EU Calls for Investigation of Danske Money-Laundering Scandal

(Bloomberg) -- The snowballing money-laundering scandal at Danske Bank A/S has led European Union authorities to investigate whether the lenders’ supervisors did enough to prevent it.

The European Commission, the EU’s executive arm, called on the bloc’s banking regulator to determine if Danske’s supervisors in Denmark and Estonia followed the rules in handling the case. Danske may face a fine as high as $1.7 billion, according to analysts at Svenska Handelsbanken AB, after it admitted that its Estonian unit may have been used to launder a “large” part of about $234 billion between 2007 and 2015.

In a Sept. 21 letter seen by Bloomberg, the commission asked the European Banking Authority to treat the investigation “with the necessary degree of urgency.” Criminal investigations are already under way in Denmark and Estonia, and U.S. and U.K. authorities are looking into the case. Chief Executive Officer Thomas Borgen will step down and Chairman Ole Andersen says that several employees have been reported to the police.

Under EU law, anti-money-laundering supervision is done by national authorities. While Estonian supervisors carried out several inspections of Danske’s Estonian branch, questions remain “on the extent and depth of such inspections and whether sanctions were applied in an appropriate way,” the commission said.

It also said that the actions of the Danish supervisor “remain unclear” and raise questions as to whether it “carried out effective supervision of the Danske Bank group.”

The EBA has limited power to enforce compliance with EU rules. Following an investigation, the EBA can issue recommendations to the supervisors, after which the commission can take steps to make sure they are followed. As a last resort, the EBA can give direct instructions to banks to make sure they follow EU law.

The EBA has started similar investigations into Latvian and Maltese authorities’ handling of money-laundering incidents, according to the commission.

The commission proposed this month to hand the EBA some additional powers, but stopped short of putting a single agency in charge of the bloc’s response to illicit financial flows. The proposal followed several high-profile money-laundering scandals and a report about the shortcomings of the EU’s current framework.

Vera Jourova, the EU’s justice commissioner, has said that the scope of the Danske scandal is “shocking” and that she will meet Danish, Finnish and Estonian finance ministers on Oct. 2 to learn “where the main errors happened.”

The Financial Times first reported on the commission’s request for an EBA investigation. A spokesman for the commission confirmed that the letter had been sent, but declined to comment further. A spokeswoman for the EBA didn’t immediately reply to requests for comment.

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