CEO of Danske Bank Thomas Morgan resigned on September 19 after an internal investigation said the bank’s Estonian branch handled €200bn worth of payments, many of them suspicious.
The results of the inquiry show that the scale of money flows at the small Estonian branch of the bank was even greater than previously assessed. The Danske Bank case highlights lax control over money flows in Estonia and is an embarrassment for the authorities of the Eurozone, of which Estonia has been a member since 2011.
The scandal may also echo in the US and Russia. The US authorities have long criticised Eurozone banks for not exerting tight enough control over money flows, many of which – especially in former Soviet states Estonia and Latvia – are said to have come from Russia.
“As this is the largest money laundering scandal in European history, and Danske Bank is a major bank that sends dollars around the world, I imagine that this will certainly get the attention of the US authorities,” Bill Browder, the founder and CEO of Hermitage Capital Management, who campaigns against corruption in Russia, told Reuters.
By Danske Bank’s own admission, the scale of operations at its Estonian branch was indeed huge.
“We had a large number of non-resident customers in Estonia that we should have never had, and that they carried out large volumes of transactions that should have never happened,” the bank said in a document detailing the results of the investigation.
“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,” the bank also said.
Danske Bank established that between 2007 and 2015 its Estonian branch serviced 10,000 non-resident customers and a further 5,000 with “non-resident characteristics” who carried out 9.5mn payments totalling around €200bn.
Banking operations handled by non-resident customers often hint at money laundering. Estonia’s neighbour Latvia has been ritually lambasted by EU and US authorities for having allowed too much non-resident money in its banking system.
Danske Bank said it would transfer profits made off non-resident customers in Estonia, estimated at DKK1.5bn (€201mn), to an independent foundation that will use the funds to “support initiatives aimed at combating international financial crime, including money laundering, including in Denmark and Estonia.”
The suspicious activity in a Eurozone bank has encouraged the EU to work on systemic solutions. The European Commission is currently pushing for the EU’s financial watchdog, the European Banking Authority (EBA), to lead efforts for now, before a specialist agency is created.