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Europe Goes Harder on Money Laundering With Record ING Fine (#GotBitcoin?)

Banks world-wide are under pressure to clamp down on the trillions of dollars illegally flowing through the global financial system. Europe Goes Harder on Money Laundering With Record ING Fine

Banking group ING Groep has agreed to pay a record European fine of €775 million ($899.8 million) to settle an investigation by Dutch prosecutors into money laundering failings, as watchdogs scramble to staunch flows of illicit money after a spate of high-profile scandals.

Also Tuesday, Danish lender Danske Bank saw its shares tumble 6.5% following a report that local prosecutors had uncovered a higher than expected tally of allegedly illegal Russian money moving through its Estonian branch.

Banks world-wide are under increasing pressure to clamp down on the trillions of dollars’ worth of illegal money flowing through the global financial system.

The U.S. has led the way in policing banks in the past decade. Since 2008, it has imposed around $23.52 billion in fines, according to consultants Fenergo, hitting lenders whose ineffective systems officials say have let clients launder money out of countries such as Mexico, Russia and Venezuela. In contrast, European regulators and prosecutors extracted $1.7 billion over such breaches in the same period, including Tuesday’s ING fine, according to the consultants.

The EU’s anti-money-laundering laws are policed by a patchwork of local regulators, which critics say leaves it open to criminal abuse.

More recently, local regulators have toughened their stance after embarrassing data leaks from whistleblowers on company money laundering and tax avoidance and criticism that the authorities have been too meek in pursuing such transactions.

ING shares fell 2.6% Tuesday following the announcement as Dutch prosecutors said it had been “seriously deficient” as a gatekeeper of the financial system. The bank, for instance, handled bribes paid by telecommunications company VimpelCom Ltd. to the daughter of Uzbekistan’s former president and didn’t report the suspicious transactions to regulators for several years, the prosecutors said. In 2016, Amsterdam-based VimpelCom, now called VEON Ltd., paid $795 million to the U.S. and Netherlands to settle the matter.

Other infractions ranged from poor client record-keeping to helping a Suriname client launder money through electronic payment terminals.

Danish authorities have been investigating Danske Bank since a whistleblower flagged issues at its Estonian branch in 2013. The Financial Times reported Tuesday that consultants had found that up to $30 billion of Russian money flowed through the Baltic branch, far higher than previously thought. In a statement, Danske said it wasn’t able to verify the number. The bank expects to publish the findings of an internal investigation into the matter later this month.

“The main concern for investors remains whether the U.S. regulator becomes involved,” Citigroup analysts said. So far Danish and Estonian authorities are leading investigations, but U.S. involvement could see any eventual fines increase substantially, analysts said.

U.S. authorities have already heavily punished European banks for failings in money laundering compliance. In 2014, French lender BNP Paribas SA pleaded guilty and paid $8.97 billion to U.S. authorities to settle charges it disguised transactions with clients in sanctioned countries. Britain’s HSBC Holdings PLC in 2012 paid $1.9 billion to settle U.S. charges that included allowing Mexican drug cartels to launder money through the bank.

The Danske debacle highlighted ongoing concerns about what is seen as a particular weakness in Europe: Russian customers using Nordic and Eastern European banks to shuffle funds across the European Union.

In February this year, the U.S. Treasury declared Latvia’s ABLV bank an “institutionalized money laundering” operation and cut its access to dollars. The bank closed down shortly after. Around the same time, Estonian Versobank AS had its bank license revoked by the European Central Bank after regulators found money laundering deficiencies.

Russia-Linked Money-Laundering Probe Looks at $150 Billion in Transactions

Denmark’s largest bank is investigating whether companies with ties to Russia used it to launder money, examining $150 billion in transactions that flowed through a tiny branch in Estonia, according to people familiar with the matter.

The $150 billion figure, covering a period between 2007 and 2015, has been presented to the bank’s board of directors and would equal to more than a year’s worth of the corporate profits for the entire country of Russia at the time. The flows would have stayed in the branch for only a short time before leaving Estonia, according to a person familiar with the investigation, so they might not show up in deposit statistics, which reflect the balance at the end of month and not from day to day.

Danske Bank investigators haven’t determined if the entire amount should be deemed suspicious. But such a large flow of money suggests that roughly $8 billion of suspected money-laundering transactions previously reported by a Danish newspaper could grow higher.

“Any conclusions should be drawn on the basis of verified facts and not fragmented pieces of information taken out of context,” Danske Bank Chairman Ole Andersen said in a statement. “As we have previously communicated, it is clear that the issues related to the portfolio were bigger than we had previously anticipated.” The bank says the results of its probe are being finalized.

Shares in the bank fell as much as 7% on Friday after The Wall Street Journal reported on the size of the amounts involved.

