Danske Bank CEO resigns over $300B money-laundering inquiry

Danske Bank chief executive Thomas Borgen has quit following an investigation into payments totalling some 200 billion euros ($302 billion) through its Estonian branch, with the Danish bank saying many of them were suspicious.

Probe was commissioned after reports of dirty money flowing through its Baltic subsidiary

Thomas Borgen resigned on Wednesday, saying Danske Bank had 'failed to live up to its responsibility in the case of possible money laundering in Estonia.' (Ritzau Scanpix via Reuters)

Danske Bank chief executive Thomas Borgen has quit following an investigation into payments totalling some 200 billion euros ($302 billion) through its Estonian branch, with the Danish bank saying many of them were suspicious.

"It is clear that Danske Bank has failed to live up to its responsibility in the case of possible money laundering in Estonia. I deeply regret this," Borgen said in a statement, which detailed failings in compliance, communication and controls.

Danske Bank commissioned the probe last year after reports of dirty money flowing through its Baltic subsidiary, including from family members of Russian President Vladimir Putin.

Regulators and the financial community will scrutinize the Danske Bank report, which follows calls by Brussels for a new European Union watchdog to crack down on financial crime following a series of major money-laundering scandals.

Danske Bank said its investigation had concluded that Borgen, chairman Ole Andersen and the board of directors "did not breach their legal obligations toward Danske Bank," adding it had taken action against some staff.

"We have taken a number of measures against current and former employees ... in the form, among other things, of warnings, dismissals, loss of bonus payments and reporting to the authorities," the bank added.

Danske Bank's report, which covered around 15,000 customers and 9.5 million payments from 2007 to 2015, said some 6,200 customers had been examined.

"Overall, we expect a significant part of the payments to be suspicious," Danske said in a statement.

Concern over U.S. sanctions

Dutch bank ING this month admitted criminals had been able to launder money through its accounts and agreed to pay 775 million euros ($1.1 billion) to settle the case.

A third of Danske Bank's stock market value has been wiped out in the last six months, driven by concerns over a possible inquiry by U.S. authorities and the penalties this could entail.

"Crucially, Danske say there have been 'no findings of sanctions violations, which is a relief given concerns of an investigation by the U.S. Office of Foreign Assets Control," analysts at brokerage Jefferies said in a note.

Estonia's Baltic neighbour Latvia has been in the centre of various banking scandals, including money laundering, for years after it became a hub for international banking, mainly from neighbouring Russia and eastern European states like Ukraine. The issue caught the eye of U.S. authorities in particular, who have been worried that dirty money flows can help evade sanctions or finance terrorism.

U.S. authorities earlier this year accused Latvia's ABLV of covering up money laundering and the bank was promptly denied U.S. dollar funding, leading to its collapse.

Both Estonia and Latvia are members of the European Union and NATO as well as the eurozone.

Whistleblower ignored

While Danske does not have a banking licence in the United States, banning U.S. correspondent banks from dealing with it would amount to shutting it out of the global financial network.

Danske said it was not able to provide an accurate estimate of the suspicious transactions through its Estonian branch, but said the non-resident portfolio included customers from Russia, Azerbeijan, Ukraine and other ex-Soviet states.

The report found that the bank failed to take proper action in 2007 when it was criticized by the Estonian regulator and received information from its Danish counterpart that pointed to "criminal activity in its pure form, including money laundering" estimated at "billions of roubles monthly."

When a whistleblower raised problems at the Estonian branch in early 2014, the allegations were not properly investigated and weren't shared with the board, Danske said.

And while it took measures to get its Estonian business under control in 2014, these were insufficient.

Danske Bank also said it had decided not to migrate its Baltic banking activities onto its IT platform, because it would have been too expensive. As a result the Estonian branch did not employ Danske's anti-money laundering procedures.

The bank, with its shares falling by eight per cent following the release of the report, also lowered its expectations for annual net profit to 16 billion to 17 billion Danish crowns, from a previous range of 18 billion to 20 billion.

With files from The Associated Press