Danske Bank faces US DoJ probe over Estonia money laundering

Danske Bank is under investigation by the US Department of Justice over foreign accounts linked to the €200bn money-laundering scandal centred around the bank’s Estonian branch, while Swedbank provided more assurances on Thursday.

In a statement made by the Danske on Thursday, the lender confirmed it had received “several requests for information” from the DoJ and said that it was cooperating with authorities.

The US investigation had been rumoured in the Danish media and now joins other official inquiries being carried out by both Danish and Estonian authorities.

Danske also said it would end a share buyback scheme after Danish authorities said its compliance and reputational risks are higher than previously thought.

The company’s chief executive, Thomas Bergen, stepped down last month after allegations surfaced over the summer that as much as €200bn had been laundered through the small Estonian branch and the company’s board admitted that they could have done more to prevent the laundering.

The Danish bank said that much of $235bn in non-resident flows between 2007 and 2015 could be deemed suspicious. It said 6,200 of the 15,000 accounts covered by the flows have the highest risk indicators for laundering and have now been reported to authorities.

The source of the funds is unclear, although the Estonian investigation is understood to be focussed on the handling of Russian and ex-Soviet money.

On Wednesday the central bank of Estonia, a country where banks handled roughly €900bn in cross-border transactions between 2008 and 2015, issued a statement on Wednesday said it could not provide an estimate for the share of non-resident flows.

SWEDISH LINKS

Shares fell in a number of Swedish bank active in the Baltic region tumbled, with Swedbank, which Estonia's largest non-domestic bank with a 55% market share, losing around $1.6bn of market cap after the Central Bank of Estonia statement.

But Swedbank assured on Thursday that there were no ongoing investigations into its anti-money laundering procedures.

“There are currently no ongoing investigations into our bank from any of our regulators concerning anti-money laundering practices,” Swedbank said in a statement.

“We have always had zero tolerance against money laundering in all markets where we operate.”

Analysts at JP Morgan said the statement draws attention to Sweden's banks, given their dominant market share.

JP Morgan noted that Swedbank engaged with some, although “limited number” of non-resident customers in the Baltics and that the region accounted for over 20% of Swedbank’s net income.

With Swedbank having a US New York State-licensed branch, JP Morgan said it felt "that the valuation at the current level is fair" and downgraded Swedbank to 'neutral' pending further clarification and took Swedbank out of its "top pick" European bank portfolio.

Jefferies said the market cap loss, "for what the Estonian Central Bank clarified may potentially just be helping local entrepreneurs facilitate the sale of milk to Lithuania, seems slightly excessive to us".

Swedbank's and the Swedish authorities' reassurance over limited money-laundering risks, controls and the size of NRPs "should help to remove the overhang on the shares from this issue, with the market fretting over a Danske-Estonia episode rerun".