The U.S. has paid close attention to the ways Russia’s wealthy have taken money out of the country, according to U.S. officials, especially since sanctions imposed during the invasion of Crimea in 2014. Sanctions were strengthened following determinations of Russian meddling in the 2016 U.S. presidential election and again earlier this year.

Washington has watched illicit money flows channeled through European-regulated banks to the West. In February, the Treasury Department declared Latvia’s ABLV bank an “institutionalized money laundering” operation where weapons dealers and corrupt politicians from former Soviet Union countries sent their money into Europe. ABLV denied knowingly laundering money and later collapsed.

In 2017, Deutsche Bank agreed to pay nearly $630 million to settle investigations by U.K. and New York regulators into Russian equity trades that transferred $10 billion out of that country in violation of anti-money-laundering laws.

Since last year, NATO has positioned troops in three former Soviet Union republics—Estonia and its neighbors Latvia and Lithuania, all bordering Russia. In return, the U.S. has asked those governments to crack down on illicit Russian money flowing into the West through their banks, according to U.S. officials. That understanding was hammered out after Russia’s 2014 annexation of Crimea.

Danske’s Estonian branch is the subject of criminal investigations in Denmark and Estonia, prosecutors in the countries said. The Danish Financial Supervisory Authority reprimanded the bank for weak controls in May and ordered Danske to hold about $800 million more in capital, but didn’t issue a fine.

Shell companies, including many registered in the U.K., controlled most of the accounts in question, and many of the accounts had links to people in Russia and former Soviet Union countries, people familiar with the matter said. The U.K.’s Financial Conduct Authority isn’t probing the bank, according to a person familiar with the matter.

Estonia, a former Soviet Republic of 1.3 million people, became a European Union member in 2004 and joined the euro in 2011. Like its Baltic neighbor Latvia, it quickly became a way station for funds from other former Soviet states. The $150 billion figure is a substantial sum considering Estonia’s entire banking system reports total deposits of €17 billion ($19 billion).

At Danske, clients would typically move funds among several companies with accounts at its Estonia branch before transferring the money to accounts in banks in Turkey, Hong Kong, Latvia, the U.K. and other countries, one of the people familiar with the investigation said.

Danske’s management dragged its feet dealing with the issue, according to a report filed by Danish regulators this year, ignoring complaints from internal whistleblowers and correspondent banks, which made international payments and transfers on its behalf.

Estonian regulators complained to Danish counterparts as early as 2012 and compiled a 200-page report in 2014 detailing the local branch’s extensive failures to ask even basic questions about the source of its clients’ income.

“There were many red flags,” said Kilvar Kessler, chairman of the management board of Estonia’s banking supervisor, the Finantsinspektsioon.

It was only after another bank refused to deal with Danske’s Estonian unit that the bank shut down “nonresident” Estonian accounts in 2015.

Danske Chief Executive Thomas Borgen was in charge of international banking—including in Estonia—during part of the period under investigation. He was promoted to run the bank in 2013. He declined to comment.

Denmark’s Berlingske newspaper earlier reported around $8 billion of illicit money went through the Estonian branch. The Financial Times reported this month that some $30 billion flowed through the Estonian branch in the year 2013. In both instances, Danske said it needed time to look into the reports.

Danske’s investigation is overseen by the bank’s legal counsel and assisted by forensic accountants at PricewaterhouseCoopers LLP and consultants at Ernst & Young LLP. Both firms didn’t immediately respond to requests for comment. Promontory Financial Group, a unit of International Business Machines Corp. , and Palantir Technologies Inc. are also helping in the probe and declined to comment.

Such large sums were able to slip by European regulators’ watch for years largely because of a series of design flaws in the Continent’s anti-money-laundering systems, said James Oates, the founder of Cicero Capital, a financial adviser in the Estonian capital of Tallinn.

“Everybody was looking the other way because they thought they were covered, and it turns out they weren’t,” said Mr. Oates.

Danske Bank’s Estonia branch isn’t directly supervised by the European Central Bank, which in any case lacks the authority to investigate money-laundering cases. Estonian authorities, meanwhile, say that because Danske operated as a branch—and not a subsidiary with a legal entity based in Estonia—they had limited authority and incomplete information.

Parent bank Danske said in a September 2017 statement that the Estonia branch “operated very much as an independent unit, with its own systems, procedures and culture regarding anti-money-laundering measures.”

Europe Moves To Target Money Laundering In Response To Scandals

Proposals push the EU toward greater international consensus against financial crime.

Europe threw a one-two punch to fight money laundering on Wednesday, with the European Commission proposing enhanced powers for a regulator and lawmakers passing a package of new rules.

