Danske Bank Reminds Us to Question the Unusual

Danske Bank’s tiny Estonia branch in the tiny country of Estonia is believed to have laundered $230 billion of money originating from Russia and other CIS countries over 8 years between 2007 and 2015. The entire Estonian economy produces $26 billion of domestic output.

I feel like I need to say that again.

All of Estonia produces $26 billion and one tiny branch of a foreign bank handled an average of $28 billion per year for 8 years.

Maybe the word unusual is misused here. Banking scandals don’t always have this much intrigue. The Danske Bank Russian money laundering scandal has been linked to several violent deaths. Sergei Magnitsky, the Ukrainian-born Russian tax advisor responsible for exposing corruption and misconduct by Russian government officials died after being wrongfully imprisoned, Andrei Kozlov, who was a senior official in Russia’s Central Bank who was leading a crackdown on money laundering including cash that was being pumped out of the country was killed execution style and Aivar Rehe, the former head of Danske Bank’s Estonia branch who died of an apparent suicide in 2019.

Anti-money laundering programs use the term “unusual” to describe something that needs to be more closely examined. If the unusual can’t be reasonably explained thereafter, they progress to “suspicious” and trigger government reporting such as Suspicious Activity Reports (in the US). When the amount of money coming into your bank branch equals the domestic output of your host country, that is certainly sufficiently unusual. When auditors and financial regulators investigating unusual activity die violent deaths, some might consider that suspicious.

The Danske Bank case will forever be one of the most extraordinary money laundering scandals in history. Because of its insane scale and notoriety, it’s easy to ignore the lessons that can be gleaned from it. Danske Bank purchased Finnish Sampo bank in 2007. Russian money was already pouring into Finnish Sampo’s Estonia branch and it’s profitability must’ve leapt off the page and ultimately is what probably made Finnish Sampo such an attractive acquisition target. Acquisition due diligence is limited and occurs over a compressed timetable. I would love to see the M&A report section that talked about the Estonia branch. What did they miss and what did they ignore? Important root cause analysis for Danske Bank certainly.

Also of importance is the fact that a whistleblower triggered the investigation. He first raised suspicions about the Estonia branch in 2007 and 3 more times until the bank finally initiated its investigation in 2013. Confidential reporting and investigative processes are a foundational component of a compliance program.