Deutsche Bank Is Said to Be Drawn Deeper Into Danske Scandal

(Bloomberg) -- Deutsche Bank is being drawn deeper into the widening money-laundering scandal surrounding Danske Bank.

Whistle-blower Howard Wilkinson, who stunned a parliamentary hearing with an assertion that he was offered hush money by the Danish lender, estimated that more than half the $230 billion in suspect funds handled by the bank was funneled through Deutsche Bank AG’s U.S. unit. While he didn’t identify the lender, a person familiar with the matter confirmed it was Deutsche Bank.

Deutsche Bank Is Said to Be Drawn Deeper Into Danske Scandal

The firm was a correspondent bank for the Tallinn, Estonia, branch of Danske Bank that is the focus of multiple international investigations. The Danish lender acknowledged that the branch moved nearly a quarter of a trillion dollars worth of cash into the global financial system, much of it from potentially illicit activity in Russia. It used the global presence of Deutsche Bank, Bank of America Corp. and JPMorgan Chase & Co. to convert foreign cash into U.S. dollars on behalf of its clients from 2007 to as recently as 2015.

Stock Declines

Deutsche Bank declined as much as 1.1 percent in Frankfurt and was trading 0.4 percent lower as of 3:51 p.m. The stock has declined about 46 percent this year. The lender declined to comment.

Wilkinson made his first public appearance since the Danske scandal erupted, telling lawmakers in Denmark that their biggest bank had offered him a severance package in return for his silence after he threatened to alert the police. Danske interim Chief Executive Officer Jesper Nielsen, who also testified on Monday, denied that he was offered hush money.

Wilkinson, who used to run the trading desk at Danske’s Baltic business, also gave a detailed account of how money flowed from Russian banks into Danske and then out into the wider financial system, with the help of the correspondent banks.

“This was the main correspondent bank for U.S. dollars,” Wilkinson said of the bank that he only identified as a large European lender. “And they were the last one to go, it took them until 2015, at least nine years.”

Criminal Investigators

Deutsche Bank has been contacted by U.S. criminal investigators for information over the case, along with Bank of America, two people familiar with the matter said late last week. The Justice Department investigators have also asked questions about JPMorgan Chase & Co.’s work with the branch, another person said. Wilkinson on Monday said he didn’t want to name banks because he is concerned he could go to jail or face other legal action.

The examination of whether the big banks gave appropriate scrutiny to the Estonia transactions is one aspect of a broader Danske Bank investigation being led by the U.S. Justice Department in Washington and prosecutors from the Manhattan U.S. attorney’s office, the people said.

The potential extent of Deutsche Bank’s role in the scandal -- Danske Bank has admitted that a large portion of the billions that flowed through its Estonia branch during the period under scrutiny was suspicious -- will be an unwelcome setback for Chief Executive Officer Christian Sewing as he seeks to revive growth at the lender.

Correspondent Services

JPMorgan stopped providing correspondent services to the Danske Bank branch in 2013. Deutsche Bank and Bank of America continued for another two years, according to the reports and the people familiar with the matter. Deutsche Bank handled the bulk of these transactions during the period under scrutiny, one of the people said.

At least 10 banks were involved in the Danske laundering scandal, including three “Danske entities,” Wilkinson said at the hearing. With his lawyer Stephen Kohn by his side, Wilkinson also took the opportunity to rip into the practice of imposing non-disclosure agreements on employees if Europe is serious about tackling crimes like money laundering.

Interim CEO Jesper Nielsen rejected Wilkinson’s account that he was offered hush money and said that, as far as he was aware, the bank never stopped anyone from speaking out.

“There’s nothing at Danske bank that prevents anyone from talking to the police or authorities,” Nielsen said. “To the contrary, we’re encouraging people to do so.”

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