Deutsche Bank Faces Growing U.S Scrutiny Over Money Laundering

By Bloomberg

Deutsche Bank AG is facing broadening U.S. scrutiny as a leading Republican lawmaker joined Democratic colleagues in questioning the company’s steps to combat money-laundering amid reports that its U.S. unit may have been a key conduit for dirty cash.

Representative Patrick McHenry, the top Republican on the House Financial Services Committee, sent a letter Thursday to CEO Christian Sewing, seeking documents that outline what internal and independent reviews have turned up about how the bank shields against illicit transactions.

The North Carolina lawmaker’s move comes as the bank acknowledged that it has received an inquiry from House Democrats who are coordinating efforts to probe the Frankfurt-based lender and as the Federal Reserve looks into the company’s involvement with a scandal-plagued Danish bank.

“It is critically important for the American public to have confidence Deutsche Bank is adequately addressing the vulnerabilities that allowed billions of dollars tied to criminal activities to move through the international banking system,” McHenry said in his letter, which set a Feb. 7 deadline for a response from the bank.

McHenry highlighted Deutsche Bank’s involvement in scandals ranging from “mirror trading” to how its U.S. unit handled billions of dollars in tainted transactions from Danske Bank A/S. Bloomberg reported Wednesday that the Fed is looking into the Danske transactions, adding to the international authorities, including the U.S. Department of Justice, pursuing investigations on those interactions.

In response to the probes, the bank has launched internal reviews and been required to bring in outside firms to investigate its conduct and controls. McHenry requested that findings from those reviews be provided to the committee, even though the reports haven’t been made public.

“We remain committed to providing appropriate information to all authorized investigations,” the bank said Thursday in a statement responding to a request for comment. Deutsche Bank acknowledged earlier Thursday that it is engaged in “productive dialogue” with the House Financial Services and Intelligence Committees, whose leaders have said they will work together on oversight of the company.

Representatives Maxine Waters of California, who leads the financial services panel, and Adam Schiff of California, who leads the intelligence group, have said they’d jointly pursue information on the bank’s dealings with the real estate business of President Donald Trump.

The Democrats, who ascended to chairmanships when their party took control of the House this year, have long been interested in the bank’s ties to the Trump Organization, but previously lacked authority to call witnesses or issue subpoenas for other material.

“The House Financial Services and Intelligence Committees are engaged in productive discussions with Deutsche Bank, and look forward to continued cooperation,” Waters and Schiff said in a statement.

Senate Democrats Elizabeth Warren of Massachusetts and Chris Van Hollen of Maryland last month urged Banking Committee Chairman Mike Crapo to probe the company’s correspondent banking business for vulnerabilities to money laundering.

The German lender has been sanctioned before by the Fed, its primary U.S. regulator. In 2017, the company agreed to pay $41 million to settle allegations its U.S. business failed to keep up sufficient money-laundering protections.

The bank’s faulty monitoring involved billions of dollars in “potentially suspicious transactions” processed from 2011 through 2015, the Fed said, adding that the transactions involved affiliates in Europe that failed to provide “accurate and complete information.”

Security minister reveals knowledge of football money-laundering investigation

Ben Wallace says the sports industry “is as susceptible as anything else” to being used to hide the source of dirty money.

New York Red Bulls made the play-offs by beating Montreal on Saturday evening
‘I know of (a) professional football club or clubs under investigation,’ Mr Wallace said

A professional football club or clubs are being investigated over allegations of money laundering, a minister has said.

Security minister Ben Wallace told the treasury select committee that the sports industry “is as susceptible as anything else” to being used to hide the source of dirty money.

Committee member and Labour MP John Mann asked Mr Wallace: “When it comes to money laundering, how many professional football clubs have been deemed as requiring investigation currently?”
Ben Wallace arrives at Downing Street
The minister said it can take years for money laundering investigations to finish

The minister replied: “I know of (a) professional football club or clubs under investigation.

“I couldn’t reveal how many and what they are, for that is an operational matter.”

When he was pushed to give the number involved, Mr Wallace said: “There are live investigations that go on all the time and to expand any more could threaten investigations.

