Europe's Dirty Money Machine Is a Lot Bigger Than First Thought

(Bloomberg) -- As the Danske Bank A/S laundering scandal grows in scope, Denmark’s financial regulator now says it’s expecting other countries to investigate how their banks might have been involved.

In testimony to European lawmakers this week, a whistle-blower revealed that another seven banks, and countless shell companies, were involved in the $230 billion case. The list includes three correspondent banks, which Bloomberg and other media have identified as Deutsche Bank AG, JPMorgan Chase & Co. and Bank of America Corp.

The head of the Danish regulator, Jesper Berg, told Bloomberg that Danske employees seem to have made little effort to disguise the identity of clients behind the suspicious transactions, meaning correspondent banks should have had some idea of what they were dealing with.

“Obviously most supervisors coming across a case of this magnitude will start looking at how their own banks may be involved,” Berg said. Danske had “three correspondent banks at the time that eventually opted out of handling these payments.”

“It is my impression that the Swift transactions were not manipulated, so it has been relatively evident, to those who received these Swift transactions, what kind of customers they were dealing with,” Berg said. (The Society for Worldwide Interbank Financial Telecommunication, or Swift, is a network through which banks share information about transactions.)

The Whistle-Blower

Howard Wilkinson, who used to run Danske’s Baltic trading unit before becoming Europe’s best-known whistle-blower, says suspicious clients in the former Soviet Union sent money to four Russian banks in a scheme that lasted until 2015. From there the funds went mainly to Danske’s Estonian branch, but also to units in Denmark and Lithuania. After that, the money was sent into the global financial system via the three correspondent banks.

Bloomberg reported earlier this month that Deutsche Bank, Bank of America and JPMorgan have been contacted by investigators in the U.S. in connection with the Danske case. All three banks declined to comment on that report.

This week, Deutsche Bank said that, as a correspondent bank, “your only relationship is with the bank and the bank itself has the responsibility to check its own client to monitor the transaction and to do all these kinds of checks.” The regulator in Germany, known as BaFin, is said to have asked the bank for more details.

Meanwhile, investigations into Danske in several jurisdictions, including in the U.S., are ongoing. Berg says “there’s strong reason to believe that the Estonian unit was subject to criminal activity.”

Here’s a recap of the main headlines of the week:

• One of Wilkinson’s most startling statements was that Danske offered him money in exchange for his silence. The bank says it has no evidence that’s true, but that it won’t investigate the allegation.
• Shell companies were also dragged into the limelight, with Wilkinson calling those registered in the U.K. as “worst of all” when it comes to enabling financial crime.
• Denmark’s minister in charge of bank laws has said he doesn’t think Danske will need to hold more capital to create a buffer for potential fines, after already adding about $1.5 billion.
• Wilkinson’s testimony set the agenda during the week, and shares in both Danske and Deutsche Bank fell after his first appearance on Monday.
• Wilkinson lambasted what he characterized as Europe’s failure to protect whistle-blowers and said he fears for his safety after coming forward.
• Denmark’s government said it wants to talk to Wilkinson about some of his statements, including the allegation that Danske paid him hush money.

To contact the reporters on this story: Peter Levring in Copenhagen at plevring1@bloomberg.net;Frances Schwartzkopff in Copenhagen at fschwartzko1@bloomberg.net

To contact the editor responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net

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