November 19, 2018 / 10:15 AM / 24 days ago

EXPLAINER-Danske Bank's 200 billion euro money laundering scandal

    By Teis Jensen
    COPENHAGEN, Nov 19 (Reuters) - Danske Bank             has
been caught up in one of the largest-ever money laundering
scandals. Howard Wilkinson, the whistleblower who first alerted
Denmark's biggest bank to the problem, testified before the
Danish parliament on Monday. 
    
    HOW BIG A SCANDAL IS THIS?
    Some 200 billion euros ($227 billion) in payments flowed
through the non-resident portfolio of Danske Bank's tiny
Estonian branch between 2007 and 2015. The bank eventually
commissioned a report which concluded in September that many of
these payments were suspicious.
    
    WHERE WAS THIS MONEY FROM?
    Most of the payments came from Estonia, Russia, Latvia and
Cyprus and Britain, the report said. Shell companies were used
to disguise the identities of those involved, former chairman
Ole Andersen has told Reuters.
    
    AND WHERE WAS IT GOING?
    Payments went to Estonia, Latvia, China, Switzerland,
Turkey, Britain and more than 150 other countries, the report
said.
    
    WHO BLEW THE WHISTLE?
    Howard Wilkinson, the head of the bank's trading unit in the
Baltics from 2007 to 2014, was the whistleblower who had warned
the executive board in Copenhagen in 2013 and 2014 about
suspicious activities at the Estonian branch, Danish newspaper
Berlingske reported in September.              
    
    WHY DIDN'T AUTHORITIES ACT SOONER?
    Denmark's financial watchdog faces an inquiry by the
European Union's banking supervisor, and the Danish business
minister has criticised the regulator for not being critical
enough towards the bank and for trusting it too much.
        
    HAS ANYONE BEEN FOUND RESPONSIBLE?
    Not yet. The case is under criminal investigation in
Denmark, Estonia and the United States. 
    The Danish state prosecutor's investigation includes whether
top management can be held personally liable. 
    Britain's National Crime Agency (NCA) has said it is
investigating the use of UK-registered companies.
    
    CONSEQUENCES FOR DANSKE BANK?
    Denmark's financial regulator has said the bank's compliance
and reputational risks have risen and increased its capital
requirements by 10 billion Danish crowns ($1.5 billion).
    In May the regulator, which is still looking at the case,
imposed eight orders for reforms and eight reprimands.
    
    HAS ANYONE TAKEN THE BLAME?
    Danske Bank's former chief executive Thomas Borgen stepped
down, saying that although he was "personally cleared from a
legal point of view" he held "the ultimate responsibility".
             
    The Maersk family, which controls about 21 percent of the
bank's shares, ousted chairman Ole Andersen and nominated
Karsten Dybvad, who heads the Confederation of Danish Industry,
to take over.             
    
    WHAT ABOUT DANSKE'S SHARES?
    Danske Bank's shares are trading 40 percent below their
level at the end of February, even following an uptick when its
Nov. 1 earnings report showed lending increased in the third
quarter despite the scandal. tmsnrt.rs/2PvfSwZ

    
    WHAT NEXT FOR DANSKE BANK?
    The U.S investigation is worrying for Danske Bank
shareholders as U.S. fines tend to be much larger than those in
Denmark and Estonia, and Europe in general.
    For many, the worst-case scenario is if the bank suffers the
same fate as Latvian bank ABLV, which lost access to dollar
funding when U.S. authorities accused it in February of covering
up money laundering, forcing its closure.
    Danske Bank has said the two cases cannot be compared as it
closed the part of the Estonian business under suspicion.
    The U.S. authorities also alleged that ABLV violated
sanctions imposed on North Korea. 
    Danske Bank has said that it has not found any breaches of
sanctions.             
    
    ARE THERE WIDER CONSEQUENCES FOR DENMARK?
    Danske Bank is an integral part of Danish business and the
scandal comes as a government tax scandal and a fraud case in
the ministry for social affairs have undermined confidence in
institutions on which its welfare society is built. 
    The case is also a risk for Denmark's entire financial
sector, the Systemic Risk Council said in September, prompting
the government to increase the cash cushion financial firms must
hold to protect against economic shocks.
    
    WHAT DOES THE BANK SAY IN ITS DEFENCE?
    Danske Bank has acknowledged that its money laundering
controls in Estonia has been insufficient.
    But in its September report it said the board had not
breached its legal obligations.
    The bank has since boosted compliance efforts, with around
1,000 of its 20,000 staff working on this.
    
    IS IT ONLY DANSKE BANK?
    Danske might only be the "tip of the iceberg" and
investigators should examine major Western banks, Wilkinson's
lawyer told Reuters.             
    
    HOW TO PREVENT A REPEAT?
    Denmark plans to strengthen its financial regulator, while a
broad majority in the Danish parliament has agreed to tighten
the country's anti-money laundering laws, including increasing
penalties by up to 700 percent.                          
    European Union states are still divided over an overhaul of
rules for the supervision of banks against money laundering, two
EU sources told Reuters.             
    
 ($1 = 6.5957 Danish crowns)

    
 (Additional reporting by Stine Jacobsen
Editing by Alexander Smith)
  
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