Danske Bank pays $2bn to settle Estonian money-laundering scandal

Danske Bank pays $2bn to settle Estonian money-laundering scandal
Danske's $2bn penalty is the largest forfeiture imposed by the US Department of Justice on a financial institution compared to its market capitalisation. / bne IntelliNews
By bne IntelliNews December 14, 2022

Denmark’s Danske Bank will pay a $2bn penalty to settle its huge money-laundering scandal in Estonia,  the Financial Times reported on December 13.

The US Department of Justice (DoJ) said in a statement that Danske had defrauded US lenders over its anti-money-laundering measures at its Estonia branch, allowing “high-risk customers”, including many from Russia, to access the US financial system.

According to court documents cited by the DoJ, Danske’s Estonia branch attracted foreign customers between 2008 and 2016 by allowing them to transfer large sums of money through it “with little, if any, oversight”. The DoJ added the branch processed $160bn through US institutions on behalf of these clients, and conspired with these individuals to mask the real nature of the transactions, sometimes via shell companies.

According to a bne IntelliNews investigation in 2019, Danske even laundered money for the Ukrainian arms mafia’s sanctions-busting activities in North Korea and Iran.

All three Baltic states have struggled to control the influx of dubious money from the East into their banking systems, but have been forced to improve their supervision following pressure from the European Union and, in particular, from US prosecutors and regulators.

Denmark’s largest bank pleaded guilty to one count of conspiracy to commit bank fraud and agreed to pay about $1.2bn in criminal forfeiture to the US. It will also pay $672mn to Danish authorities, as well as a civil penalty of roughly $178mn to the US regulator, the Securities and Exchange Commission.

The SEC has also charged Danske with fraud for misleading investors on anti-money-laundering compliance shortcomings in the Estonia branch.

US authorities said that while the bank knew by at least February 2014 that some of these customers were involved in potentially criminal behaviour, it lied to US banks about the Estonia branch’s anti-money-laundering programme.

The $2bn penalty is the largest forfeiture imposed by the US Department of Justice on a financial institution compared to its market capitalisation, Kenneth Polite, assistant attorney-general for the DoJ’s criminal division, told the Financial Times.

Danske’s chair, Martin Blessing, said: “We offer our unreserved apology and take full responsibility for the unacceptable failures and misconduct of the past, which have no place at Danske Bank today.”

In 2018 Danske ousted its chief executive and chair after revealing that much of the €200bn of cash that flowed through its Estonian branch from 2007 and 2015 was suspicious.

Danske withdrew from Estonia when the scandal broke in 2018, selling its operations to local player LHV Pank. Danske Bank has also withdrawn from Russia and Latvia. 

Danske booked a charge of DKK14bn ($1.9bn) in October, on top of an initial provision of DKK1.5bn from 2018, to resolve all money-laundering probes.

The lender still faces several civil lawsuits from shareholders, and on December 13 it said it would defend itself “vigorously” against them.

Thomas Borgen, Danske’s chief executive from 2013 until 2018, last month won a court case against more than 100 institutional investors suing him for $350mn over the scandal, though it is being appealed. In 2021 prosecutors in Denmark dropped all criminal charges against Borgen.

The former head of Danske's Estonian branch, Aivar Rehe, was found dead in September 2019, two days after being reported missing. The Estonian police determined he had committed suicide.