Danske Bank’s chief executive rejected calls to scale back the business at the heart of one of Europe’s largest money-laundering scandals despite concerns raised at the time by other managers and JPMorgan.
At a meeting in October 2013, Thomas Borgen was told by the new head of business banking that the level of activity in its Estonian branch from outside the country — mostly from ex-Soviet states and Russia — was higher than that of rivals and “needed to be reviewed and potentially reduced”, according to minutes seen by the Financial Times.
In response, the minutes said that Mr Borgen “emphasised the need for a middle ground and wanted to discuss this further outside of this forum”.
A person involved in the investigation called the minutes one of the most important documents from the probe. “This was the point at which a decision was made not to stop this business,” the person said.
Danske has been embroiled in a burgeoning scandal over potential money laundering in its Estonian branch between 2007 and 2015. Documents seen by the FT show that at its peak in 2013 about $30bn in non-resident money flowed through the Estonian branch, although not all of this money was suspicious.
Questions have been raised about what the management and board knew about the scandal and when they learned it, particularly for the bank’s chief. Mr Borgen was head of international banking — which included Estonia — from 2009 until 2012 before becoming chief a year later.
The meeting in the afternoon of October 23 in 2013 included an overview of the situation from Lars Morch, who had taken over responsibility for Estonia from Mr Borgen the previous year. Mr Morch was ousted in April as the bank’s chairman conceded it “should have undertaken more thorough investigations at an earlier point”.
Also present at the October 2013 meeting were Henrik Ramlau-Hansen, Danske’s then chief financial officer, who became chairman of the Danish financial regulator in 2016 before resigning this May.
The minutes of the meeting also noted that JPMorgan had been replaced as the correspondent bank for Danske in Estonia by Bank of America.
The Danish regulator’s report on Danske in May, which caused Mr Ramlau-Hansen to resign, stated that in July 2013 a correspondent bank — now known to be JPMorgan — terminated its relationship with the Estonian branch “due to concerns about the branch’s non-resident customers”.
The US bank and Deutsche were the two correspondent banks for Danske at the time and the German lender terminated its relationship with the Danish bank in Estonia in 2015. JPMorgan declined to comment.
Danske is preparing to issue its own conclusions next Wednesday from several investigations into the scandal.
The Danish regulator report underscored that Danske made no decisions about its Estonian business following the October meeting until a whistleblower in December 2013 reported anti-money-laundering problems with one non-resident customer in the Baltic country. That led to an internal audit, discussion in the board and, after leaks to the local media, investigations from Danske started in 2017.
Danske’s non-resident business in Estonia was highly profitable, contributing DKr325m in profits in 2013, or 99 per cent of the total from the Baltic country. Its return on allocated capital was 402 per cent compared with 60 per cent for Estonia as a whole and 16 per cent for Lithuania and 7 per cent for Latvia. A person involved in banking in the Baltics described it as “an astonishing amount of money to make for a universal banking business”.
The person involved in the investigation said: “This area has been [Mr Borgen’s] baby and was massively profitable. That is the reason that nobody wanted to shut it down.”
Danske declined to comment beyond saying: “We are looking forward to sharing the conclusions regarding our investigations on Wednesday.”
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