Tag: AML

Over the past several blog posts, we have been exploring the Danske Bank A/S (Danske Bank), AML enforcement action in which Danske Bank pled guilty and agreed to forfeit $2 billion to resolve the US investigation into its fraud on US banks. Danske Bank also settled with the Securities and Exchange Commission (SEC) for misleading US investors about the bank’s anti-money laundering (AML) compliance program in its Estonian branch and failed to disclose the risks posed by the program’s significant deficiencies.

Banks Still Behaving Badly

According to Violation Tracker, the top 10 banks for fines and penalties for this century are as follows:

In 2022, the top fines involving banks are:

• Danske Bank: $2.4 billion
• Bank of America: $225 million
• Citigroup: $200 million
• Goldman Sachs: $200 million
• Morgan Stanley: $200 million
• Credit Suisse: $200 million
• Barclays: $200 million
• Deutsche Bank: $200 million
• Nomura: $100 million

For whatever reason, banks cannot seem to get it anything near right. Willie Sutton is alleged to have said the reason he robbed banks was because “that’s where the money was.” Now it seems the banks are the bad guys, and the regulators continually have to lay out what seems massive fines and penalties to banks. Yet banks seem oblivious to playing within the bounds of the law. Perhaps, and to broaden out Consumer Financial Protection Bureau (CFPB) head Rohit Chopra’s statement announcing the latest fine against a bank, Wells Fargo at $3.7 billion “Wells Fargo’s rinse-repeat cycle of violating the law” needs to be updated to banks “rinse-repeat cycle of violating the law.”

M&A Double Trouble

Purchasing a corrupt entity is certainly one thing but allowing it to stay corrupt is quite another. As I often say, if an acquisition target engaged in bribery and corruption, or indeed money-laundering, before you acquired them and continue to do so after said purchase; it is not them but you who are now breaking the law. When Danske Bank purchased the branch that became Danske Estonia, it was aware that a substantial portion of the Estonian branch’s customers were “non-residents of Estonia, a group of accounts known as the Non-Resident Portfolio or “NRP” and that many of the NRP customers were from Russia and other former Soviet-bloc countries. These NRP customers’ practices included well-known red flags for potential money laundering: for example, frequent use of offshore LLPs and nominee directors to obscure or conceal beneficial ownership information, use of unregulated intermediaries to carry out transactions on behalf of unknown clients, and ties to jurisdictions with enhanced money laundering risks. Some of these practices were known to Danske in 2007.”

But here is where Danske Bank sealed its fate. As detailed by Matt Kelly in Radical Compliance, calling it the “fatal mistake by bank leadership”; and as laid out in the Plea Agreement, “Danske Bank canceled the migration to the central technology system because the executive board, consisting of Danske Bank senior executives, concluded it would “simply be too expensive” and could cause irregularities.” This allowed Danske Estonia to “maintain its own antiquated IT systems, with no automated customer due diligence or transaction monitoring — simply because bringing the Estonia branch up to acceptable compliance standards would be too expensive. Danske leaders didn’t have the requisite commitment to effective compliance, and from there its AML troubles flowed.”

Money, Money, Money

Perhaps the biggest problem for Danske Bank was the one in the mirror and its addiction to the filthy lucre generated by its Estonia Branch. Both Danske Bank itself and the regulatory authorities made clear the actual AML failures which were ongoing. According to the SEC Order, in “February 2014, Danske hired an external, independent third party to conduct a limited review of Danske Estonia’s AML practices” who concluded into only two months that there were “numerous AML deficiencies that left Danske Estonia highly susceptible to money laundering, including 17 identified as “critical or significant” control deficiencies. Danske’s legal department recommended and retained a third party to conduct a comprehensive internal investigation of Danske Estonia’s customers and transactions and to investigate allegations of employee misconduct. However, Danske senior management canceled the contract and decided to conduct the investigation internally. An internal Danske working group conducted only limited additional investigation of Danske Estonia at that time.”

The regulators identified the illegal issues as well. The Estonia FSA conducted a series of examinations at Danske Estonia and provided a draft report to Danske Estonia which detailed extensive facts concerning willful violations of Estonian AML law by Danske Estonia employees. The report stated, “Danske systematically establishes business relationships with persons in whose activities it is possible to see the simplest and most common suspicious circumstances” and concluded that Danske Estonia systematically ignored Estonian AML law. Danske acknowledged the severity of the Estonian FSA’s findings in communications, including one in which a Danske manager stated, “It is a total and fundamental failure in doing what we should do and doing what we claim to do. This just even more underline[s] the need of full clean up now.” [Emphasis added.] Another manager stated, “The executive summary of the . . . letter is brutal to say the least and is as close to the worst I have ever read within the AML/CTF area. . . . [I]f just half of the executive summary is correct, then this is much more about shutting all non-domestic business down than it is about KYC procedures . . . .” Nonetheless, instead of terminating the NRP business, Danske management opted to continue it because of the profits it generated.” [emphasis in original]

So, we leave this sordid saga of the US DOJ and SEC bringing an AML enforcement action against a Danish bank. At least the US is willing to bring such an enforcement action.