“The sports industry is as susceptible as anything else to dirty money being invested or their organizations being used as a way to launder money.”

Mr Wallace told the MPs it can take years for investigations into money laundering to be finished.

He said suspicious activity reports, a means of giving information to police about potential criminal activity by customers or clients, should be made “by anyone” and not just banks.

“Not enough” had been reported by the football authorities, Mr Wallace told the committee.

A National Crime Agency spokeswoman said: “We do not routinely confirm or deny the existence of investigations.”

“We have not charged any professional football clubs with money laundering, and there are none currently in the court process.”

Senate Democrats call for federal investigation into money laundering in luxury real estate

By Ben lane

The Treasury Department’s Financial Crimes Enforcement Network has been looking into whether foreign buyers are using shell companies to buy luxury U.S. real estate in order to launder money for almost three years, but two Democratic senators want the government to do more to figure out how much criminal activity is prevalent in these deals.

The initial FinCEN investigation delved into unknown buyers using shell companies to buy high-end real estate in Manhattan and Miami-Dade County, because the government was “concerned about illicit money” being used in the deals.

The results of that initial investigation showed more than 25% of transactions covered in the initial inquiry involved a “beneficial owner” who is also the subject of a “suspicious activity report,” which is an indication of possible criminal activity.

The initial investigation also led FinCEN to expand the probe to include all of New York City, Los Angeles, San Francisco and several other areas. The investigation was later expanded again to include wire transfers.

The expanded investigation required title insurance companies in the designated areas to identify the actual person behind shell companies used to pay all cash for high-end residential real estate.

But that investigation isn’t enough for two Senate Democrats.

This week, Sens. Chris Van Hollen, D-Maryland, and Sheldon Whitehouse, D-Rhode Island, asked the Government Accountability Office, to also look into whether money laundering is taking place in U.S. real estate.

In a letter sent to the independent watchdog agency, Van Hollen and Whitehouse say that they are concerned that “transnational criminal organizations and other illicit actors” may be taking advantage of “gaps” in the government’s regulatory and law enforcement process surrounding real estate dealings.

“The widespread money laundering risks posed by real estate transactions conducted without any financing (i.e.,“all-cash”) through the use of shell companies creates challenges for law enforcement and federal regulators seeking to safeguard the financial system from illicit use,” the senators write in their letter to the GAO.

The senators write that they are hopeful that a GAO investigation will help determine whether violations of the Bank Secrecy Act or federal anti-money laundering laws are taking place.

“FinCEN has indicated that these GTOs (geographic targeting orders, the measures FinCEN has taken to this point), which have been renewed and extended several times, are temporary measures intended to help the agency, ‘better understand the vulnerabilities presented by the use of shell companies to engage in all-cash residential real estate transactions,’” the senators write.

“To better ensure effective and consistent AML safeguards, we are requesting an assessment of the results of the real estate GTOs, including the information provided to FinCEN and any actions taken, and how it has helped FinCEN achieve its defined objectives,” they add.

Van Hollen and Whitehouse also lay out a series of questions they’d like the GAO to answer about the issue, including:

Has the information gathered by the GTOs provided useful insight about any of the above mentioned regulatory gaps or exemptions that exist regarding the BSA and the real estate industry?

Has the information gathered by the GTOs produced other tangible benefits, and in what ways will closing the above mentioned regulatory gaps or exemptions enhance financial market integrity in the United States?

How has FinCEN used the information collected from the real estate GTOs to inform its ongoing efforts to address money laundering vulnerabilities?

Has the information gathered by the GTOs improved the ability of FinCen, DOJ, the FBI and other law enforcement agencies to prevent money laundering in the real estate industry?

Based on the information it has collected from these GTOs, is FinCEN considering any regulatory changes?

Are there ways to improve upon the information gathered by the GTOs to make FinCEN more effective in the fight against money laundering?

Are there any gaps or loopholes that exist in the design of the GTO program that could be exploited by illicit actors, such as the beneficial ownership thresholds  or limiting the GTO to title insurance companies?

