Freya Ingrid Morales | Bloomberg | Getty Images
Thomas Borgen, chief executive officer of Danske Bank A/S, pauses during a news conference in Copenhagen, Denmark, on Wednesday, Sept. 19, 2018. Borgen will step down amid allegations his bank was at the center of a major European money laundering scandal with as much as $234 billion flowing through a tiny unit in Estonia.
The popularity of Scandi noir rests on the contrast between the banal surface of Nordic societies and the nefarious activities underneath. An internal report into potential money laundering through Denmark’s largest bank by assets – accompanied by the immediate resignation of appropriately named chief executive Thomas Borgen – has provided the latest must-watch installment. Danske Bank’s problem is that further unpleasant plot twists lie ahead.
Danske’s long-awaited report is, as predicted, damning. The 200 billion euros of payments that flowed through its Estonia subsidiary between 2007 and 2015 are even bigger than feared. “A large part” of the 6,200 customers that have so far been examined are classified as suspicious – meaning they displayed obvious red flags such as sharing addresses with other entities regarded as suspect, or suddenly yielded unexplained large payments.
Danske Bank said on Sept. 19 that Chief Executive Thomas Borgen has resigned due to a scandal related to past potential money laundering through its Estonian branch. He will continue in his job until a replacement is found, the bank said.
“It is clear that Danske Bank has failed to live up to its responsibility in the case of possible money laundering in Estonia. I deeply regret this,” Borgen said in a statement released by the bank.
The bank also lowered its expectations for annual net profit to 16 billion-17 billion Danish crowns from 18 billion-20 billion Danish crowns.
An internal probe identified 200 billion euros in payments made through its Estonia subsidiary from 2007-2015, a “large part” of which were suspicious and an unknown number of which constituted money laundering, the bank said.
Danske shares fell by 4.43 percent to 167.10 Danish crowns by 0800 GMT on Sept. 19.
Danske will struggle to convince anyone it was completely oblivious. Warning lights on its Estonian branch, which it had acquired by taking over Finland’s Sampo Bank, were flashed by the local regulator and even the Russian central bank as far back as 2007. Plans to migrate the Baltic banking activities onto Danske’s main IT systems were binned as too expensive – even though the dodgy “non-resident portfolio” often generated over two-thirds of the Estonian division’s annual pre-tax profit and in 2011 Estonia generated 10 percent of overall group pre-tax profit. Over a fifth of incoming funds were from Russia.
Danske’s main problem now is that with a good portion of the suspicious payments made in dollars, it is virtually guaranteed aggressive pushback from the United States. Worse, it can’t be sure how bad the problem really is. In the most extreme scenario, assuming all the transactions were laundered funds and scaling fines imposed on Deutsche Bank and BNP Paribas proportionately, the fine could hit 53 billion Danish crowns ($8.3 billion), analysts at Jyske Bank reckon. But that assumed the number of dodgy transactions amounted to around $150 billion rather than $230 billion.
Danske has one thing bang on. Unlike BNP Paribas, whose chair Baudouin Prot only left after it had swallowed a $9 billion U.S. fine for sanctions-busting, heads have rolled pre-emptively. Even so, as head of international banking activities before stepping up to CEO in 2013, Borgen would have had to go anyway. Danske should ready itself for a nasty denouement.
Commentary by Christopher Thompson, a Breaking Columnist at Breakingviews. Follow him on Twitter @CGAThompson.
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