The Danish FSA has published its statement on the supervision of Danske Bank in respect of the Estonia case. The statement describes the course of events and also includes an ideas catalogue with 23 initiatives which may contribute to an anti-money laundering supervision in European top class. The statement moreover contains answers to a number of the points of criticism put forward.
Translation from the original text in Danish. In case of discrepancies, the Danish version prevails.
The statement has been presented to the governing board of the Danish FSA who is, among other things, responsible for approving the planning of the supervisory activities.
”It is the opinion of the governing board that, in the entire period 2007-2018, the Danish FSA has met its obligations as the competent authority responsible for Danske Bank and has acted in accordance with the division of responsibilities in the AML area between the Danish FSA and the Estonian Supervisory Authority (EFSA)”, says David Lando, chairman of the governing board of the Danish FSA.
”In connection with the statement, the governing board has also considered a number of the points of criticism put forward in public,” says David Lando.
Host country has responsibility for AML supervision
As the host country supervisory authority, the Estonian supervisory authority (EFSA) has had and still has responsibility for the anti-money laundering (AML) supervision of the Estonian branch. This follows from EU legislation, and this division of responsibilities was also followed in practice. EFSA carried through four AML inspections in the branch in the period 2007-2014 and also carried out extensive AML supervision between the inspections.
The Danish FSA coordinated the overall supervision of Danske Bank, including the AML area. The Danish FSA answered all inquiries from EFSA, and in one case from the Russian central bank, about money laundering risks in the Estonian branch. In connection with the inquiries, the Danish FSA obtained elaborating documentation from Danske Bank.
However, the effort of asking detailed questions, including the information from EFSA’s AML supervision of the Estonian branch and going more into detail to obtain true and fair information did not work out as intended as, in the end, the information was after all not in all cases true and fair. For this reason, among others, the Danish FSA in its decision of 3 May 2018 ordered the bank to ensure that the Danish FSA receives adequate information, and that the Board of Directors and the Executive Board are sufficiently involved in this.
Catalogue of ideas for strengthened AML supervision
”The Estonia case has been extremely damaging to the trust of the public in the financial system and to Denmark’s international reputation. It is decisive that the work of rectifying this continues with increased strength. We have to learn from this course of events,” says Jesper Berg, Director General of the Danish FSA.
”Together with the statement we have therefore, at the request of the Danish Minister for Industry, Business and Financial Affairs, prepared a catalogue of ideas with 23 proposals which will all contribute to strengthening the AML supervision and the work of the Danish FSA in general,” says Jesper Berg.
The proposals cover four main categories:
- Better and more effective defense lines in the banks
- Obligation to provide information and criminal liability as well as better protection of whistleblowers
- Fiercer consequences when a bank’s management fails to recognise its responsibility
- A top class European AML supervision.
The proposals in categories 1 and 2 follow directly from the conclusions in the decision of the Danish FSA of 3 May 2018. The decision clearly stated that there were major shortcomings in all the bank’s defense lines and that the bank’s information to the Danish FSA had been insufficient.
The proposals in categori 3 should be considered on the background that it has been very difficult for the authorities to hold the bank managements responsible in case of serious errors and obviously bad decisions made in respect of the operation of a bank.
The proposals in category 4 aim at significantly limiting the risks in the money laundering area and at preventing a case similar to the Estonian case from arising again. The proposals are therefore also an important element in the work of restoring the trust of the public and Denmark’s international reputation.
About the Estonia case:
In 2017, Danske Bank acquired the Finnish Sampo Bank and through this its subsidiary bank in Estonia. Part of the business model of the Estonian bank was to serve non-Baltic customers, so-called non-residents. The bank’s efforts in fighting money laundering was insufficient, but the department for non-residents was not closed down until 2015 after pressure from the Estonian supervisory authority. As a consequence of this case, the Danish FSA on 3 May 2018 made a decision relating to management aspects in Danske Bank in respect of the Estonian case. The decision comprised eight orders and eight reprimands, including an order in respect of increased capital adequacy requirements to cover materially higher compliance and reputation risks. The case is still being investigated by SØIK (the Public Prosecutor for Serious Economic and International Crime)
About the governing board of the Danish FSA:
Since 2014, the Danish FSA has had an independent governing board which has independent competence and must, among other things, approve the planning of the supervisory activities and strategic goals as well as make decisions in respect of supervisory reactions in matters of principle and in cases with more extensive consequences. The members of the governing board are appointed by the Minister for two years and cannot be removed during this period. The independence is a central element in the structure of the Danish supervision of financial enterprises and is in line with European practice. The decision of 3 May 2018 from the Danish FSA relating to Danske Bank and the Estonia case was taken by the governing board.
Letter of transmittal (pdf)