Denmark's financial supervisory authority didn't heed warnings from its Estonian counterpart concerning Danske Bank, and didn't even cooperate, according to a Tuesday piece in the Wall Street Journal (WSJ).
The article claimed the Estonian financial supervisory authority (FSA), with only two employees dedicated to money laundering investigation (one of them part-time) required six months to assess a single bank's practices; since Danske had a smaller market share than other banks, it was even less of a priority, the WSJ reported.
A further disincentive, the WSJ said, was that the maximum fine for money laundering infringements in Estonia was a mere €32,000 ‒ a few hours' profits at Danske.
Danske something of a cross-border specialist
Evidence of money laundering and other suspicious activities became public through 2018; currently an estimated €200 billion in suspicious funds passed through Danske, 2007-2015, predominantly of Russian Federation origin.
Danske Bank Estonia's market share in cross-border payments over the period, over 40% at one point, was notably higher than its overall market share (barely 10%) though it was not alone in this; homegrown LHV bank had similar figures of 7.1% and 3.2% respectively. By comparison, with major high street bank Swedbank, the proportions were the reverse, at a little over 25% share in cross border transactions but a total market share of around 40%.
EU regulations also hampered any potential investigation as Estonian inspectors needed permission from Danish authorities before entering Danske to investigate, the WSJ said; ultimately the buck stopped with the Danish FSA, since Danske Estonia had branch, rather than subsidiary, status, the WSJ continued.
Despite limited resources noted above, the Estonian FSA did raise red flags, mailing about six letters to the Danes, in 2007-2014, which were increasingly acerbic in tone, the WSJ reported.
One such letter was "...brutal…close to the worst I have ever read…and I have read some harsh letters," one Danish compliance officer emailed a colleague, according to the WSJ.
For its part the Danish FSA says it passed on its concerns to Danske at home but was assured that regular checks on the ground at Danske Estonia had given no cause for alarm, the article continued.
Shouting match, reports in Estonian-only
Nevertheless Denmark's anti money-laundering chief still felt sufficiently disturbed to email colleagues later that: "The Danish FSA has helped the Bank [ie Danske] in a critical situation. They are now very worried that any situation may arise," according to the report.
The situation continued to deteriorate, culminating in a shouting match at a meeting of the European Banking Authority in 2014, with Estonian regulators present being vociferous about the Dane's apparent inability to halt the flow of 'criminal Russian money' via Estonia. Denmark is a founder member of NATO as well as an EU member state.
"In simple terms, we were quite pissed off," Raul Malmstein, then-chairman of the Estonian FSA told the WSJ; "They were not doing anything,'' Mr Malmstein continued.
Language issues also played a part; a 340-page report in 2014 listing violations at Danske Estonia described as 'scathing' was nevertheless not translated (from Estonian) for a further three years.
Editor: Andrew Whyte