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Danske Bank hit with $2B fraud penalty

The settlement resolves allegations that fraudulent bank policies gave Russian companies and other foreign entities access to U.S. banks.

MANHATTAN (CN) — Resolving a fraud investigation with a commitment to pay $2 billion, Denmark’s biggest bank admitted Tuesday that it lied to American banks about its customers and anti-money laundering controls. 

Danske Bank duped foreign customers into business agreements by promising that they could transfer large amounts of money through Danske Bank Estonia “with very little, if any, oversight or scrutiny,” according to the criminal information filed in the Southern District of New York. 

Federal agents say clients paid consulting fees to have bank employees help them set up accounts for shell companies with the goal of hiding the true nature of customers’ transactions. Inadequate and ineffective compliance rules further enabled that process.

These lapses allowed customers from Russia and other countries gained access to the U.S. banking system. The Department of Justice says Danske Bank Estonia allowed them to open accounts without sending opening documents. Unregulated money-service businesses would otherwise not be able to open accounts without due diligence from the bank or a “know your customer” review.

The Estonian subsidiary processed $160 billion through U.S. banks on behalf of those foreign customers. Danske Bank pleaded guilty to one count of conspiracy to commit bank fraud. 

“Danske Bank, the largest bank in Denmark, deliberately disregarded U.S. law of which it is well aware, facilitated the laundering of criminal and suspicious proceeds through the United States, and placed the U.S. financial network at risk, all in the name of its bottom line,” U.S. Attorney Damian Williams for the Southern District of New York said in a statement Tuesday. “The bank is now being held to account … If you want to use the U.S. financial system, you must play by the rules.”

Danske Bank said it has cooperated since American authorities first approached it. 

“We offer our unreserved apology and take full responsibility for the unacceptable failures and misconduct of the past, which have no place at Danske Bank today,” Martin Blessing, chairman of the bank’s board of directors, said in a statement. “We have learnt from our mistakes and we have taken the steps necessary to ensure that Danske Bank has robust measures in place to do everything possible to prevent these failures taking place again.” 

Federal agents say the bank knew of the fraud by at least February 2014 thanks to internal audits, regulators and an internal whistleblower. 

In early 2018, Dutch media outlets cited an insider who reported that family members of Russian President Vladmir Putin and the country’s spy agency were using Danske Bank Estonia to launder money. The bank’s leaders knew "of far more serious conditions than previously stated," according to a leaked internal report. 

Danske Bank says it has strengthened its control procedures following the fraud resolution. 

The U.S. Securities and Exchange Commission reached a separate agreement with Danske Bank on Tuesday under a related investigation. This deal involves a $413 million payment from the bank, an amount that includes a civil penalty and disgorgement of profits.

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