Dankse Bank, Swedbank, and Europe’s Largest Money Laundering Scandal
The Danske Bank money laundering scandal rocked the banking world in 2017 when it came to light that approximately $229 billion dollars had been laundered through the bank’s only branch in Estonia. In February of this year, Swedish broadcaster SVT aired an exposé alleging that Swedbank was also involved.
And from there, the plot has thickened, taking as many twists and turns as you would expect to find in a mystery novel. What is clear is that hundreds of billions of dollars were laundered out of Russia, and it went on for over seven years with no intervention from either bank. The story is a complicated one, but here we will walk you through Europe’s largest money laundering scandal of all time.
Act 1 — Danske Bank
The Danske Bank scandal is a long and convoluted one, beginning in 2007 when Danske Bank took over Sampo Bank, which included their one Estonian branch. Danske Bank, at the time, had a very good international reputation and was Denmark’s largest lender. However, problems at Danske Bank’s Estonian branch started pretty much right away. Within the first year of operation, both Danish and Estonian authorities were receiving warnings from Russia regarding suspicious transactions. These warnings were promptly ignored, something that happened again and again in this case.
The problems didn’t stop there. There were multiple warning signs that something wasn’t right at the Estonian branch. Large numbers of non-residents (mostly from Russia and ex-Soviet countries) were moving around large amounts of money. The funds were typically coming from shell companies and then being moved to tax havens. This should have been an easy warning sign to spot, however the Estonian branch was on it’s own IT platform, meaning it did not have the same anti-money laundering procedures in place as the branches in Denmark. By 2013, 99% of the Estonian branch’s profits were coming from non-residents.
Perhaps the most glaring issue within this scandal is that Danske Bank knew what was happening. As mentioned earlier, they had received early warning signs from both Russian and Estonian authorities, and by 2010, the executive board was aware that a bizarrely high number of non-residents were using the branch. There was even a whistleblower in 2013 who raised the issue four times but was ignored at every turn.
In 2016, Danske Bank finally stopped doing business with non-residents at the Estonian branch. Then finally, in 2017, Danish newspaper Berlingske released a report airing Danske Bank’s dirty laundry. From there, things only got worse for Danske Bank. The initial estimates for the total laundered amount were low, around 7 billion kroner (just over $1 billion USD), but as Danske Bank launched its own investigation, that number grew to $229 billion dollars in laundered funds.
To date, Danske Bank has had to pay $2 million dollars in fines to Danish authorities, and is still waiting to hear what the US and other international authorities will fine them. The bank was also forced to stop doing business in Estonia, and several executives were charged for their involvement.
Act 2 — Swedbank
Immediately after the Danske Bank scandal was revealed, there were concerns that other banks had similar operations in Estonia. Swedbank was the biggest bank in Estonia’s market along with Nordea and SEB. Questions were raised right from the beginning of the Danske Bank scandal but Swedbank immediately went on the offensive. In particular, Swedbank’s CEO Birgitte Bonnesen said several times on major news networks that there was no way that this could happen at Swedbank. In an interview with Swedish broadcasting channel SVT News in late 2018, Bonnesen even stated that they had investigated all customers at their bank and found that none of them were customers at Danske Bank. Swedish banks were thought to be relatively safe due to the fact that they were domestic banks that only focused on doing business within the Baltic countries. As it turns out, they were wrong.
In February of this year, SVT released a report alleging that Swedbank was also involved in the Danske Bank scandal (you can watch the first part of the exposé here). SVT was given internal documents that allegedly showed transactions between Danske Bank and Swedbank accounts, clearly contradicting Bonnesen’s prior statements. An estimated $5.8 billion dollars is believed to have been funneled between the banks from 2007 to 2015, but that number could very well be higher.
The report came as a surprise to many. However, Swedbank was already under investigation by multiple US regulators for possible ties to the Panama Papers and its involvement with Danske Bank. A month after the initial report, Swedbank fired Bonnesen and Estonian authorities have expanded their investigation into Danske Bank to include Swedbank as well. Despite the initial statements that there was no was this could happen at Swedbank, there were several warning signs that should have been caught much earlier.
And then there is the case of a murdered Russian whistleblower. Yes, you read that correctly. While it may sound like the subject of a novel, Swedbank has ties to a major Russian money laundering case. In 2007, $230 million dollars were stolen in the form of fake tax refunds from Hermitage Capital Management which was run by American Bill Browder. Browder hired tax accountant Sergei Magnitsky to investigate the theft, and Magnitsky discovered widespread corruption throughout Russia. However, instead of arresting the suspects, Russian police arrested Magnitsky and held him in jail for nearly a year. He died in jail on November 16, 2009 from either medical neglect or because he was killed, either way it was deliberate.
How exactly is Magnitsky tied to Swedbank? Some of the money originally stolen from Heritage Capital Management (approximately $26 million dollars) was funneled into Swedbank accounts.
Act 3 — What Now?
In the wake of both scandals, many people are wondering how this could have happened and why it wasn’t discovered sooner. It’s saddening to look at cases such as Danske Bank and Swedbank and see how many attempts were made to stop what was happening that went completely ignored. So what is the answer?
Most financial institutions (if not all) do have procedures in place that should flag transactions and accounts for suspicious activity. These are called anti-money laundering (AML) procedures and are required by law by the Financial Action Task Force. Part of AML is something called Know Your Customer (KYC). KYC ensures that banks know who their customers are, and as it usually requires some type of identification check, makes sure that they aren’t pretending to be someone else. It also screens potential and current customers against terrorist watch lists, sanction lists, politically exposed person lists, etc. If a bank does their due diligence with both AML and KYC procedures, then they will know how risky their potential client is and be able to watch for possible warning signs.
However, while both AML and KYC procedures should work, they often don’t. In the cases of both Danske Bank and Swedbank, there were multiple warning signs, but the banks didn’t act. Perhaps even more concerning is that in both scandals, it was domestic media outlets who brought the cases forward, not regulators or law enforcement. Financial watchdogs in both Sweden and Denmark failed to take action until the scandals were public news.
What is clear from all of this is that stronger, more efficient AML procedures need to be in place. If two banks who had stellar reputations on the international market can be responsible for laundering upwards of $229 billion dollars, who’s to say that other financial institutions aren’t doing the same thing? There needs to be an effective change in AML procedures and investigation to make sure something like this doesn’t happen again. It’s clear that current regulations are not effective.
Prior to 2017, both Swedbank and Danske Bank had great reputations and were considered safe institutions. What is clear from this scandal, however, is that this trust was misplaced. With over $1 trillion in funds being laundered each year, money laundering is a massive problem throughout the world. It also begs the question that if banks can allow huge red flags to be ignored, what else is happening behind closed doors? Financial institutions also have access to large amounts of important personal data, is all of that data truly safe?