On September 4, the editorial board of the Financial Times published an editorial that calls for a central anti-money laundering body for Europe. The foundation for the editorial was the extensive and growing series of media reports about money laundering through the Estonian branch of Danske Bank, the largest bank in Denmark.
Since September 2017, when Danske Bank initiated what it termed “thorough and comprehensive investigations into the non-resident portfolio of the Estonian branch,” estimates of the scope and scale of alleged money laundering through that branch have continued to rise:
- In May 2018, the Danish Finanstilsynet (Financial Supervisory Authority (FSA)) issued a report to the bank’s Board of Directors and Executive Board that while it recognized “that the bank has made various improvements in the AML and compliance areas in recent years,” it was issuing eight orders and eight reprimands relating to the Estonian branch activity. In particular, the FSA found that the branch “had high earnings on Russian and other non-Baltic customers (non-resident customers), whose total volume of payments through the branch was very considerable. For example, 35% of the profit in the branch in 2012 was generated by Russian customers, who made up 8% of the customer base.”
- In July 2018, the Danish newspaper Berlingske reported that as much as $8.3 billion may have been laundered through the Estonian branch from 2007 to 2015.
- Most recently, on September 3 the Financial Times reported that an independent investigation commissioned by the bank found “that as much as $30 billion (€26 billion) of Russian and ex-Soviet money moved through the Estonian branch” in 2013. A draft report of the investigation, by the financial consulting firm Promontory Financial, also disclosed that the $30 billion was reflected in nearly 80,000 transactions, and that after 2013, the volume began to decrease and accelerated its decline after the Estonian Financial Services Authority began its own investigation.
- UPDATE: On September 7, the Wall Street Journal reported that Danske Bank is now examining $150 billion in transactions that moved through the Estonian branch between 2007 and 2015.
The Financial Times editorial referred to the $3 billion as “an eye-popping volume for a small branch operation [that] suggests serious gaps in the bank’s safeguards, and in Europe’s efforts to combat money-laundering.” It also pointedly remarked that “US officials — who have repeatedly, and embarrassingly, proved better able to police European money laundering than Europe’s own authorities — have not confirmed whether they are probing Danske themselves, but said they are ‘following the case closely’.”
Noting that the Danske Bank case had “highlighted again the patchwork nature of Europe’s anti-money laundering supervision,” it concluded:
While the European Central Bank scrutinises banks’ business models and governance, policing criminal financial flows is still a national competence. An EU-wide anti-money laundering body is sorely needed to harmonise and enforce rules, and direct additional resources to where they are most needed. EU institutions and member states need to find the political will to close what is a gaping hole in the continent’s regulatory framework.
Note: The Financial Times editorial understandably paints with a broad brush. In doing so, it fails to take into account the existence of the current European Union AML legal framework, including the 4th and 5th Anti-Money Laundering Directives, or of other multinational governmental bodies such as the European Banking Authority or the Financial Action Task Force, which has played a highly influential role in setting standards and promoting effective implementation of AML and terrorist-financing measures. But broadbased compliance failures at leading European financial institutions such as Danske Bank and ING indicate that the current structure of national and supranational AML regulation in Europe is falling short in timely identification of and response to significant instances of AML noncompliance.
In that respect, the Financial Times editorial is a welcome call to action — albeit one to which the European Union so far is not responding with any dispatch. According to Reuters, a preliminary EU plan to enhance AML “acknowledges that “there may be gaps in the EU’s supervisory framework” to counter money laundering, but pushes back any meaningful action to late next year or beyond.