Danske’s $234 Billion Tale of ‘Who Knew What?’

(Bloomberg Opinion) -- The sheer scale of Danske Bank A/S’s failure to apply even half-decent defenses against money laundering in its Estonian branch beggars belief.

Chief executive Thomas Borgen resigned on Wednesday as the bank published the findings of its internal investigation into the scandal. The chairman suggested his own departure was only a matter of time. The report exonerates the board of legal culpability, on the grounds that it had incomplete information and was assured action was being taken. When ignorance is the best defense, you have to ask what incentive there is for a CEO to ask probing questions or encourage a knock on the door from a concerned underling.

The internal probe found an incredible 200 billion euros ($234 billion) flowed through Danske’s Estonian branch between 2007 and 2015. A “large part” of these transactions were suspicious, it found, without being more precise. The unit, which Danske inherited through an acquisition, operated on a separate IT platform.

The warning signs were there, though. As far back as 2007, concern was expressed by Russia’s central bank via Denmark’s regulator, and by the Estonian financial supervisor. Profits from the unit were unusually large. Even so, Danske didn’t challenge information from the branch. A whistleblower raised the alarm at the end of 2013. Yet management accepted reassurances that an internal investigation had dealt with their claims. It took further regulatory intervention for the unit to be shut down.

Danske’s $234 Billion Tale of ‘Who Knew What?’

The suggestion is this was not a problem with the company’s structure, with the implication that it was more to do with the competence of its people in spotting suspicious activities in the branch. There were apparently no warnings that called for action from the CEO before 2014. Yet the organisation was clearly flawed. There was a colossal failure of management with regards to establishing both a culture and procedures that made sure information and worries flowed upwards to the board. 

Danske will face financial penalties. It has made a donation to an anti-financial crime foundation of 1.5 billion kroner ($235 million) — equivalent to the gross income it made from dubious transactions from the unit during the period. On top of this, fines are likely to follow. The wildcard remains the possibility of a U.S. probe.

Naturally, Danske says it has made changes. These are far from complete. It needs to bring in an outsider as CEO. Ole Andersen’s suggestion that he will step down as chairman once the leadership is stabilized is welcome. The first job for the new management team will be to make sure that in the future, they’ll have no excuses about “Who knew what and when?”

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

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