Danske CEO Apologizes After Money Laundering Scandal ExplodesBy
Danish FSA publishes report listing Danske’s AML failings
Denmark’s biggest bank mired in Estonian dirty money scandal
The chief executive officer of Danske Bank A/S has apologized for management’s failure to prevent criminals from using his firm to launder billions of dollars in illicit funds over several years.
The apology follows an unusually harshly worded public reprimand by the financial regulator. The Danish government said management’s failings were “unforgivable” and the central bank warned that the reputation of the whole country was at risk.
“I’m very sorry on behalf of all stakeholders,” Danske CEO Thomas Borgen said in a phone interview. He also said the bank is “in a very different place today” with considerably more focus on preventing money laundering.
The Danish Financial Supervisory Authority said on Thursday that Danske’s management failed on multiple counts to act in compliance with the rules. The assessment followed reports by the Berlingske newspaper that Danske was used as a laundromat by criminals, including entities with ties to Russian President Vladimir Putin, the Russian security service, FSB, as well as members of the Azeri regime. The money laundering, alleged to have taken place between 2010 to 2014, was done via Danske’s operations in Estonia, which have since been terminated.
“It’s no doubt that we should have understood the depth and the breadth of the issues in Estonia better, faster than we did,” Borgen said.
The regulator said the failures have led to reputational damage not only for Denmark’s biggest lender but for the entire financial sector of its home country.
“This was a massive failure for years,” Jesper Berg, the director general of the Financial Supervisory Authority in Copenhagen, said in a phone interview on Thursday. The failures penetrated all levels of the organization -- across the executive and supervisory board -- and reflected “a cultural issue of not bringing problems up through the system,” he said.
Danske was handed a list of orders and reprimands by the FSA, including a requirement that it hold additional capital. Danske has until June 30 to show how it will comply.
The regulator stopped short of demanding that actions be brought against members of Danske’s current management team but signaled that the decision wasn’t necessarily final.
Berg said the FSA didn’t find “sufficient evidence that, if we believe there were a court case, that we could win the court case, and that is the requirement for us.”
“If there’s new information that justifies bringing a court case or reporting to the police, then we will revisit these decisions,” Berg said.
Henrik Ramlau-Hansen, a former chief financial officer at Danske who became chairman of the board of the Danish regulator, is stepping down to ensure there are no conflict-of-interest issues at the FSA. “I acknowledge my share of responsibility,” he said.
Borgen, 54, acknowledged that the bank failed to act fast enough as the problems emerged. But he repeatedly made clear his job isn’t on the line. Chairman Ole Andersen told local newswire Ritzau he still has confidence in the CEO.
“As the CEO, you are ultimately responsible,” Borgen said. “That’s a fact. It’s important to learn from this case and ensure it won’t happen again. With the support of the board, that’s my task going forward.”
A Sloppy History
The FSA noted that “Danske Bank has historically not lived up to its obligations” with regard to anti-money laundering. The agency pointed to a period from the end of 2012 to November 2013, during which Danske didn’t have a person responsible for anti-money laundering operations, despite this being a legal requirement.
The regulator criticized Danske for failing to terminate dealings with clients it knew were tainted. “Despite knowledge of the customer’s incorrect financial reporting, the branch maintained the customer relationship for more than one year,” it said.
The FSA said the money laundering breaches related to non-resident accounts using Danske’s Estonian operations. The regulator also noted that “in the period up until June 2012, the bank’s current CEO was the person on the executive board responsible for the branch.”
In July 2013, a correspondent bank that the FSA didn’t identify by name ended its cooperation with Danske’s Estonian branch over concerns about non-resident customers. A year later, Danske finally decided to start terminating those operations, a process that took another two years.
Berg said the fact that it took so long suggests that “economic considerations obviously played a role,” rather than a clear focus on preventing money laundering as quickly as possible.
Among the orders given to Danske by the regulator is a requirement to hold an additional 5 billion kroner ($803 million) in capital. Justice Minister Soren Pape Poulsen said on Thursday that the government may also be able to confiscate any profits that can be traced back to the money laundering, according to Ritzau.
Shares in Danske fell 1 percent on Thursday. Sasja Beslik, the head of sustainable investing at Nordea Bank AB, said he’s “not planning any action” on the funds’ holdings of Danske shares, after assurances from the bank it is taking the necessary steps to deal with the matter. Beslik said he welcomed the regulator’s response, including the financial penalty.
Borgen said, “This is a time for reflection. When you’re the CEO, it is ultimately my responsibility and I have to look into what I should and could have done differently. That’s something I need to bring with me going forward.”