Denmark Reopens Money-Laundering Probe -- WSJ

By Patricia Kowsmann and Drew Hinshaw

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 21, 2018).

Danish authorities reopened an investigation into a massive Russia-linked money laundering scandal at their country's largest bank, as investors looked to assess the impact after the lender admitted to letting $233 billion move through a single Eastern European branch.

The Danish Financial Supervisory Authority, said Thursday that it would revisit a probe at Danske Bank that it had closed in May, when it reprimanded the bank and ordered it to set aside $800 million in capital for any risks. The regulator can't directly impose fines, but it can report its findings to the police and deem executives unfit. Employees at the bank's Estonia branch are under investigation by Estonian prosecutors for helping customers from Russia and other ex-Soviet Union states spirit ill-gotten gains abroad.

The move by regulators comes after Danske Bank published a report Wednesday saying employees had failed to run basic background checks on thousands of customers who lived outside the Baltic country. Customers often deposited money in cash. Investigators the bank hired suspect a "large portion" of those transactions were laundered money, the report said.

U.S. officials have expressed concern that Denmark, a founding member of the North Atlantic Treaty Organization, didn't do more to crack down on inflows of illicit Russian wealth at a time of heightened tensions between Moscow and the West. The report has embarrassed officials in the Scandinavian country, which is often ranked among the world's most transparent.

Danish politicians have called for swift punishment for any employees or executives found to be involved and steeper fines for such behavior going forward. On Wednesday, Danske Bank's CEO Thomas Borgen resigned.

Separate from Denmark's banking regulator, prosecutors there are investigating Danske for alleged money laundering crimes.

"This is a serious case," Danish State Prosecutor Morten Niels Jakobsen told The Wall Street Journal.

The renewed probe increases pressure on Danske, whose shares have fallen almost a third this year as the size of the scandal kept growing bigger. Analysts have estimated fines between $600 million to billions of dollars if the U.S. decides to impose its own. Analysts say the bank has enough capital to withstand even a large fine.

The biggest risk, analysts and regulators have said, is that Denmark's largest bank could be cut off from the global dollar-led financial system. Under U.S. law, the Treasury has the power to restrict the flow of U.S. dollars to a foreign bank suspected of laundering money, a penalty known as the "death blow sanction" because it often sends lenders into financial collapse. U.S. authorities can also use threats of that penalty to force the bank to settle for steep fines.

The Justice Department, Treasury Department, and the Securities and Exchange Commission are each examining the bank, The Wall Street Journal reported this month. Danske officials said Wednesday they aren't aware of any U.S. investigations.

"There's huge uncertainty around the scale of any fines, with the U.S. being the biggest question mark," Berenberg analyst Adam Barrass said. Mr. Barrass said the bank has enough capital to withstand his current estimate of $1 billion.

Danske Bank, one of the 25 largest banks in Europe by assets, doesn't have a banking subsidiary in the U.S., but does operate a securities arm there. It also has several U.S. dollar bond issues that were marketed to U.S. investors. Its stock is traded over-the-counter an American depository receipt.

Danske Bank's share price rose 4% percent Thursday as some investors concluded that the bank was unlikely to face stiff penalties from either Danish or American regulators. The bank has said it so far as found no evidence that it breached U.S. sanctions.

But it also hasn't checked some 8,000 clients out of the 15,000 its Estonian branched managed. Nor has it checked who those clients sent their money to, the bank said Wednesday.

"The problem with the bank is, it's a matter of luck," said John Byrne, CEO at Corlytics, a regulatory risk intelligence firm. "If there's any party on a U.S. sanction list that they've processed transactions for, that's where the trouble starts."

Write to Patricia Kowsmann at patricia.kowsmann@wsj.com and Drew Hinshaw at drew.hinshaw@wsj.com

(END) Dow Jones Newswires

September 21, 2018 02:47 ET (06:47 GMT)

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