Deutsche Bank May Have Been Key in Stalling Danske's Laundromat

(Bloomberg) -- Even while caught up in its own suspect transactions in Russia, Deutsche Bank AG may have helped curb the flow of illicit billions through Danske Bank A/S’s branch in Estonia.

Deutsche Bank started rejecting individual dollar transactions going through Danske’s branch in Tallinn in 2014, and completely withdrew its services a year later, according to a person familiar with the matter, who asked not to be named because the information isn’t public. The decision was followed by a dramatic reduction in the level of non-resident flows, which peaked in 2013, according to information from a confidential report by Promontory Financial and published in the Berlingske newspaper.

Danske Bank is now the target of criminal investigations in Denmark and Estonia amid allegations its Estonian operations were used to launder as much as $9 billion, mostly from Russia, between 2007 and 2015. The bank said this week it is close to publishing the results of an internal probe. Chief Executive Officer Thomas Borgen has publicly apologized for not acting sooner to stop the laundering.

According to Berlingske and the Financial Times, which cite the Promontory report commissioned by Danske, flows through the Estonian unit peaked at $30 billion in 2013, a year before Deutsche started withdrawing its correspondent banking services. Analysts covering Danske Bank have pointed out that flows aren’t the same as suspicious transactions and that the figure is therefore difficult to interpret.

Deutsche’s decision to stop offering the services coincided with warnings from Estonia’s regulator, which had warned Danske that the transactions looked suspicious. A Deutsche spokesman declined to comment.

Deutsche was itself fined almost $700 million last year for helping wealthy Russians move about $10 billion out of their country, and has since acknowledged that its anti-money laundering processes remain “too complicated.”

In a May report that looks back as far as 2007, the Danish Financial Supervisory Authority noted that Russian and other non-Baltic customers accounted for a conspicuously high proportion of Danske’s Estonian business. The FSA said that in July 2013, one of the Estonian branch’s two correspondent banks for dollar payments “terminated its cooperation” because of “concerns about the branch’s non-resident customers,” though the regulator didn’t identify the bank by name.

It was after Danske lost access to correspondent banking services that management decided to launch a review of the unit’s activities, the FSA said. That review didn’t lead to significant changes at the time and Danske started using another correspondent bank with which it already had a relationship in other parts of the organization, according to the regulator.

The FSA notes that in May 2015, one of the Estonian branch’s two correspondent banks told Danske it “no longer wanted to assist in transactions with British companies controlled by the branch’s Russian customers.” The other correspondent bank “terminated its cooperation with the branch in September 2015 due to concerns over the branch’s non-resident customers,” the FSA said. It didn’t name the banks.

Danske Bank said earlier in the week that the laundering case “is very complex, and no conclusion as to the number of suspicious customers or transactions -- or indeed the extent of potential money laundering -- can be drawn from any individual pieces of information taken out of context.”

In a written comment to Bloomberg, Danske Chairman Ole Andersen said “I believe that it is in everybody’s interest that conclusions are drawn on the basis of verified and complete facts.”

“The investigations are currently being finalized, and we look forward to sharing the conclusions,” he said.

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