Danske Bank pleads guilty to defrauding US banks and misleading investors about its customer base and anti-money laundering (AML) controls. The Danish bank agrees to pay over $2billion to settle charges by US authorities.
Danske Bank made a guilty plea for a conspiracy to defraud US banks on Tuesday. It has agreed to forfeit $2billion to settle a long-running US investigation involving billions of dollars in illicit payments.
In court filings, the bank admitted it defrauded US banks between 2008 and 2016 by allowing high-risk non-resident customers from other countries, including Russia, through its Estonian branch.
The branch attracted non-resident customers by ensuring that they could transfer large amounts of money through Danske Bank Estonia with little, if any, oversight.
Branch employees conspired with customers to shield the true nature of clients’ transactions. This conspiracy included the use of shell companies to obscure the true ownership of the funds.
During its eight years of illicit activity, the branch allowed around €200billion ($212billion) in client funds to flow through the US financial system.
US banks require foreign banks to provide accurate information to open and maintain accounts. They must also receive information regarding anti-money laundering (AML) controls, transaction monitoring and customers.
But instead of providing this information, Danske Bank Estonia misled its US counterparts with false insight into its AML compliance programme and transaction monitoring capabilities. Documents also show deception regarding the risk profiles of its customers.
Prosecutors say the bank’s Estonia branch attracted clients by telling them they could transfer large amounts of money with little oversight.
This misconduct was first exposed by whistleblower Howard Wilkinson; a former Danske banker.
Resulting internal and regulatory audits confirm that the branch was aware of the suspicious activity of its non-resident clients by at least February 2014. This includes knowledge of these transactions flowing through US banks.
The shuttering of the Estonian bank triggered a lengthy investigation into Danske’s conduct across multiple countries.
Danske Bank pleaded guilty this week to one count of conspiracy to commit bank fraud under the US Justice Department. Under the terms of the plea agreement, the company agrees to criminal forfeiture of $2.059billion.
The department is to credit approximately $850million in payments the bank makes to the Securities and Exchange Commission (SEC) and the Danish authorities.
The investigation considered multiple factors when reaching its conclusion. These include the nature, seriousness and pervasiveness of the offense conducted and its failure to voluntarily and timely disclose the conduct to the department.
However, prosecutors also took into account Danske Bank’s cooperation with the investigation and the progress of its remediation.
It received full credit for this latter consideration when the bank demonstrated recognition and affirmative acceptance of responsibility for its criminal conduct.
Danske Bank has provided substantial information from its internal investigation, including documents from outside the US. It also brought foreign witnesses forward for interview and provided analysis of complex, cross-border transactions.
Additionally, the SEC recently announced a separate settlement with Danske Bank in connection with a related, parallel proceeding. The bank agrees to pay $413million, which includes a civil monetary penalty of $178.6 million, to departments and authorities connected to the plea.
The scandal has plagued Danske Bank for the last half a decade. This was particularly noted when in October, it set aside $1.9million to resolve regulatory probes around it.
The Bank’s former CEO, Thomas Borgen, was also caught up in the proceedings with a lawsuit from his investors. However, he was ultimately cleared of liability by a Danish court back in November.
This court clearance however has been appealed by a group of investors on Monday.
A clear message
Deputy attorney general, Lisa Monaco, says the guilty plea will “will fiercely guard the integrity of the US financial system from tainted foreign money. Whether you’re a US or foreign bank, if you use the US financial system, you must comply with our laws.”
“Danske Bank lied about its deficient AML systems, transaction monitoring capabilities and high-risk, offshore customer base,” adds assistant attorney general Kenneth Polite Jr. of the Justice Department’s Criminal Division.
“This coordinated resolution with the SEC and Danish authorities sends a clear message that the Department of Justice stands ready to work with our partners around the world to investigate corporate wrongdoing and hold bad actors accountable for their criminal conduct,” continues Polite.
“For years, Danske Bank lied and deceived U.S. banks to pump billions of dollars of suspicious and criminal funds through the U.S. financial system,” says US attorney Damian Williams for the Southern District of New York.
“In doing so, Danske Bank deliberately disregarded US law of which it is well aware, facilitated the laundering of criminal and suspicious proceeds through the United States, and placed the US financial network at risk, all in the name of its bottom line.
“Banks and other financial institutions around the world should heed this message: If you want to use the US financial system, you must play by the rules. If you don’t, we will hold you accountable,” Williams’ statement concludes.