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The Danske Bank Money Laundering Case Is Worth $230 Bln — More Than The Whole Crypto Market Cap


Denis Goncharenko

The branch of Danske Bank in Estonia appeared in the spotlights of the whole newsworld for the last couple of months. The reason for attention to the small bank within the small country is money laundering of unprecedented volume. Curiously, but for the last years the theme of money laundering was raised in context of cryptocurrencies involved. Now it is about the corruption in the traditional sector — the time to say ‘many happy returns’.

The scandal is picking up traction. It seems that with this strings pulled, a great web is being untangled: last week Deutsche Bank AG and Bank of America Corp. have been contacted by U.S. criminal investigators for information about transactions they handled for Danske Bank Estonia, according to Bloomberg. It also says that the Justice Department investigators have asked questions about JPMorgan Chase & Co.’s work with the mentioned entity. It may be only a tip of an iceberg, the people just started to talk. Let’s take a closer look on the current AML situation, and decide what kind of conclusions can be made in light of recent developments.

A background on banks’ money laundering scandals

The story brought out to the public, started way back in 2007, when Danske Bank acquired a small Finnish entity called Sampo Bank. Sampo had a non-resident portfolio in Estonia and the problems origin right from here. Danske shut down the non-resident portfolio in 2015 after it became clear that the bank’s AML procedures weren’t working. “AML procedures at the Estonian branch in relation to the Non-Resident Portfolio were manifestly insufficient and inadequate and in breach of international standards as well as Estonian law. This was so even though the non-resident customers were categorised as high risk,” — says the independent report by Bruun & Hjejle, a law firm based in Denmark. As a mere branch, Estonia should have been subject to Danske’s own money laundering systems – but the branch had its own IT-platform, which meant it was not covered by the same risk monitoring as the bank’s Copenhagen headquarters.

The investigation found that more than half of Danske’s customers in Estonia were suspicious. The source of funds was identified as more than 58% coming from Russia, Estonia and Latvia with the destinations worldwide. “In the period from 2007 through 2015, the approximately 10,000 customers in the NonResident Portfolio had approximately 7.5 million incoming and outgoing payments. <...> The flow as converted into EUR was approximately EUR 200 billion,” — such numbers are represented in the report. Identifying the true source of the money is hard due to the lack of transparency. Part of the companies are UK-based firms that are registered as limited liability partnerships, and they are not required to publish details of their eventual owners. So, the funds pass through a number of companies and the true owner cannot be identified — this scheme clearly represents the money-laundering flow.

From 2007 to 2015, it is about EUR 200 bln, close to Estonia’s total GDP for the same period. It left the authorities of the country shocked, with Central Bank governor Ardo HANSSON commenting that “we perceive ourselves as a well-governed, low-corruption, high-transparency country, and then when we have that kind of thing happen, people ask what is going on? I think that is a broader issue, now, in northern Europe. You just have to understand how this happened, how we can make sure it does not happen again” Ironically, the epicenter of the banking scandal landed in Estonia, the country known as one of the most welcoming for the crypto industry start-ups. Known and sometimes blamed for it. Why? Because of the rogue image of crypto, of course! With the development of crypto industry, the local watchdogs strictly overviewed all of the start-ups’ compliances, but absurdly ignored the banking sector breaches up to 2014, just sending ‘warnings’ until the moment of closing the Danske business. The remark needs to be done here — the number of crypto licenses issued in Estonia up to this moment has reached 900 and is still going up.

Back then to the current events: the uncomfortable questions to the great financial institutes such as Deutsche Bank, JPMorgan and Bank of America concern their indiscretion — the lenders were correspondent banks for the Estonian branch of Danske Bank, that fact led to the number of international investigations, and eventually reached their bastions. It was awaited, though — in her September story, Frances COPPOLA, the Senior Contributor in Forbes, named it straightforward: “Danske Bank Estonia couldn’t do this by itself. Much of the money was paid in U.S. dollars, and for that, it needed help from other banks.” She also reminded that Deutsche Bank was the one earlier accused in money laundering and was paying fines for ‘mirror trading’ and “this raises serious concerns about the adequacy of Deutsche Bank's AML processes — concerns that, as we shall see, refuse to go away.”

As if that’s not enough, it is necessary to remind that earlier on, in October, the Nordea Bank was publicly suspected in laundering more than $200 mln, believed to have taken place in the bank’s now closed international branch for global clients in Vesterbro, between 2010 and 2013. That very Nordea Bank, which forbad its employees to buy and operate cryptocurrency, calling it a “criminal, unethical” participation in an “unregulated market.”

So, who’s judging then?

Along with the Nordea Bank’s harsh judgements, the last couple of years has seen lots of affronts to the crypto industry made by traditional financial institutions and the watchdogs. The best arguments included the obscurity and anonymity of bitcoin and other cryptocurrencies, theoretically making it a perfect instrument for dirty money flows. The need for ‘Know Your Customer’ solutions sounded as a means of salvation for the whole industry, where avoidance of regulatory requirements meant war. The industry was condemned as an instrument of evil, which could have been soul-saved by the confession to the regulators and task forces. The banking sector was brought as an example of established market, with transparency and compliance to AML regulations. Up to now. The reputation of the colossus is denting severely, with the loud shattering of infallibility of the global anti-money laundering regimes. “At the moment it is a joke what is going in terms of money laundering enforcement in Denmark for sure, and we'll see it in these other countries,"Bill BROWDER of Hermitage Capital Management commented on the situation with the guidelines non-compliance.

Of course, there is no denial to the fact that bitcoin and other cryptos were used in the illegal activities. Certainly, there are cases of prosecution, and the perpetrators had been punished. We’ll get back to that in another article. The point is that the cryptocurrency is not that ‘bad outlaw guy’ trying to infiltrate and disrupt the crystal clear reputation of the financial market, as it has been introduced to the world and trumpeted by media. The market itself is disrupted and corrupted already, notwithstanding the noble attempts to make it as transparent as possible. It’s pretty indicative that the volume of suspected corrupted funds in the Danske Bank case — that being approximately $230 billion — is more than the value of the whole cryptocurrency market which currently downgraded to $169 billion. The remarkable thing is that the money launderers choose the existing traditional banking system for their needs, and that is the starting point for combat. There is a certain need for reloading the AML policies and guidelines. There should be a vision how the global market can adopt it, as well as the role of cryptocurrency in these scenarios — but it is in another story to come.


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