European banks, for sure, have a problem with dirty money.
Denmark is coming to grips with its role in one of Europe’s worst dirty money sagas. Danske Bank has admitted that about $234bn flowed through a tiny unit in Estonia between 2007 and 2015 mostly in “suspicious” transactions.
Danske CEO Thomas Borgen has resigned and several employees have been reported to the police. Criminal investigations are ongoing and the government says Danske may face a $630mn fine.
The European commission has described the money-laundering case at Denmark’s largest bank as “the biggest scandal” in Europe.
The sheer scale of the scandal has put the Danish government’s AAA credit grade at risk, according to S&P Global Ratings. And worried Danish politicians last week quickly agreed on a package of much stricter laws to fight money laundering.
Deutsche Bank has been ordered to improve its controls to prevent money laundering and the financing of terrorism by Germany’s markets regulator.
The BaFin instructed Deutsche Bank to “take appropriate internal safeguards and comply with general due diligence obligations” under German law. It also appointed a monitor to assess the bank’s efforts, the first time BaFin has taken such action against a bank in relation to money laundering.
Deutsche Bank had acknowledged in August that its anti-money laundering processes remained inefficient more than a year after it was fined almost $700mn for helping wealthy Russians move money out of the country.
Banks in Denmark, the Netherlands, Latvia and Malta have all been linked to criminal inflows from countries including Russia and North Korea.
The US Treasury Department found out that ABLV, a Latvian lender, was involved in “institutionalised money laundering,” prompting EU authorities to withdraw its banking licence. A report by the European Banking Authority (EBA) concluded that the Maltese regulator had “failed to conduct an effective supervision” of Pilatus Bank.
EU banks can set up branches across the union on preferential terms thanks to its so-called passporting system. EU banking is intrinsically cross-border, strengthening the case for more centralised supervision.
The EU has moved to centralise banking supervision, but money laundering has remained a national responsibility.
The European Commission has unveiled new plans to crack down on money laundering. But instead of setting up a new unified agency and equipping it to do the job, Europe plans to keep relying on national authorities, some of which are seen not up to the task.
Brussels wants to give new powers to the EBA, so that the agency can tell national supervisors to investigate cases and consider possible sanctions. This is a step in the right direction.
The London-based EBA, however, is primarily responsible for designing stress tests and overseeing prudential rules. Some aspects of money laundering fall under its review, but it currently has just two officials assigned to the task. The EU wants to add 10 more.
Most important, the EU wants domestic regulators to stay in charge. It would have been better to harmonise the rules, create a new agency, and give it lead responsibility for cleaning up the dirt in Europe’s banking sector.
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