Denmark’s financial regulator has filed a criminal complaint against Danske Bank for violating market abuse regulations concerning “inadequate market monitoring and opposite trades,” the bank announced Wednesday.
According to the Danish Financial Supervisory Authority (FSA), between August 2016 and February 2019, Danske misinformed the financial market by facilitating so-called “wash trades,” in which securities are sold and bought by the same person. Because such trades could misleadingly prop up or devalue the price of securities, the FSA said it “therefore finds that Danske Bank has violated the prohibition on market manipulation and has reported Danske Bank [to the police] for this.”
The FSA added it didn’t believe Danske did this intentionally, but rather that the transactions reflected flaws in the bank’s market surveillance practices. “Trading with oneself is illegal if the behavior exhibited is market manipulative, regardless of whether the investor has traded with himself intentionally or not,” the FSA said.
In December 2019, the agency issued several orders following an inspection of Danske Bank’s market monitoring function. Danske Bank said it has since taken a series of measures to ensure compliance with the orders. “We did not have adequate market monitoring in place, and we have, therefore, since 2019 made significant investments to strengthen the systems and controls in close dialogue with the FSA,” Danske Bank Chief Compliance Officer Philippe Vollot said in a press release.
“The so-called opposite trades were due to insufficient procedures, and we have introduced new controls designed to prevent something similar from happening again,” Vollot added. “Each trade had a real buying or selling interest … and we have not seen any indication of intentional wrongdoing or any harm to customers or market participants.” Danske said it is cooperating fully with the authorities, “but cannot comment further on the criminal complaint as long as the police are investigating the case.”
Related AML inspections
In a separate announcement Thursday, the FSA said it will begin a cross-sector anti-money laundering (AML) inspection of transaction monitoring at Nordea and Danske Bank. The FSA said the inspection will be carried out in collaboration with external consultants obtained through an EU tender and is part of a cross-sector AML inspection of transaction monitoring into Denmark’s largest banks. The regulator also said it has decided to focus on the largest banks because of the large number of transactions and the various products and services they offer.
The Danish Money Laundering Act requires investigating the background and purpose of all complex and unusually large transactions, as well as all unusual patterns of transactions and activities that have no apparent economic or demonstrable lawful purpose.
Both Nordea and Danske already face legal and compliance trouble. Danske is embroiled in a substantial money laundering scandal concerning its Estonia branch and faces investigations not only in Denmark, but also in Estonia, France, and the United States. From 2007 to 2015, around €200 billion (U.S. $223 billion) flowed through the non-resident portfolio of Danske Bank’s Estonia branch, covering around 15,000 customers. An investigation commissioned by Danske in 2017 concluded that most of the payments were “found to be suspicious.”
It appears Nordea is also a recidivist violator of AML regulations. Last year, Nordea publicly acknowledged that Danish police raided its Copenhagen office as part of an ongoing investigation into alleged money laundering at the firm involving former customers of its international branch. Also, in May 2015, the Swedish Financial Supervisory Authority fined Nordea 50 million krona (U.S. $5.9 million) for AML failures. And in 2013, it was fined 30 million crowns (U.S. $3 million) for deficiencies in its handling of EU sanctions regulations and its failures, again, in preventing money laundering.