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Under fire Danske Bank faces fresh money laundering inquiry

[September 20, 2018] By Teis Jensen

COPENHAGEN (Reuters) - Danske Bank <DANSKE.CO> faced a new Danish money laundering inquiry on Thursday as political anger spread over a scandal involving 200 billion euros ($234 billion) in payments, many of which were suspicious, through Estonia.

Chief Executive Thomas Borgen resigned on Wednesday after an investigation commissioned by Danske Bank exposed control and compliance failings, fuelling calls for more stringent European Union rules after several such scandals.

The bank's report sparked vocal political criticism and prompted Denmark's Financial Services Authority (FSA) to revisit a case which it had put on ice earlier this year, but is reported to have attracted the attention of U.S. authorities.

"We're reopening the investigation of the bank that we initially closed in May," FSA head Jesper Berg told Danish broadcaster TV2.

In May an FSA report said it had found "serious weaknesses" in the bank's governance and demanded reforms, as well imposing reprimands and a higher capital requirement.

Berg said the FSA would use the new information from Danske Bank's report and focus on identifying a legal responsibility.

In an indication of the penalties such lapses can entail, Dutch financial group ING <INGA.AS> agreed to pay 775 million euros this month after money laundering through its accounts.

One of the main factors behind a dramatic fall in Danske Bank's share price this year is investor concern that it could have broken U.S. sanctions, which could entail billions of dollars in penalties.

Danske Bank said on Wednesday it had not so far found any breach of sanctions, while Chairman Ole Andersen said it had assessed whether it had violated U.S. laws, but declined to share its conclusion.

While authorities in the United States have yet to say whether they are investigating the payments, many of which came from Russia and other former Soviet states, Danske Bank's case is already high on the agenda of European Union members.

European Justice Commissioner Vera Jourova said on Thursday she will discuss the Danske Bank case with the finance ministers of Denmark, Finland and Estonia on October 2.

"I want to understand better where the main errors happened, whether it was purely the fault of the lack of due diligence done by the bank itself or whether there was also some mistakes at the level of supervisory authorities," she said.

Jourova told a news conference in Brussels that she will also discuss the case with the European Banking Authority to see if supervisory mistakes were made.

And in a sign of investor concern, Brussels-based consultancy firm Deminor Recovery Service said it would seek shareholder backing for an impartial investigation of the case at Danske Bank's annual general meeting in March.

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Danske Bank sign is seen at the bank's Estonian branch in Tallinn, Estonia August 3, 2018. REUTERS/Ints Kalnins/File Photo

"STRIKING FAILURE"

Danish prime minister Lars Lokke Rasmussen voiced his concern over the failings exposed by the country's biggest lender, saying he was "shocked" at the scope of the suspicious payments and pushed the bank for more answers.

"The fact that Denmark has been at the center of money laundering of this size is frankly quite horrible," Rasmussen said outside a meeting of European Union leaders in Salzburg.

Danske Bank already faces a criminal investigation after the Danish state prosecutor for financial crime said in August it had started its own inquiry.

"The case doesn't end with this," the PM said in reference to Wednesday's report from Danske Bank.

Danish politicians, who are scrambling to show they take the problem seriously, agreed on a new anti-money laundering law this week that will include an eight-fold increase in the size of fines, making it one of the toughest in Europe.

"It's a striking management failure," Jeppe Kofod, who chairs the European Parliament's special committee on financial crimes, tax evasion and tax avoidance, told Reuters.

"The responsible people should be fired to show that such a failure has consequences," he said.

Danske Bank said it had taken action against former and current staff, but in Denmark, which regularly features in surveys as one of the world's least corrupt countries, politicians were critical of it for not revealing how much money may have been laundered or who held legal responsibility.

Business minister Rasmus Jarlov said that Denmark wanted to avoid a scenario like the one in Latvia where ABLV was accused by U.S. authorities of covering up money laundering, leading to the bank being denied U.S. dollar funding and collapsing.

"We're dealing with it here, and we crack down hard on money laundering, and we hope this is being noticed abroad," he said.

(Reporting by Teis Jensen; additional reporting by Emil Gjerding Nielson in Copenhagen and Foo Yun Chee in Brussels; Editing by Emelia Sithole-Matarise/Jacob Gronholt-Pedersen/Alexander Smith)

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