Danske Bank to Close Estonian Branch, EBA to Investigate Regulators

Estonia’s financial regulator, on Tuesday, gave Danske Bank’s Estonian branch eight months to close down, saying the money-laundering scandal possibly involving some US$230 billion has seriously damaged the credibility and reputation of Estonia’s financial environment.

Danske BankDanske Bank headquarters, Copenhagen, DenmarkDanske Bank has 20 days to present an action plan for closing the branch and faces a penalty of 100,000 euros ($113,239) per day from the deadline if it does not comply until it either does close the bank or until it has paid up to a maximum value of 10 percent of the total net turnover of Danske Bank A/S, the maximum in Estonian law.

Estonia’s financial regulator intends to monitor the closure of the branch “very carefully and is ready if necessary to take additional supervisory measures to protect the interests of the customers of the branch and the credibility of the financial sector.”

Danske Bank also announced on Tuesday that it is ceasing operations in Russia, Latvia and Lithuania, intending to focus on its core Nordic market, and will fully comply with the Estonian regulator.

“We acknowledge that the serious case of possible money laundering in Estonia has had a negative impact on Estonian society,” said Jesper Nielsen, the interim CEO of Danske Bank. “We are sorry to be leaving Estonia against this background,” he added.

Kilvar Kessler, chairman of the regulator’s management board, was adamant that the blame for the money laundering scandal that is currently under investigation in Denmark, Estonia, Britain and the United States lies entirely on the Danish side. A war of words erupted in late January between the Estonian and Danish regulators when the Danish side released a report placing responsibility on the Estonian regulator.

Estonia has “every right to put an end once and for all to this very exceptional and unfortunate case, as serious and large-scale violations of the local rules have been committed in Estonia through the branch of a foreign bank,” Kessler said, adding that the Estonian regulator was the only institution to deal with the situation when it demanded the bank end services to non-resident customers in Estonia in 2015.

The European Banking Authority is now formally investigating both the Estonian and Danish financial supervisory authorities concerning their supervision over Danske Bank.

A spokesperson for Estonia’s state prosecutor on Wednesday confirmed to Reuters that it was also investigating Swedish lender Swedbank after a Swedish television report linked Swedbank to suspicious transactions with Danske Bank, saying that Danske had not operated in isolation in the financial system and that its transactions necessarily involved banks in other EU countries.

According to investigative SVT program Uppdrag Granskning, 40 billion Swedish kronor (US $4.2 billion) moved between Swedbank and the Baltic units of Danske Bank from 2007-2015, when $230 billion in potentially illicit funds are thought to have passed through Danske Estonia, mainly from Russia.

Estonia, earlier in the month, postponed reforms which would strengthen anti-money laundering