Are there any unintended consequences from targeting specific geographic regions while leaving other areas uncovered? The adaptive nature of illicit actors raises concerns they may shift their real estate activities from GTO areas to other regions of the United States.

Lastly, we ask that GAO identify any additional vulnerabilities and gaps in the current BSA framework, specifically as they pertain to the real estate sector, and how they might be addressed through regulatory or legislative action.

The EU’s 5th Anti-Money Laundering Directive: What Does It Mean?

By Vishal Marria

In the past week alone, cases of money laundering have hit headlines all around Europe. An investigation found that up to $30 billion of ex-Soviet and Russian money had potentially passed through the Estonian branch of Denmark’s largest bank, Danske Bank. It also emerged only last week that Dutch bank ING will have to pay €775m in fines after it allowed ‘structural infringement’ of the Netherlands’ Money Laundering and Terrorist Financing Act. So, what is being done about Europe’s evident money laundering problem?

In July this year, the European Commission brought into force the 5th Anti-Money Laundering Directive. In the preceding 12 months, a string of money laundering cases which involved high-profile and politically exposed individuals had placed increasing pressure on the Commission to update its policy. The same 12 months saw a series of devastating terror attacks across Europe which raised serious questions about terrorist financing and therefore confirmed the need for policy reform.

The primary focus of the latest directive is to establish a centralized and public register of companies and their ultimate beneficial owners. A typical method of money laundering involves the creation of a shell company which exists solely on paper in order to transform the profits of crimes into ostensibly legitimate assets. Making corporate ownership information public is expected to reduce the use of shell companies because this information will be open to much greater public scrutiny. The directive also requires that the data on these registers be subject to comprehensive verification mechanisms to ensure that the registers themselves cannot be manipulated.

International cooperation is another priority of the directive. Historically, criminal networks have been able to capitalize on the lack of interinstitutional communication by choosing to launder money through countries or banks where they know they are less likely to be detected. The directive is explicit about European banks and their respective Financial Intelligence Unit’s working collaboratively. Centralized bank account and corporate ownership registers must be able to interconnect and be accessible to all member states. Cooperation at this level is expected to be particularly impactful in preventing laundering designed to exploit vulnerabilities of specific member states.

The new directive is the first of its kind to take into consideration digital currencies and prepaid cards. Newer financial technology had been largely overlooked by AML policy until it became clear that they had been used to fund several terror attacks across Europe. The vehicles used in the 2016 Nice truck attack were paid for by pre-paid card because of the anonymity that these cards afford the user. The maximum amount that can be placed on these cards has already been drastically reduced but the new directive also dictates that banks must investigate the holder of any pre-paid card with a value over EUR 150. Similarly, cryptocurrencies and wallets will be held to the same standards as other financial institutions under the new directive to ensure that digital currencies cannot be used to obfuscate a trail of money.

Europe’s money laundering problem was born historically out of an apathy manifested by inefficient detection systems which have been routinely capitalized on by criminals. The EU’s 5th Anti-Money Laundering Directive is the latest in a series of policy developments which demonstrate its commitment to remedying the problem itself. The cooperation of banks on an international level should have a profound effect on the efficacy with which fraudsters operate by drastically restricting their means of deception. And, the introduction of public registers and limits on anonymous financing options restrict their opportunity further still. Europe has a long way to go before it is rid of its dirty money problem but its latest directive is another fantastic step in the right direction.

Money Laundering and Specific Intent Can Be Difficult to Prove

By Terence Grugan

A recent decision out of the United States District Court for the Eastern District of Virginia adjudicating a seemingly straight-forward alleged fraud and money laundering scheme reminds us that money laundering charges still require the government to establish elements which can be difficult to prove, including, importantly, specific intent.

