Danske Bank's Laundering Profits Targeted by Danish Government

(Bloomberg) -- As indignation grows over what may be the biggest financial crime saga in modern Danish history, politicians are looking for ways to ensure the country’s largest bank isn’t let off the hook.

Danish Business Minister Rasmus Jarlov says he wants to focus more effort on finding out just how much money Danske Bank A/S made on illicit dealings amid allegations that over $8 billion flowed through its Estonian unit in the years through 2015. Once identified, he says the government should confiscate those profits.

“It’s crucial to know how big a profit has come from the laundering,” Jarlov said, according to newspaper Jyllands-Posten. “It’s obviously not satisfactory that large sums of money were made laundering funds and that that money is still with Danske Bank. This offends my sense of justice, and everyone else’s.”

Danske’s return on allocated capital for its non-resident portfolio in Estonia hit 402 percent in 2013 alone, according to figures provided by the Danish regulator. That compares with a return of 6.9 percent for the whole bank.

On a web page Danske has created to address the laundering case, it says “we certainly do not want to support or earn money from such activities.” The board will decide how to handle any laundering proceeds once the bank’s internal probe is completed, in September.

Jarlov told local media that the Danish Financial Supervisory Authority is opening a new investigation into the Danske scandal. That follows revelations late on Tuesday that the scope of the case was considerably bigger than previously thought. The FSA says it always takes new information into consideration in such cases.

New material provided by Bill Browder suggests that as much as 53 billion kroner ($8.3 billion) was funneled through the Danish bank. That’s more than double the 25 billion kroner thought to have been laundered earlier.

Allegations of money laundering against the bank aren’t new. The Berlingske newspaper has been publishing a steady stream of revelations for more than a year on the extent to which Danske’s Estonian office was used as a laundromat by entities in Russia, Moldova and Azerbaijan. The FSA warned as early as 2012 of inadequate identity checks of customers, including the risks they posed and the source of their funds.

But the latest figures shocked the market and shares in Danske sank on Wednesday, making it the worst performer in the Bloomberg index of European financial stocks. Danske fell again on Thursday, losing more than 2 percent by lunchtime in Copenhagen. The bank is down about 20 percent this year, compared with a 12 percent slide in Bloomberg’s index of European financials.

“It’s quite clear that the market is really starting to factor this in quite heavily,” said Mads Thinggaard, an analyst at ABG Sundal Collier in Copenhagen. “It’s clear that there is also political pressure forming now.”

In its morning note to clients, Jyske Bank A/S notes that Deutsche Bank AG was fined the equivalent of 4 billion kroner for money laundering breaches that reached 64 billion kroner. Danish lawmakers are looking into passing tougher money laundering laws, following the Danske case, but Jarlov has said he can’t make those retroactive.

So far, Danske Bank has avoided prosecution. The regulator reprimanded the bank’s management and added 5 billion kroner to its capital requirements. Danske Bank’s Chief Executive Officer Thomas Borgen has apologized and acknowledged the bank ought to have acted sooner to put an end to the illicit activities.

The bank’s findings from its internal investigation, due in roughly two months, are highly anticipated, with some of Danske’s biggest investors saying they won’t comment until they see the report.

Kapilan Pillai, an analyst at Jefferies, says “that is the frustration, that we’re going to have to wait until September. The other frustration, the other unknown, is what other regulators are they speaking to outside of Denmark and Estonia?” Danske reports second-quarter results on July 18.

The full size of the case was known to Estonian authorities in June last year, according to Borsen, after Browder’s Hermitage Capital Management contacted them directly with the information. Estonia’s public prosecutor made the point that the operations in question weren’t registered in the Baltic country, the newspaper said.

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