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Regulator orders Danske Bank to close beleaguered Estonian branch accused of laundering $230 billion

Tuesday, February 19, 2019   (0 Comments)
Posted by: Brian Monroe
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By Brian Monroe

February 19, 2019

Estonia’s banking regulatory authority Tuesday ordered Danske Bank to close its operations in the country as it investigates one of the largest money laundering scandals in history – itself dealing with a newly unveiled probe from European authorities to answer for potential oversight failures.

Estonian watchdog Finantsinspektsioon (FSA) engaged in the unprecedented move against Danske Bank as a show of force in a widening financial crime debacle that has seen the regional branch move nearly $230 billion in suspicious funds to Russia and surrounding risky locales between 2007 and 2015 – an investigation that has also sparked probes into Swedbank, Deutsche Bank and other related correspondent connections.

Just minutes after the Estonian regulator’s announcement, Danske Bank stated it was closing down all activities and leaving the markets of Russia, Estonia, Latvia and Lithuania – though added the caveat the move was “independent” from the FSA’s order and had been considered “for some time.”   

The only ties that will remain is Danske Bank’s shared services center in Lithuania, which “undertakes a number of administrative functions” for Danske Bank. The institution has eight months to reorganize and pay customers back in full.

The “serious violations by Danske Bank over many years and the damage done to the credibility of the Estonian financial environment require unambiguous condemnation,” said Kilvar Kessler, Chairman of the Management Board of the FSA, the country’s financial intelligence unit.

He also shifted much of the blame on Danske’s home country regulatory in Denmark, stating it “handled the bank softly” and that the FSA “was the only institution in Estonia or Denmark to react to the activities of Danske Bank, as it forced the bank to end its business serving non-resident customers in Estonia in 2015 in the light of the evidence that was available at that time.”

Even so, the case has tarnished the reputation of Estonia, Kessler said.

“We have every right to put an end once and for all to this very exceptional and unfortunate case, as serious and large-scale violations of the local rules have been committed in Estonia through the branch of a foreign bank, and this has dealt a serious blow to the transparency, credibility and reputation of the Estonian financial market,” he said.

The FSA, however, will also have potentially to do some remediating of its own as it must answer for its own oversight strategies that allowed the Dasnke Bank failures to occur in the first place.  

The European Banking Authority (EBA) Tuesday informed the FSA it has “started a formal investigation into the Estonian and Danish financial supervisory authorities concerning their supervisory work over Danske Bank” and possible violations of EU anti-money laundering (AML) and counter-financing of terror (CFT) laws – going back more than a decade.

Estonia and Denmark face a range of sanctions form the EBA, from threats of monetary fines to lighter formal recommendations to improve regulatory stratagems and enforcement measures to avoid future breaches of bloc financial crime and compliance laws.

To read more from the Estonian regulator, click here and here. To read Danske’s press release about leaving the Baltics, click here.

The moves occur as the EBA attempts to strengthen bloc-wide AML oversight.

In recent months, Europe has made several changes to bolster compliance, including increasing oversight of member state regulators and reviewing how they are examining financial institutions for AML compliance.

At the same time, financial institutions themselves across the EU are having to adopt stronger AML rules under updated directives that will put more emphasis on uncovering beneficial owners and cracking open shell entities. 

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