European Commission President Jean-Claude Juncker called for greater supervisory and enforcement power for the European Banking Authority over its anti-money-laundering rules. The EBA, under Mr. Juncker’s proposal, would be allowed to request investigations of a European country’s banks by national anti-money-laundering supervisors, and convene a new committee bringing those supervisors together into one place.

“The EBA would become the hub overseeing Europe’s money laundering investigations and supervision,” said Josh Berman, a partner at Clifford Chance LLP.

The European Parliament on Wednesday approved new measures that members said would close loopholes in existing rules and make it easier for authorities to stop illicit transfers.

The new rules would create EU-wide definitions of money laundering-related crimes, establish minimum penalties across the bloc and bar those convicted of money laundering from public service. They also would lower thresholds on cash flows and allow for temporary seizure if authorities suspect criminal activity.

“The new rules on criminalization of money laundering hit criminals where it hurts them most: money,” said Ignazio Corrao, a member of the European Parliament from Italy who comes from the anticorruption focused 5 Star Movement party, in a statement.

Taken together, the latest proposals would push Europe toward a growing international consensus on how to fight financial crime.

“This is part of a coalescence of initiatives, which support the overall endeavor of making it more difficult to launder the proceeds of crime and engage in terrorist financing,” said Simon Airey, a partner at the law firm Paul Hastings LLP.

The regulatory efforts come as European authorities are under pressure from a spate of money laundering scandals across the continent, with recent investigations involving banks in Denmark, the Netherlands, Latvia, Malta and elsewhere.

The U.S. has led the way on anti-money-laundering enforcement over the past decade, extracting billions in penalties for compliance failures. But Europe is eager to catch up, with Dutch prosecutors last week imposing a record €775 million fine on lender ING Groep NV.

Earlier this year, the European Union approved its fifth anti-money-laundering directive, requiring member states to set up a system for better cooperation and information sharing by 2020. It also established new transparency requirements. The EU rules, however, are enforced by each member state, leading to a patchwork that experts say leaves parts of the continent open to abuse.

A European Commission fact sheet released Wednesday said the supervisory and enforcement discrepancy creates risks to the integrity and reputation of the European financial sector broadly, as well as a potential stability concern for specific banks.

“As part of the broader efforts to complete Banking Union by risk reduction and risk sharing and develop Capital Markets Union, decisive action must be taken to ensure that anti-money-laundering rules are effectively supervised across the EU, and different authorities cooperate closely with each other,” the fact sheet said.

Credit Suisse Rebuked for Anti-Money-Laundering Failings

Swiss financial watchdog orders banking giant to strengthen its processes but doesn’t impose any fines.

ZURICH— Credit Suisse Group AG was ordered to bolster its anti-money-laundering processes by Switzerland’s financial regulator on Monday, but avoided any financial penalties for its shortfalls.

The regulator, Finma, stopped short of imposing fines on the Swiss banking giant after uncovering shortfalls over nearly a decade through 2014 in the bank’s dealings with South American oil companies and Swiss-based FIFA, the world’s top governing body for soccer.

Investors shrugged off the rebuke, with Credit Suisse shares down just 0.3% in early afternoon trading in Europe.

Finma said in a statement that it “identified deficiencies in the bank’s adherence to anti-money-laundering due diligence obligations in relation to suspected corruption” involving FIFA, Brazil’s Petróleo Brasileiro SA (PBR) and Venezuela’s Petróleos de Venezuela SA.

Credit Suisse disclosed in 2015 that it had received inquiries from U.S. and Swiss government authorities regarding its banking relationships with FIFA-related individuals and entities.

The Swiss watchdog ordered the bank to strengthen its controls and said it would appoint an independent third party to monitor implementation. Finma acknowledged “some substantial” improvements in Credit Suisse’s money-laundering controls and its cooperation.

“We are grateful to Finma for its acknowledgment of the improvements that have been made to our compliance and control framework over the last few years and of the additional measures already planned by the bank,” Credit Suisse said in a statement.

The findings are “part of an ongoing review of legacy cases across the Swiss banking sector,” it added, noting that the cases originated between 2006 and 2014, which was before the arrival of Chief Executive Tidjane Thiam. “Finma has not imposed any fine on Credit Suisse, not ordered any disgorgement of profits nor any limitation of business activities,” the bank said, adding that it has hired more than 800 compliance specialists in less than three years.

Still, the Finma report underscores the challenge Swiss banks face to turn the page from past controversies. In July, Switzerland’s largest bank, UBS Group AG , was censured by the U.S. Office of the Comptroller of the Currency over “systemic deficiencies” in its anti-money-laundering systems at branches in New York, Connecticut and Florida.

The findings from Finma come at a challenging time for Credit Suisse, which is nearing the end of a three-year strategic overhaul initiated by Mr. Thiam, who joined the bank in mid-2015. As part of the overhaul, the bank has turned its focus to managing wealthy clients’ money while maintaining a streamlined investment bank.