United States v. Millender involved an investment fraud scheme charged against a husband and wife and their associate. Terry and Brenda Millender were, respectively, the founder and pastor, and the “First Lady” of the Victorious Life Church (“VLC”) in Alexandria, Virginia. The evidence at trial established that Mr. Millender conceived of and founded Micro-Enterprise Management Group (“MEMG”), purportedly for the purpose of helping the poor in developing countries by making small, short-term loans to entrepreneurs who wished to start or expand existing businesses. Mrs. Millender was the co-founder, registered agent, and signatory of MEMG. To fund the enterprise, MEMG solicited “loans” from VLC congregants and other private lenders. MEMG promised its investors high rates of return through profits on the entrepreneur loans and assured them that the loans were securely backed by MEMG assets. Moreover, written materials soliciting investment represented that MEMG had a successful history of making micro-loans in Africa and had established relationships with on-going projects. Later, Mr. Milliner founded a second entity, Kingdom Commodities Unlimited (“KCU”), purportedly for the purpose of brokering Nigerian oil deals, and promising investors substantial returns on what they claimed were short term loans. The defendants solicited over $600,000 from investors from 2008 until 2015.

The Millender opinion reflects the complexity of the different prongs of the money laundering statutes, and their somewhat overlapping and competing requirements. The opinion is particularly noteworthy because of its procedural posture: despite jury verdicts finding guilt, the district court nonetheless found at least as to some counts that there was insufficient evidence as a matter of law of knowledge and specific intent.

On June 29, 2017, the grand jury returned a superseding indictment charging the Millenders and Grentta Wells, an associate, with 31 counts of wire fraud, tax fraud and money laundering. The government charged that the defendants traded the borrowed funds in high risk investments on foreign exchanges (“FOREX”), losing a substantial portion of the investments. MEMG allegedly never made any micro-loans or consummated any oil deals. Instead, and according to the superseding indictment, the defendants squandered their investors’ assets on unsuccessful FOREX trading and used the remained to fund personal expenses. Investors never were repaid their loans and were provided falsified information and, in some instances, small “lulling” payments when the promised full repayments were not forthcoming. After Wells pleaded guilty to one count of conspiracy to commit wire fraud, the Millenders went to trial. They were convicted.

Following an eight day trial, Terry Millender was convicted of wire fraud, conspiracy to commit wire fraud, filing false tax returns and aiding and assisting in the filing of false returns, obstruction of justice, and various money laundering charges. As to the money laundering charges, he was convicted of committing, or conspiring to commit, money laundering with an intent to “promote” the underlying criminal activity, in violation of 18 U.S.C. § 1956(a)(1)(A)(i), or an intent to “conceal” the illegal proceeds derived from that activity, in violation of 18 U.S.C. § 1956(a)(1)(B)(i). He also was convicted under the “international” prong of the money laundering statute, in violation of 18 U.S.C. § 1956(a)(2)(A), of conducting a cross-border financial transaction with the intent to promote a specified unlawful activity (as we have blogged, this is a unique money laundering provision because it does not require the use of previously-obtained illegal proceeds in the transaction), and under the “spending” money laundering statute, in violation of 18 U.S.C. § 1957, which requires a transaction involving over $10,000 of illegal funds.

Brenda Millender was convicted of conspiracy to commit wire fraud, conspiracy to commit money laundering, and substantive money laundering. Similar but not identical to the charges against her husband, her money laundering charges variously involved an intent to “promote” the underlying criminal activity, in violation of 18 U.S.C. § 1956(a)(1)(A)(i), and an intent to “conceal” the illegal proceeds derived from that activity, in violation of 18 U.S.C. § 1956(a)(1)(B)(i). Mrs. Millender was not charged with any “international” money laundering charges.

Following the verdict, the Millenders both moved for judgment of acquittal under Federal Rule of Criminal Procedure 29, and Mrs. Millender also moved for a new trial under Federal Rule of Criminal Procedure 33. Although the Court denied Mr. Millender’s motion, it granted Mrs. Millenders’ motions, overturning the jury’s decision and vacating its guilty verdict against her.

The Underlying Fraud Scheme: Husband vs. Wife

Describing the underlying schemes as “hair brained,” the Court distinguished Mr. Millenders’ involvement from Mrs. Millender’s. Addressing the wire fraud charges first, the Court explained that Mr. Millender “was the moving force, leader and manager” of the fraudulent schemes and “he effectively controlled and directed” the scheme by “review[ing] and approv[ing] all of the informational brochures and documents for investors that contained false and misleading information; and clearly knew that some of the representations used to solicit borrowed funds were false or misleading.” Further, Mr. Milliner “actively and knowingly concealed the fraudulent nature of the schemes through both MEMG and KCU, and engaged in further misrepresentations in order to induce lenders to either part with more money or not press for repayment.”

