LONDON (Reuters Breakingviews) - The popularity of Scandi noir rests on the contrast between the banal surface of Nordic societies and the nefarious activities underneath. An internal report into potential money laundering through Denmark’s largest bank by assets – accompanied by the immediate resignation of appropriately named chief executive Thomas Borgen – has provided the latest must-watch instalment. Danske Bank’s problem is that further unpleasant plot twists lie ahead.
Danske’s long-awaited report is, as predicted, damning. The 200 billion euros of payments that flowed through its Estonia subsidiary between 2007 and 2015 are even bigger than feared. “A large part” of the 6,200 customers that have so far been examined are classified as suspicious – meaning they displayed obvious red flags such as sharing addresses with other entities regarded as suspect, or suddenly yielded unexplained large payments.
Danske will struggle to convince anyone it was completely oblivious. Warning lights on its Estonian branch, which it had acquired by taking over Finland’s Sampo Bank, were flashed by the local regulator and even the Russian central bank as far back as 2007. Plans to migrate the Baltic banking activities onto Danske’s main IT systems were binned as too expensive – even though the dodgy “non-resident portfolio” often generated over two-thirds of the Estonian division’s annual pre-tax profit and in 2011 Estonia generated 10 percent of overall group pre-tax profit. Over a fifth of incoming funds were from Russia.
Danske’s main problem now is that with a good portion of the suspicious payments made in dollars, it is virtually guaranteed aggressive pushback from the United States. Worse, it can’t be sure how bad the problem really is. In the most extreme scenario, assuming all the transactions were laundered funds and scaling fines imposed on Deutsche Bank and BNP Paribas proportionately, the fine could hit 53 billion Danish crowns ($8.3 billion), analysts at Jyske Bank reckon. But that assumed the number of dodgy transactions amounted to around $150 billion rather than $230 billion.
Danske has one thing bang on. Unlike BNP Paribas, whose chair Baudouin Prot only left after it had swallowed a $9 billion U.S. fine for sanctions-busting, heads have rolled pre-emptively. Even so, as head of international banking activities before stepping up to CEO in 2013, Borgen would have had to go anyway. Danske should ready itself for a nasty denouement.
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