Credit Suisse posted annual losses from 2015 to 2017, but is on track to run a profit this year. Still, its share price is down about 18% so far this year.

Finma also said it found shortcomings in Credit Suisse’s relations with a “politically exposed person,” or PEP.

“Finma established that the bank had failed to adequately record, contain and monitor the risks arising over a number of years from the PEP business relationship and the responsible (and since criminally convicted) client relationship manager,” the watchdog said.

Bank At Center of Money-Laundering Probe Knew of Russian Blacklist Clients

Danske Bank officials knew in 2013 that branch hosted clients suspected of financial wrongdoing.

Bank officials at the center of one of Europe’s largest money laundering scandals knew earlier than previously indicated about problems at its tiny Estonian branch, including that it held accounts for blacklisted Russian clients, according to correspondence seen by Estonia’s financial regulator.

It is the latest indication that officials at Danske Bank were aware almost two years before it started shutting questionable accounts that the small but highly profitable branch was involved in potentially illicit money flows.

Danske Bank, Denmark’s biggest bank, is being probed by U.S. authorities who want to know why its tiny branch in the former Soviet republic of Estonia processed as much as $150 billion in transactions from 2007 to 2015 from foreign countries, mainly Russia. Denmark’s politicians—and a falling share price—have put pressure on the bank to disclose how much its executives knew about any suspicious money shifting through there. The bank is scheduled to disclose findings from an internal probe on Wednesday.

A Danske spokesman declined to comment.

In an April 2013 email, Danske Bank’s anti-money-laundering chief, based in Denmark, asked colleagues in the Estonia branch about client accounts whose owners appeared on a blacklist generated by Russia’s central bank.

Russia’s central bank keeps a database of individuals and companies suspected of financial wrongdoing—about 500,000 presently—and shares it across borders.

Estonian authorities had repeatedly complained to Denmark’s banking supervisor, the email said: “They have the impression that we do not take the issue very seriously,” wrote Niels Thor Mikkelsen, the bank’s then-compliance executive.

The Danish Financial Supervisory Authority—in charge of making sure Denmark’s banks obey anti-money-laundering rules—was “very worried because they have confirmed to U.S. authorities that we comply with Danish [anti-money-laundering] requirements,” he wrote, copying the email to several employees of the branch. “The Danish FSA has helped the Bank in a critical situation. They are now very worried that any situation may arise.”

It wasn’t clear, Mr. Mikkelsen wrote, if Danske Bank’s Estonia branch was indeed in compliance. He asked a series of questions about the blacklisted clients, such as “How do we handle their relationship?”

Mr. Mikkelsen declined to comment, citing legal secrecy. In an email Tuesday, Estonia’s Financial Supervision Authority confirmed it repeatedly complained to Danish counterparts about the branch’s blacklisted customers.

A spokesman for the Danish FSA referred to a paragraph in a reprimand ruling it issued against Danske in May, which says it received “misleading” information from the bank between 2012 and 2014. Danske says the information it received came from the branch.

The Russian Central Bank didn’t immediately respond to requests for comment.

The email about the Russian blacklist indicates Danske Bank officials were aware of problems in the first half of 2013. According to a statement it published in July, Danske Bank said it got word of serious problems at its Estonia branch when a whistleblower tipped them off in December 2013.

Banking blacklisted clients could put Danske afoul of regulators in Russia, where the Danish bank has a subsidiary.

“The Russian Central Bank is by Russian standards relatively reputable,” said Mark Galeotti, an expert on Russian financial crime at Prague’s Institute of International Relations. “You take the names that are on that list seriously.”

Danske is Denmark’s largest bank, holding over a third of the country’s customer deposits. It expanded in recent decades across Northern Europe and the Baltics.

The Estonia branch was one of its profit drivers, making €63 million ($73.5 million) in 2012 in net profits, the branch’s most lucrative year, according to the bank supervisor’s records. That year, the entire bank, still wrestling with the aftermath of the 2008 financial crisis, reported €636.6 million in net profits.

Updated 10-4-2018

Banks doing business in Estonia handled about $1 trillion in cross-border transactions between 2008 and 2015, according to the country’s central bank. Danske Bank A/S has admitted to handling about one fourth of that amount through its local branch in that time, much of it, the bank said, potentially linked to money laundering. Danske Bank faces a U.S. criminal investigation. There’s a good chance the Danske whistleblower will testify at the European Parliament, his lawyer said. The EU vowed a crackdown on money laundering in the wake of this and other scandals. (Bloomberg, Reuters, FT, WSJ, NYT, WSJ, BI, Reuters, Reuters, Reuters, BNA, AFP, Bloomberg, Reuters, EurActiv, HT, CM)

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