In contrast, the Court stated as to Mrs. Millender that “there was no evidence that she played any role in conceiving or understanding the scheme or ‘business model’ used to solicit borrowed funds [and she] . . . was not listed in promotional materials [or] was involved in generating any promotional materials or had ever seen the promotional materials provided to potential lenders.” The Court also explained that there was no evidence she had any active involvement in the creation or operation of the venture beyond being listed as its owner and registered agent. Although the Court found that Mrs. Millender “substantially benefited from the charged fraudulent scheme,” the Court determined there was still no evidence that Mrs. Milliner knew the distributions she received were improper or part of the fraudulent scheme. In addition, the Court discounted a bankruptcy filing jointly submitted by Mr. and Mrs. Millender “which contained false and misleading statements,” stating that there was no evidence establishing what role Mrs. Millender played in the filing. In essence, the Court made clear that it was not enough for the government to connect Mrs. Millender – or any similarly-situated fraud defendant – to the fraudulent enterprise. Rather, the connection must be to the actual fraudulent conduct: the government must present specific evidence that a defendant specifically intended to perpetrate or participate in the charged fraud.

The Money Laundering Scheme: Insufficient Evidence of Mental State

Turning to the money laundering charges, the Court overturned Mrs. Millender’s conspiracy to commit money laundering because “the evidence was insufficient to establish that she knew the funds involved in the . . . transactions represented the proceeds from some form of unlawful activity,” for the same general reasons underlying the vacation of her wire fraud convictions.

Finally, the Court dismissed all of the substantive money laundering charges against Mrs. Millender, and several of the substantive money laundering charges against Mr. Millender, as insufficiently proven. Mr. Millender was charged with two forms of money laundering: “promotional” money laundering and “concealment” money laundering – and the “promotional” money laundering charges involved both the traditional charge under Section 1956(a)(1)(A)(i), and the “international” charge under Section 1956(a)(2)(A), which, as noted, does not require proof that the transaction involved the use of previously-obtained illegal proceeds. Both Millenders were also charged with several substantive counts of “concealment” money laundering under 18 U.S.C. § 1956(a)(1)(B)(i), which requires in part proof that the defendant knew that the transaction was designed in whole or in part to conceal or disguise the nature, location, source, ownership, or control of the proceeds.

Addressing the promotional money laundering charges against Mr. Millender, the Court held the evidence was sufficient to prove that he used fraudulently-obtained funds to promote his scheme when he made wire transfers from the account of a British Virgin Islands company created by Mr. Millender to facilitate his FOREX trading to an MEMG account located in the United States. This holding by the Court is slightly incorrect, because it was unnecessary for the jury to find, at least for the purposes of any charges under the “international” prong, that fraudulently-obtained funds were used. Regardless, the point here is that there was sufficient evidence of an intent to promote.

However, the Court dismissed the concealment money laundering charges as to both Millenders. According to the Court, “concealment” money laundering requires the government prove “a specific intent to structure a transaction so as to conceal the true nature of the proceeds.” Those charges centered on debits from a bank account associated with the venture purportedly for business related expenses. The Court held that none of the transactions “was sufficiently structured such that a jury could infer the required mens rea” because none of the transactions concealed the source of the money or reflected any other indicia that their purpose was to conceal their source.

Arguably, as to Mrs. Millender, the Court should have vacated all of her money laundering charges once it found for the purposes of the conspiracy charge that she lacked knowledge that the proceeds at issue in the charged transactions involved the proceeds of specified unlawful activity. Given lack of knowledge by Mrs. Millender, it may have been unnecessary to assess her specific intent.

