Danske Bank Money Laundering

This article aims to give a short overview of the terms and state of the money laundering legislation in Estonia and the Estonian Financial Supervisory Agencies actions.

The Republic of Estonia joined the European Union in 2004. The process took ten years and involved implementing all necessary regulations the European Union set forth. One of those regulations was the Directive (EU) 2015/849 of the European Parliament, which regulates money laundering prevention acts. The act was implemented in the Estonian national legislation as Money Laundering and Terrorist Financing Prevention Act.

With the recent news about the money laundering scheme conducted through Estonia by Danske Bank Estonian branch, the shock came to all parties except the Estonian Financial Supervisory Agency, who conducted a thorough analysis in 2014 on the money laundering prevention measures used by Danske Bank Estonian branch and found major gaps in the banks systems. These gaps included major insufficiencies in the know-your-client principle and due diligence measures. They notified the Danske Bank supervisory board of such inconsistencies and sent the information to the Danish Financial Supervisory Agency.

The international investigation started only after other major banks refused to continue their cooperation and journalists started writing articles about the suspicious activities in the Danske Bank accounts. A law office in Denmark published their results on the money laundering scheme conducted through Danske Bank Estonian branch and has received a lot of criticism by the international community, the Estonian Financial Supervisory Agency has stated multiple times, that they have warned Danske Bank’s supervisory board and the Danish Financial Supervisory Agency about the problems at hand.

By now, the investigation has drawn a lot of attention form the media, a lot of other Estonian banks have started limiting the number of e-resident bank accounts. Closing them upright, when the account holders are unable to provide sufficient evidence that would suffice the requirements from the Estonian Money Laundering and Terrorist Financing Prevention Act. The clients’ fear of losing their bank accounts and thus their opportunities to run a company in Estonia has made a lot of e-residents find alternative measures, such as company transfer to other European countries. Even though this situation might frighten many entrepreneurs, Turnstone Law office has continuously been successful in helping our international clients with opening up necessary bank accounts.

The Estonian Financial Supervisory Agency has shown that they will use their powers to the extent given to them. In 2018 they took away Versobank banking license, referring to the lack of money laundering countermeasures and suspicious activities conducted through their accounts.

The Danske Bank money laundering investigation has not been concluded and new updates come every week, it is certain that the Estonian government has taken the matter very seriously. While the European Union directive regulating money laundering and terrorism financing act has been implemented a long time ago, the Estonian government has decided to reevaluate and strict the legislation due to the nature of the investigation.

The Estonian government and all credit institutions that fall in the scope of the Estonian regulations monitor and enforce the current Money Laundering and Terrorist Financing Prevention Act.  Reevaluating their risk assessments and due diligence measures and holding in high priority their willingness to counter all money laundering prevention measures. This means, that all credit institutions in Estonia have made an effort to stay on top of the money laundering prevention measures. To this, the Estonian Financial Supervisory Agency has published a manual, that will help credit institutions tackle money laundering situations and highlight the necessary key factors they have to focus their attention.

The International Center for Asset Recovery has rated Estonia as number 2 on the list of risk scoring. The higher the number, the lower the risk of money laundering actions in that country. Estonia, being number two shows that the Danske Bank money laundering situation is the exception. Although all news refer to it as a Danske Bank Estonian branch money laundering, it is vital to highlight that the Estonian Financial Supervisory Agency informed their counterparts in Denmark long time ago about the suspicious activities conducted in the Danske Bank Estonian branch.

Raiko Pajula

Lawyer

Law Office Turnstone

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Contributing Advisors