DNKEY Danske Bank AVS (PK)

By Patricia Kowsmann, Drew Hinshaw and Bradley Hope 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (September 19, 2018).

Bank officials at the center of one of Europe's largest money laundering scandals knew earlier than previously indicated about problems at its tiny Estonian branch, including that it held accounts for blacklisted Russian clients, according to correspondence seen by The Wall Street Journal and Estonia's financial regulator.

It is the latest indication that officials at Danske Bank were aware almost two years before it started shutting questionable accounts that the small but highly profitable branch was involved in potentially illicit money flows.

Danske Bank, Denmark's biggest bank, is being probed by U.S. authorities who want to know why its tiny branch in the former Soviet republic of Estonia processed as much as $150 billion in transactions from 2007 to 2015 from foreign countries, mainly Russia. Denmark's politicians -- and a falling share price -- have put pressure on the bank to disclose how much its executives knew about any suspicious money shifting through there. The bank is scheduled to disclose findings from an internal probe on Wednesday.

A Danske spokesman declined to comment.

In an April 2013 email, Danske Bank's anti-money-laundering chief, based in Denmark, asked colleagues in the Estonia branch about client accounts whose owners appeared on a blacklist generated by Russia's central bank. Russia's central bank keeps a database of individuals and companies suspected of financial wrongdoing -- about 500,000 presently -- and shares it across borders.

Estonian authorities had repeatedly complained to Denmark's banking supervisor, the email said: "They have the impression that we do not take the issue very seriously," wrote Niels Thor Mikkelsen, the bank's then-compliance executive.

The Danish Financial Supervisory Authority -- in charge of making sure Denmark's banks obey anti-money-laundering rules -- was "very worried because they have confirmed to U.S. authorities that we comply with Danish [anti-money-laundering] requirements," he wrote, copying the email to several employees of the branch. "The Danish FSA has helped the Bank in a critical situation. They are now very worried that any situation may arise."

It wasn't clear, Mr. Mikkelsen wrote, if Danske Bank's Estonia branch was indeed in compliance. He asked a series of questions about the blacklisted clients, such as "How do we handle their relationship?"

Mr. Mikkelsen declined to comment, citing legal secrecy. In an email Tuesday, Estonia's Financial Supervision Authority confirmed it repeatedly complained to Danish counterparts about the branch's blacklisted customers.

A spokesman for the Danish FSA referred to a paragraph in a reprimand ruling it issued against Danske in May, which says it received "misleading" information from the bank between 2012 and 2014. Danske says the information it received came from the branch.

The Russian Central Bank didn't immediately respond to requests for comment.

The email about the Russian blacklist indicates Danske Bank officials were aware of problems in the first half of 2013. According to a statement it published in July, Danske Bank said it got word of serious problems at its Estonia branch when a whistleblower tipped them off in December 2013.

Banking blacklisted clients could put Danske afoul of regulators in Russia, where the Danish bank has a subsidiary.

"The Russian Central Bank is by Russian standards relatively reputable," said Mark Galeotti, an expert on Russian financial crime at Prague's Institute of International Relations. "You take the names that are on that list seriously."

Danske is Denmark's largest bank, holding over a third of the country's customer deposits. It expanded in recent decades across Northern Europe and the Baltics.

The Estonia branch was one of its profit drivers, making EUR63 million ($73.5 million) in 2012 in net profits, the branch's most lucrative year, according to the bank supervisor's records. That year, the entire bank, still wrestling with the aftermath of the 2008 financial crisis, reported EUR636.6 million in net profits.

Write to Patricia Kowsmann at patricia.kowsmann@wsj.com, Drew Hinshaw at drew.hinshaw@wsj.com and Bradley Hope at bradley.hope@wsj.com

(END) Dow Jones Newswires

September 19, 2018 02:47 ET (06:47 GMT)

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