A Rare but Not Impossible Defense Victory

The Court’s opinion is noteworthy because of the posture from which it disposed of the charges against the Millenders. Fed. R. Crim. P. 29 permits the Court to overturn a jury’s guilty verdict only if it concludes that “after viewing the evidence in the light most favorable to the prosecution, no rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt.” This is an exceedingly deferential standard prohibiting the Court from “weighing the credibility of the evidence or resolving any conflicts in the evidence presented,” instead requiring the Court to “assume that the jury resolved all contradictions in the testimony in favor of the government.” Similarly, Fed. R. Crim. P. 33 permits a Court to grant a new trial after the jury has rendered a guilty verdict only “in the rare circumstance when the verdict is against the great weigh of the evidence.” Rule 29 and Rule 33 motions are rarely successful, particularly where, like with Mrs. Millender, circumstantial evidence connects the defendant with the fraudulent enterprise.

Nevertheless, intent remains a meaningful and sometimes elusive element of criminal offenses. As the Court here did, court should take care to ensure that intent is not conflated with other elements of the offense and accorded its full weight and meaning. However, recognizing the government may appeal its decision, and seemingly acknowledging that the government’s position may have some merit, the Court concluded its order by alternatively holding that Mrs. Millender still would receive a new trial if her convictions were reinstated.

European countries have been ‘oblivious’ in fighting money laundering, says Latvian minister

By Silvia Amaro

European countries have failed to address financial crime and it is time to take action, the Latvian finance minister told CNBC Wednesday.

The Latvian ABLV, the Danish Danske Bank and the Dutch ING have all recently been involved in scandals over money laundering and financial crime. Dana Reizniece-Ozola, finance minister of Latvia said that these cases have “opened a Pandora’s box” and asked banks do to more to prevent such situations.

“Countries in the European Union have been oblivious in fighting financial crime,” the finance minister told CNBC’s “Squawk Box Europe.”

“Something has to be done, not only at the national level but also at the European level, like probably strengthening the EBA (European Banking Authority),” she suggested.

In the case of ABLV, the U.S. Treasury accused the bank earlier this year of “institutionalized money laundering,” including allowing its clients to conduct business with parties connected to North Korea, which would violate sanctions imposed by the United Nations on the country. At the time, ABLV said the accusations were based on assumptions and information that was then unavailable to the bank.

When the scandal emerged earlier this year, European institutions were criticized for not having the means to oversee and prevent money laundering in the financial system.

This issue has been under further scrutiny after the head of the Danish lender, Danske Bank, resigned last week following a money laundering investigation into the bank. Earlier this month, ING agreed to pay 775 million euros ($910.20 million) in penalties for failing to stop several companies to allegedly launder money over a six-year period.

Separately, German regulators on Monday ordered Deutsche Bankto take internal actions to prevent money laundering.

“The game cannot be won only by one side playing, only by the government playing. The private sector, namely banks themselves have to participate and demonstrate a strong dedication,” Reizniece-Ozola said, adding that “this is the right time” to take action.

Global standard for cryptocurrency anti-money laundering to be agreed

The global anti-money laundering task force has said it is closer to establishing a worldwide set of standards to apply to virtual currencies.

The president of the Financial Action Task Force, Marshall Billingslea, said he is optimistic that at its plenary, due in October, the FATF will agree a series of standards that will close the anti-money laundering “gaps” that all nations face.

“It is essential that we establish a global set of standards that are applied in a uniform manner,” he added.

The task force has accelerated its work and made significant progress on reaching a “consensus across nations” after the G20 requested the organisation tackle the issue as a matter of urgency.

In October, the FATF will discuss which of its existing standards need to be updated to address virtual assets, since its current recommendations do not acknowledge them. It will then revise the methodology it uses to assess how countries implement these standards and when this revised assessment methodology will take effect.

Mr Billingslea, who is also assistant secretary to the US secretary, said currently the adoption of anti-money laundering standards and regimes pertaining to digital assets and virtual currencies is “very much a patchwork quilt or spotty process,” which is “creating significant vulnerabilities for both national and international financial systems”.

China and South Korea have clamped down on the sector, while other countries — including France, Switzerland, Malta and Gibraltar — are drawing up regimes for formally policing the space in an attempt to attract fintech business.

