Audit: Danske's non-resident customers in Estonia moved over €200 billion ({{commentsTotal}})

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Danske Bank's Estonian branch in Tallinn.
Danske Bank's Estonian branch in Tallinn. Source: Anna Aurelia Minev/ERR

An audit ordered by Danske Bank showed that most of the 10,000 non-resident customers of the bank's Estonian branch were suspicious, and it is likely that most of the transaction flow amounting to over €200 billion was suspicious. Danske has admitted that the situation was considerably worse than initially expected.

"The bank has clearly failed to live up to its responsibility in this matter," said Ole Andersen, chairman of the board of directors at Danske Bank. "This is disappointing and unacceptable and we offer our apologies to all of our stakeholders — not least our customers, investors, employees and society in general. We acknowledge that we have a task ahead of us in regaining their trust."

Andersen admitted that there is no doubt that the problemms related to the Estonian branch were much bigger than anticipated when the bank initiated the investigations. "The findings of the investigations point to some very unacceptable and unpleasant matters at our Estonian branch, and they also point to the fact that a number of controls at the Group level were inadequate in relation to Estonia."

The investigation, ordered from the independent law firm Bruun & Hjejle, identified  a total of around 10,000 customers as belonging to the non-resident portfolio at the bank's Estonian branch. To ensure that all relevant aspects are covered, the investigation covered a total of around 15,000 customers with non-resident characteristics, i.e. a further 5,000 customers, the bank said.

Some 12,000 documents and more than 8 million emails were searched, and more than 70 interviews were conducted with current and former employees and managers, including members of the executive board and members of the board of directors. Overall, approximately 70 people worked full time on the investigations.  

"We have kept relevant authorities updated, are sharing and will continue to share all relevant findings with them," the bank said. "After today, we will continue to send reports to the authorities as we complete the remaining parts of the investigation. Although parts of the investigation have not yet been completed, we now have enough insight to present the findings and take the necessary consequences."

The investigation identified that around 10,000 customers carried out a total of around 7.5 million payments, while the approximately 15,000 customers carried out a total of around 9.5 million payments. For all of the customers covered by the investigation, i.e. around 15,000 customers, the total flow of payments amounted to around €200 billion.

"At the current time, the investigation has analysed a total of some 6,200 customers found to have hit the most risk indicators," the bank said. "Of these, the vast majority have been found to be suspicious. That a customer has been found to have suspicious characteristics does not mean that there is a basis for considering all payments in which the customer in question was involved to be suspicious. Overall, we expect a significant part of the payments to be suspicious."

Bank to donate €200 million in profits

As the bank is not able to provide an accurate estimate of the amount of suspicious transactions made by non-resident customers in Estonia during the period in question, the board of directors has decided to donate the gross income from customers during the 2007-2015, which is estimated at 1.5 billion Danish kroner, or approximately €200 million.

The investigation determined that a series of major deficiencies in the bank's governance and control systems made it possible to use Danske Bank's branch in Estonia for suspicious transactions.

"For a long time, from when we acquired Sampo Bank in 2007 until we terminated the customer portfolio in 2015, we had a large number of non-resident customers in Estonia that we should have never had, and they carried out large volumes of transactions that should have never happened," Danske said.

Furthermore, only part of the suspicious customers and transactions were historically reported to the authorities as they should have been. "In general, the Estonian branch had insufficient focus on the risk of money-laundering, and branch management was more concerned with procedures than with identifying actual risk," the bank said. The Estonian branch of Danske was headed by Aivar Rehe from 2007 to 2015.

Estonian employees may have colluded with customers

The Estonian control functions also did not have a satisfactory degree of independence from the Estonian organisation. The branch also operated too independently from the rest of the group, with its own culture and systems and without adequate control and management focus from the group.

The bank suspects that there have been employees in Estonia who have assisted or colluded with customers.

There have been breaches at management level in several group functions. There were a number of more or less serious indications during the years, that were not identified or reacted on or escalated as could have been expected by the group. As a result, the group was slow to realize the problems and rectify the shortcomings. Although a number of initiatives were taken at the time, it is now clear that it was too little and too late.

CEO resigns ahead of release of audit

Thomas F. Borgen, CEO of Danske Bank, on Wednesday morning informed the board of directors that he wishes to resign from his position at Danske Bank.

The decision was announced just a couple of hours before the scheduled presentation by Danske Bank of the conclusions of investigations into alleged money laundering at its Estonian branch.

"It is clear that Danske Bank has failed to live up to its responsibility in the case of possible money laundering in Estonia," Borgen said in a statement. "I deeply regret this. Even though the investigation conducted by the external law firm concludes that I have lived up to my legal obligations, I believe that it is best for all parties that I resign."

As CEO, he said, he has the management responsibility for things that take place in the bank, and he takes on this responsibility.

"It has been clear to me for some time that resigning would be the right thing to do, but I have held off the decision because I have felt a responsibility toward seeing the bank through this difficult period toward the presentation of the investigations," Borgen concluded.

Borgen will continue in his position until a new CEO has been appointed.

Danske reports eight to police

Danske reported eight people to the police on Wednesday on suspicions of money laundering activities. Additionally, Danske informed the Financial Intelligence Unit about 42 people connected with suspicious transactions.

The Office of the Prosecutor General has confirmed the reporting, which has been merged together with a criminal case launched a few weeks ago, said spokesperson Kaarel Kallas.

Former managers Aivar Rehe and Ivar Pae, who stood down in 2015 and June this year respectively, are not among those detained.

Activity acknowledged by bank in 2014

Ole Spiermann of the Bruun & Hjejle law firm carrying out the investigation said on Wednesday that the issue was acknowledged by the bank in 2014, expressly as the result of a whistleblower's activities.

"However, everything should have taken place sooner," Mr. Spiermann emphasised, adding that had proper procedures been in place in 2007 (when Danske acquired Sampo bank in Estonia, Finland, Latvia and Lithuania), several non-resident applicants would have been turned down and the problem reduced.

Danske said there is not sufficient certainty to state whether criminal collusion has occurred at this stage, and also states that suspicious activity is not necessarily confined to non-resident accounts.

Editor: Aili Vahtla

Source: BNS



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