Danske Scandal Enters Danish Debate Over EU Banking Union

(Bloomberg) -- The multibillion-dollar money laundering scandal enveloping Denmark’s biggest bank shouldn’t be a key factor in determining whether the country joins the European banking union, according to the head of the financial industry’s lobby group.

Ulrik Nodgaard, head of Finance Denmark, said other factors weigh more heavily in his organization’s discussions.

“Finance Denmark’s position with regard to Danish membership of the banking union is still under careful consideration,” Nodgaard said in an emailed statement in response to questions. “We do not see the money laundering case as pivotal in these considerations.”

Denmark’s central bank wants the country to join the union, but lawmakers have so far balked. They want to make sure joining won’t require changes to the country’s mortgage-backed covered bond market, the world’s biggest, or force well-capitalized Danish banks to rescue struggling foreign lenders.

Political Debate

Finance Minister Kristian Jensen said Friday that the Danske case “makes the need to probe what we might get from being in the banking union even stronger.” Having said that, “we haven’t made up our minds about all the positives and negatives of the banking union yet,” he said in an interview in Copenhagen.

According to Benny Engelbrecht, the financial spokesman of the opposition Social Democrats, having a European regulator supervising Denmark’s banks wouldn’t necessarily prevent a repeat of the Danske case.

“Money laundering transcends borders,” he said. “ The Danske Bank scandal is enormous, but in reality that’s a symptom of more widespread problems with international money flows.”

Danske Bank A/S is facing investigations in at least four countries after a yearlong internal problem found 200 billion euros ($235 billion) in transactions had flowed through a tiny Estonian unit, much of it suspicious, over a nine-year period. Danske Chief Executive Officer Thomas Borgen resigned last week.

The amount of transactions made by non-resident customers of the Estonian branch dwarfed early estimates, turning the case into one of the biggest ever in Europe and raising questions about whether this small nation of 5.7 million has the resources to thwart criminals bent on whitewashing their illicit funds.

Defensive Gaps

Nodgaard was head of Denmark’s Financial Supervisory Authority for a little over six of those years. He said this week that whether Denmark joins the union or not will have little bearing on the banks’ efforts to combat laundering.

The Financial Action Task Force, an international organization that sets standards for fighting money laundering and terror finance, last year found major gaps in Denmark’s defenses. Even large banks didn’t seem to understand the risks, with senior management giving combating the crime “a low priority.”

The European Banking Authority is investigating whether supervisors in Denmark and Estonia handled the case correctly. Jesper Berg, the current head of the FSA, has defended the agency’s performance while acknowledging a stretched budget limits its capabilities.

“A major issue was that there was information pollution from those in the Estonian branch who provided information to the bank,” Berg said. “Not only in 2007 but also in 2012, 2013, 2014, and that’s a significant element in the whole story.”

Nordea Bank AB, the region’s largest lender, is moving from Stockholm to Helsinki next week, in part to join the banking union. Chief Executive Officer Casper von Koskull has said the move will ensure a more stable regulatory environment for Nordea.

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