder proceeds from tax evasion through transactions carried out in France and “in particular in Estonia and in Luxembourg.”

According to the charges, as published by Danske, the bank aided laundering “by investing, concealing, or converting the direct or indirect proceeds of offenses, by opening fictitious pass-through accounts which were designed to receive money from organized tax evasion, and by allowing these accounts to be debited with multiple transactions carried out in the context of set-off mechanisms, without any economic justification.”

The beneficiaries of the transactions included (unspecified) offshore companies holding accounts in Luxembourg and operations in France, according to the charge. All names have been redacted.

Danske Bank was first placed under formal investigation (“mise en examen”) in France on 11 October 2017. On 25 January 2018, its status in the investigation was downgraded to that of an assisted witness (“témoin assisté”). Last month, however, the bank indicated the investigation could be ramped up again after Bill Browder, the co-founder and CEO of investment fund Hermitage Capital Management who has campaigned for the bank to be held more accountable for €200 billion (U.S. $226 billion) of suspicious payments, protested over France’s softened stance.

“Everyone can see that, contrary to the United States, Europe has become the first destination for laundered crime money from Russia and other former Soviet Union states and that is a problem for our security in Europe.”

Petr Ježek, Chairman, European Parliament

Danske Bank says it will continue to cooperate with the French authorities and has posted bail for €10.8 million (U.S. $12.2 million).

French investigative judges can charge companies when there are “serious and consistent” indications of criminal wrongdoing. They can then decide after investigating whether to refer a case to trial, though they are no longer involved after that stage.

The fallout from Danske’s Estonian operations has been massive. The scandal wiped nearly 47 percent off the bank’s value last year, and several top executives have resigned, with the bank’s chief executive, Thomas Borgen, stepping down last September following the release of an in-depth independent report it commissioned into what went wrong. The bank is currently being investigated in Denmark, Estonia, the United Kingdom, and the United States. There is also a strong possibility that it will face legal action from investor groups who are likely to have a field day as to how Danske’s initial estimate of €4 billion (U.S. $4.5 billion) worth of suspicious transactions has multiplied by a factor of 50.

More widely, the Danske Bank case is one of many recent money-laundering scandals involving European banks—despite the European Commission’s insistence that the European Union has the strongest anti-money laundering regime in the world.

In September 2018, Dutch banking group ING admitted criminals had been able to launder money through its accounts for years and agreed to pay €775 million (U.S. $874 million) to settle the case. In March last year, the European Central Bank (ECB) pulled the plug on a small Estonian lender, Versobank, for money-laundering offences, and Latvia’s third-largest bank, ABLV, is currently in the process of liquidating itself after being accused by the United States of “institutionalised money laundering.”

Prior to that, in December 2017, Danske Bank was fined DKK 12.5 million (U.S. $1.89 million) by Danish authorities for violating anti-money laundering rules following an inspection in March 2015 (these were unrelated to the specific allegations in Estonia) while in May 2015 Sweden’s financial services regulator fined Nordea, the region’s largest lender, the maximum penalty allowed for lax anti-money laundering controls (SEK 50 million, or U.S. $5.4 million). At the same time, Handelsbanken, the country’s second biggest bank, was handed an SEK 35 million (U.S. $3.77 million) fine for similar failings.

Last September, as part of its “state of the union address,” the European Commission announced proposals to strengthen supervision over banks and other financial institutions to toughen up its fight against money laundering and terrorist financing after admitting present measures have “failed all too often” and that the EU’s approach is hampered by varying levels of supervision and enforcement across EU member states. “Our system is as strong as our weakest link,” said tEU Justice Commissioner Vera Jourová.

The Commission wants to give the European Banking Authority (EBA), the bloc’s supervisory body for the banking sector, a powerful new mandate to monitor what firms are doing to tackle money laundering—with the ability for the EBA to intervene directly if national authorities fail to take appropriate action.  

Meanwhile, on 28 November, the Council of the European Union—the body made up of government ministers from each EU country to amend laws and discuss policy, published its anti-money laundering action plan. This includes several short-term non-legislative actions, such as the establishment of adequate channels for the exchange of information, a reinforced collaboration between the supervisors and the ECB, and the identification of key supervision areas that need to be strengthened. In December, the Council agreed to reinforce the supervision of all financial institutions to prevent money laundering by strengthening the EBA’s powers.

This January, the three European Supervisory Authorities responsible for regulation across the European Union—the EBA, the European Securities and Markets Authority (ESMA), and the European Insurance and Occupational Pensions Authority (EIOPA)—approved the content of the “Multilateral Agreement on the Practical Modalities for Exchange of Information” to improve efforts to curb money laundering.

Yet despite such initiatives EU lawmakers are unimpressed with the current state of affairs, particularly as the reforms mooted by the Commission and the EBA can take months—if not years—to implement and see real change.

On 8 February—the day after Danske announced it was being formally investigated in France—the European Parliament’s tax crime committee insisted that the European Union needs tougher anti-fraud controls now, including a central body able to enforce laws against money laundering. The committee also wants more direct and unified EU regulation, instead of the current model where EU directives are implemented into each member state’s own laws, resulting in 27 different versions of the same rule.

Committee Chairman Petr Ježek said the Financial Intelligence Units of many EU member states are “clearly not up to the task” and “because everyone can see that, contrary to the United States, Europe has become the first destination for laundered crime money from Russia and other former Soviet Union states and that is a problem for our security in Europe.”