UK MPs also highlighted on Wednesday the urgent need to regulate “Wild West” crypto-asset markets. The Commons Treasury select committee warned that a dearth of regulation around crypto-assets had left investors exposed to a “litany of risks” — without any of the protections usually afforded to consumers, such as access to compensation.

Cryptocurrencies are not regulated by central banks but are held digitally via electronic identities that in many cases allow their owners to remain anonymous. As a result, they have been linked to payments for prohibited goods such as guns and drugs and are a target for hackers.

Mr Billingslea said there were concerns of an emerging use of virtual currencies by terrorist organisations including Isis, as well as in extortion schemes, such as the WannaCry attacks.

His comments come after some observers argued that authorities such as Europol, Europe’s law enforcement agency, should devise a centralised system that flags cryptocurrency wallets linked to nefarious activities to major exchanges, so that they can block the owners from exchanging those funds for hard cash.

Despite the risks associated with digital assets, Mr Billingslea said they also presented “a great opportunity”. In terms of regulation, he said, “you can’t tilt too far in one direction or another” since blockchain, the technology that underpins virtual assets, “will continue to evolve”.

Danske Flags More Than $230 Billion in Transactions Related to Money Laundering Probe

By Patricia Kowsmann & Drew Hinshaw

COPENHAGEN—Denmark’s largest bank found more than $200 billion in transactions at its Estonian branch and suspects a “large portion” of it was related to money laundering, often from Russia. The CEO stepped down as a result of the year-long investigation.

Danske’s CEO Thomas Borgen said “it is clear that Danske Bank has failed to live up to its responsibility in the case of possible money laundering in Estonia,” adding the investigation didn’t find breaches of his legal obligations. Mr. Borgen will stay until a replacement is appointed, the company said.

The size of the scandal has hammered its shares and raised concerns about a bank that holds more than a third of the country’s customer deposits.

Danske’s woes began in early 2017 when the lender became embroiled in a series of money-laundering cases involving its branch in Estonia, a eurozone country formerly part of the Soviet Union that became a preferred destination for money launderers, particularly from Russia.

On Wednesday the bank said about €200 billion of money ($233 billion) moved through the Estonian unit from 2007 to 2015. A large part of the payments were likely suspicious, it said. Investigators looked at 15,000 customers, before focusing on 6,200 who they believe deserved serious scrutiny for signs of money laundering. Of that 6,200, “the vast majority of these customers have been deemed suspicious,” the report concluded.

“There is suspicion that there have been employees in Estonia who have assisted or colluded with customers,” the bank said in a press release.

Danske has been slow to respond to the growing scandal, and it only launched an in-depth investigation into the matter in September of last year. The branch is the subject of investigation by U.S. authorities, and Danish and Estonian prosecutors.

Denmark’s banking supervisor in May reprimanded Danske for weak controls and ordered it to hold $800 million more in capital. In its ruling it described repeated inaction from the bank’s management. It said warnings were softened when passed on to the board. Despite being warned of trouble within its portfolio of nonresident customers in 2013, the bank didn’t start shutting the accounts down almost two years later, according to the supervisor.

Danske said Wednesday that the investigation found a number of former and current employees, both at the Estonia branch and in the headquarters, “didn’t comply with legal obligations” of their employment. It has reported some to the Estonian authorities, including the police.

The EU Has a Problem With Dirty Money

After a string of scandals, the European Commission has unveiled new plans to crack down on money laundering. It’s right to take this problem seriously — but its proposals are weak. Instead of setting up a new agency and equipping it to do the job, Europe plans to keep relying on national authorities, some of which aren’t up to the task.

Banks in Denmarkthe NetherlandsLatvia and Malta have all been linked to criminal inflows from countries including Russia and North Korea. The EU has moved to centralize banking supervision, but money laundering has remained a national responsibility. It was the U.S. Treasury Departmentthat found out that ABLV, a Latvian lender, was involved in “institutionalized money laundering,” prompting EU authorities to withdraw its banking license. And a report by the European Banking Authority (EBA) concluded that the Maltese regulator had “failed to conduct an effective supervision” of Pilatus Bank, a lender with links to Iran.

