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SEC takes aim at Danske Bank over money-laundering in Estonia

High-risk customer transactions generated up to 99% of the branch’s profits


Pete Carvill

The US Securities and Exchange Commission (SEC) is pressing fraud charges against the Denmark’s Danske Bank.

A statement on the SEC website states that the firm is being charged over misleading investors about its anti-money laundering programme within Estonia. To settle the charges, the bank has agreed to pay $413m.

According to the SEC’s complaint, when Danske Bank acquired its Estonian branch in 2007, it knew or should have known that a substantial portion of the branch’s customers were engaging in transactions that had a high risk of involving money laundering; that its internal risk management procedures were inadequate to prevent such activity; and that its AML and know-your-customer procedures were not being followed and did not comply with applicable laws and rules.

The SEC further alleges that, from 2009 to 2016, these high-risk customers, none of whom were residents of Estonia, utilised Danske Bank’s services to transact billions of dollars in suspicious transactions through the US and other countries, generating as much as 99% of the Estonian branch’s profits.

The complaint further alleges that, although Danske Bank knew of these high-risk transactions, it made materially misleading statements and omissions in its publicly available reports stating that it complied with its AML obligations and that it had effectively managed the risks.

Gurbir S. Grewal, director of the SEC’s Division of Enforcement, said: “Corporations that raise money from the public must disclose information that is material to investors, who then get to decide what risks they want to take. That’s the basic bargain of our securities laws and it extends to foreign issuers like Danske Bank, which sought to access our capital markets, even though its securities were not registered with the Commission.”

He added: “But as alleged in our complaint, Danske Bank repeatedly broke that bargain by misrepresenting to its shareholders, including US investors, that it had strong anti-money laundering controls while hiding its significant control deficiencies and compliance failures.”

The SEC’s complaint charges Danske Bank with violating the antifraud provisions of the Securities Exchange Act of 1934. Danske Bank has offered to settle the SEC’s charges by consenting to the entry of a final judgment in US District Court permanently enjoining it from future violations and ordering it to pay $178.6m in disgorgement, $55.8m in prejudgment interest, and $178.6m in a civil penalty. The SEC will deem the disgorgement and prejudgment interest satisfied by forfeiture and confiscation ordered in parallel criminal cases.

Danske Bank has agreed to pay more than $2bn as part of an integrated, global resolution with the SEC, the Department of Justice, the United States Attorney’s Office for the Southern District of New York, and Denmark’s Special Crime Unit.