The Estonian financial market regulator Finantsinspektsioon ordered the closure of the local branch of Danish lender Danske Bank on February 19, months after the branch was revealed to have funnelled billions of euros in a massive breach of national and EU anti-money-laundering regulations.
The order comes as Finantsinspektsioon and its Danish equivalent Finanstilsynet found themselves the subject of an investigation by the European Banking Authority in connection to the scandal.
Following numerous reports in the Danish and UK media, Danske Bank admitted in September that estimated €200bn worth of payments went through its Estonian branch between 2007 and 2015, many of them suspicious.
“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 at the time.
“After analysing [Danske Bank’s] report thoroughly, together with the results of on-site inspections by Finantsinspektsioon at the branch and input received from the Estonian Financial Intelligence Unit, Finantsinspektsioon has concluded that the bank should not be allowed to operate in Estonia,” the regulator said in a statement.
“Serious violations by Danske Bank over many years and the damage done to the credibility of the Estonian financial environment require unambiguous condemnation,” the regulator added.
It also criticised the Danish financial regulator for handling Danske Bank “softly”.
“We acknowledge that the serious case of possible money laundering in Estonia has had a negative impact on Estonian society, and we acknowledge that the Estonian [regulator], against this background, finds it best that Danske Bank discontinues its Estonian banking activities,” Jesper Nielsen, the interim CEO of Danske Bank, said in reaction.
Danske Bank has eight months to close down its Estonian business. It will have to return funds to all of its 14,700 depositors as well as move loans to 12,300 borrowers to an independent entity or, if that does not work, come up with a solution on how those loans will continue to be serviced, the Estonian regulator said.
Failing to meet the conditions of the ordered closure will cost Danske Bank a fine of €100,000 per day up to 10% of the bank’s net turnover, the Estonian regulator said.
Danske Bank announced on the same day it would also be closing its branches in Lithuania, Latvia, and Russia. That is because of the bank’s strategy to focus on Nordic markets, the bank said.
The EBA’s investigation into the Estonian and Danish regulators is expected to take two months, after which the EBA might issue recommendations seeking to fix any shortcomings in banking supervision.
The Danske Bank case also prompted questions about banking supervision in the Eurozone with calls to strengthen authorities such as the EBA or the European Public Prosecutor's Office in order to better handle suspicious cross-border money flows.