In principle, there’s nothing wrong with national regulation of international financial crime. The U.S. Treasury’s Office of Terrorism and Financial Intelligence deals with money laundering. But some EU governments, concerned about the reputation of their respective banks, have taken an unduly lax approach. A common EU agency would be less susceptible to local pressure. Also, EU banks can set up branches across the union on preferential terms thanks to its so-called passporting system — so EU banking is intrinsically cross-border, strengthening the case for more centralized supervision.

Brussels wants to give new powers to the EBA, so that the agency can tell national supervisors to investigate cases and consider possible sanctions. This is a step in the right direction. But the EBA isn’t equipped for the job. The London-based agency is primarily responsible for designing stress tests and overseeing prudential rules. Some aspects of money laundering fall under its review, but it currently has just two officials assigned to the task. The EU wants to add 10 more. That isn’t enough.

Most important, the EU wants domestic regulators to stay in charge. It would have been better to harmonize the rules, create a new agency, and give it lead responsibility for investigating offenders. The EU has missed an opportunity to move to a better system and improve its reputation for sound financial supervision.

Credit Suisse censured by watchdog over anti-money laundering failings

By Ralph Atkins

Credit Suisse has been censured by the Swiss financial watchdog for failings in anti-money laundering, in the latest slapdown of a European bank over the handling of suspected illicit finance.

Finma, the financial supervisor, identified weaknesses in a number of corruption scandals, including those involving the world football body Fifa, the Brazilian oil company Petrobras and the Venezuelan oil company PDVSA.

The failings highlighted were the latest in a wave exposed recently at European banks, which have included revelations that as much as $30bn of Russian and former Soviet money flowed through the Estonian branch of Danish lender Danske Bank in a single year.

Last week, the finance director at ING resigned after the Dutch bank was fined €775m for weak controls on preventing money laundering.

On Monday, Finma demanded remedial steps at Credit Suisse to improve procedures, which would be monitored by a independent third party. Under Swiss law, Finma does not have the power to impose fines.

The criticism from Finma comes as a blow to Tidjane Thiam, who took over as chief executive of Credit Suisse in 2015 and has pushed through a sweeping restructuring to refocus the bank on managing the wealth of the world’s rich.

Credit Suisse acknowledged Finma’s conclusions in what it described as “legacy cases”. It had commissioned its own reviews of the incidents, “and has co-operated with Finma throughout the process, taking proactive remediation measures”.

The scandal at Fifa erupted in May 2015 with the dramatic arrest of top football officials at a Zurich luxury hotel. US and Swiss law authorities subsequently launched probes into allegations of criminal misconduct, bribery and corruption, which called into question Fifa’s future.

Finma said that since 2015 it had been investigating “several banks” in relation to suspected corruption involving Fifa, Petrobras and PDVSA. Its investigation at Credit Suisse examined the period from 2006 to 2016 and found shortcomings, including in identifying clients, determining beneficial owners, categorising riskier business relationships and in documentation.

“The identified shortcomings occurred repeatedly over a number of years, mainly before 2014,” Finma said.

To combat money laundering effectively, the watchdog said, all relevant departments “must be able to see all the client’s relationships with the bank instantly and automatically”. Credit Suisse had made progress in implementing such a “single client view”, Finma said, “however this overview is still to be extended outside the compliance unit”.

Separately, Finma said the bank had failed to adequately record and monitor risks arising from a business relationship with a “politically exposed person” and the responsible client “relationship manager”, who had since been criminally convicted.

Finma’s statement did not identify the individuals involved in the case but one person familiar with the matter said it referred to Patrice Lescaudron, a former Credit Suisse client adviser, who was convicted in a Geneva court in February for abusing the trust of clients, including Bidzina Ivanishvili, a former prime minister of Georgia.

Finma said the relationship manager, who had been “very successful in terms of assets under management”, breached the bank’s compliance regulations repeatedly over a number of years. “However, instead of disciplining the client manager promptly and proportionately, the bank rewarded him with high payments and positive employee assessments. The supervision of the relationship manager was inadequate due to this special status,” the regulator said.