Europe’s Largest Money Laundering Scandal

Danske Bank is at the heart of the largest money laundering scandal that Europe has ever seen. Over nine billion euros was laundered through Danske bank’s Tallinn branch in Estonia from 2007 to 2015. The source of these funds is thought to be, not from criminals, but politicians from Russia, Moldova, Azerbaijan, and other former Soviet Republics. Why would politicians need to launder money? The simple answer: to use that money for bribes. For example, Luca Volontè, the former head of the European People’s Party (EPP) group in the parliamentary assembly. Volontè was among delegates who controversially voted against a 2013 report criticising Azerbaijan’s human rights record. The leaked data shows he received more than two million euro.

So just how would one go about laundering nine billion euro? That’s a lot of money, for context, that is larger than the entire economy of Moldova, one of the countries implicated in the laundering. Well, money laundering has three basic steps; placement, layering, integration.

Placement is simply depositing illegally gained funds into a bank account registered to an unnamed individual or an account registered to a company that conceals whom its shareholders are. Layering is where the source of the money is disguised to look legal, this can be done through various transactions, for example, I could set up a fake company and then get some laundered money and pay it out to another fake bank account in exchange for services one company did for another. Integration is where the criminals show where they get the money from; this can be as simple as forging invoices and payment orders.

In the Danske Bank scandal; the organisers of the scheme exploited Britain’s weak regulation of the company system. There exists a type of company known as a Scottish Limited Partnerships (SLPs). SLPs are used by criminals all over the world due to their clandestineness. No names of real people appear on the Companies House record. Instead, offshore agents in the British Virgin Islands ‘manage’ SPLs. The beneficiaries of this scheme registered four firms at Companies House in London. These were Hilux Services and Polux Management, (incorporated in Glasgow), Metastar Invest (incorporated in Birmingham) and LCM Alliance (incorporated in Hertfordshire). The beneficial owner of the firms is, of course, a secret. The companies have all the advantages of a regular firm: they have a ‘legal personality’ and can open bank accounts.

So, is this really such a big deal? Yes, money laundering is a very serious offence. In Ireland, a person found guilty of money laundering can serve up to fourteen years in prison, to put that into context Larry Murphy was sentenced to fifteen (of which he only served ten). It is fair to say money laundering is the financial equivalent of murder.

Danske Bank is the 23rd largest bank in Europe, holding around €600 billion worth of assets (five times the amount of assets as Ireland’s largest bank; Bank of Ireland). As previously stated this is the largest money laundering scandal in European history, however back in 2012, HSBC were involved in a money laundering scandal of 5.5 billion. HSBC subsequently agreed to forfeit $1.256 billion and enter into a deferred prosecution agreement with the US Department of Justice. In August of this year, Dutch bank ING were fined €775 million for being negligent to anti-money laundering practises. No fine has been handed out to Danske. However, when the bank’s chairman, Ole Andersen, was interviewed by Bloomberg he said, “Yes, they were fined, but we have not received any fine uhhhhhhhhhh yet.” He also drew attention to the fact that, “we don’t want to make a profit out of suspicious activity. We have taken the gross income for the entire period and we decided to donate that to an external independent fountain.” The bank donated one and a half billion Kroner (€200 million) to a charity focused on combating international financial crime.

As for a reason to why the bank did not employee correct procedures Danske Bank said it had decided not to migrate its Baltic banking activities onto its IT platform because it would have been too expensive. As a result, the Estonian branch did not employ Danske’s anti-money laundering procedures.

The bank, whose shares fell by nearly eight percent following the release of the report, also lowered its expectations for annual net profit to sixteen to seventeen billion Danish crowns, from a previous range of eighteen to twenty billion.

Danske’s shares, which have lost twenty eight percent of their value so far this year, rose four and a half percent on Thursday after UBS advised clients to buy the shares. “The 87-page report on the non-resident portfolio contained a number of positives in our view,” Johan Ekblom, a UBS analyst said in a note referring to the lack of a formal US investigation. “We think Danske Bank shares look attractive, even in a scenario of material financial fines.”

In 2017, Denmark ranked second in Transparency International’s corruption perceptions index. For a country considered one of the least corrupt in the world, the widening money laundering scandal at Danske Bank has shocked Danish politicians and citizens alike. The percentage of Danes who find the bank credible fell to fourty six percent last week, by far the lowest level since recordings began in 2008. Needless to say, Danske’s future does not look bright.

 

By Robert Treacy – Business Editor

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