The European Banking Authority launched a formal investigation on Tuesday (19 February) to determine if Estonian and Danish authorities had failed to enforce EU rules that would have prevented one of the largest-ever money-laundering scandals affecting Danske Bank.
Last September, the Commission told the EBA to investigate, “with the necessary degree of urgency”, whether the Danish and Estonian supervisors had conducted the appropriate inspections and applied the right sanctions to the Danish bank’s Estonian branch.
“The need for effective supervision and the need to apply effective, proportionate and dissuasive sanctions is a requirement that stems directly from Union legal framework,” the letter read.
The EU executive also questioned whether the exchange of information between the authorities of both countries was “adequate and relevant” to detect and address potential risks.
The EBA already conducted preliminary inquiries with both authorities before launching the formal investigation, the body said in a statement.
If the formal investigation finds that Estonian and Danish supervisors breached the EU law, the EBA could issue recommendations to the national authorities to ensure that the EU rules are respected.
“We need to learn from this huge scandal and fix the mistakes made. I am in close contacts with governments of both countries also to ensure that the EU anti-money laundering rules are properly implemented,” the Commissioner for Justice, Vera Jourova, said on Tuesday.
She met on Monday with Rasmus Jarlov, Denmark’s minister for industry, business and financial affairs.
Danske Bank was involved in one of the largest money laundering scandals ever. Around €200 billion in payments passed through the non-resident portfolio of its tiny Estonian branch between 2007 and 2015.
But an estimate made by Bloomberg, based on official figures, concluded that the suspicious transactions could be as high as around €900 billion.
On 18 September, the bank published the results of its internal investigation and admitted that the branch was involved in money laundering activities.
Danske Bank identified deficiencies in its governance and control systems, the non-reporting of suspicious transactions, its lack of identification of risks and the involvement of employees in illegal activities.
The case was revealed by a whistleblower, Howard Wilkinson, the head of the bank’s trading unit in the Baltics during those years.
Nienke Palstra, an anti-corruption campaigner at Global Witness, said the opening of the investigation was “a positive step towards rebuilding trust in the EU’s ability to fight corruption, but we must see Danish and Estonian authorities, Danske Bank, and senior bankers held to account to make sure this never happens again.”
It is the second time that the EBA launches a formal investigation following a Commission recommendation.
Last November, the Commission concluded a similar procedure against Malta by requesting the national supervisor to take additional measures to fulfil the fourth Anti-Money Laundering Directive.
The Commission had sent a letter to the EBA requesting the investigation against Malta in October 2017, which was concluded in July 2018.
The EU executive also sent a letter to the banking watchdog requesting to launch a formal investigation into Latvian authorities.
The series of formal procedures against national authorities comes as the EU institutions are reviewing anti-money laundering legislation in order to beef up the European watchdogs, following a cascade of scandals involving various member states.
Last September, the Commission proposed to give more powers to the EBA to launch investigations and improve the coordination among national authorities.
The ECB and some countries, including France, argued in favour of going a step further by creating a new European body to fight against money laundering across the bloc.