Small Danish banks told they’re money-laundering targets

Copenhagen • Denmark’s financial watchdog is telling smaller lenders to brace for an assault by money launderers as big banks respond to intense regulatory scrutiny and improve their defences.

The head of the Financial Supervisory Authority (FSA) in Copenhagen, Jesper Berg, said smaller institutions are now particularly vulnerable. The comments come amid a string of revelations alleging that Danske Bank A/S was used to launder more than US$8 billion (RM32.24 billion) from Russia, Moldova and Azerbaijan from 2007 to 2015. The steady flow of information about Denmark’s biggest bank has resulted in much tougher oversight.

Berg said the dynamic across the industry has changed considerably, in part as a result of the Danske case.

For small banks, “historically they had to worry when somebody came to them with a suitcase and wanted money”, Berg said. “Now they have to worry when somebody comes with a suitcase of money.” What’s changed now is that “clearly the bigger banks have upped the game, and water flows where it’s easiest”.

Scathing Report

The Danske scandal has led to political calls for tougher laws. The Parliament also allocated more resources to the FSA in 2017. A year ago, the agency’s anti-money laundering (AML) group had about four people. That team now numbers 13, in part after

the Financial Action Task Force (FATF), an inter-government organisation that monitors compliance with global regulations, wrote a scathing report about Denmark.

But the FSA’s new anti-money laundering department is unlikely to be properly up to speed until 2022. Stig Nielsen, its chief, said “We are building up a whole new AML supervision. Experience shows that it will take up to four years before we are really good at this.”

Even then, the agency can’t be assured of success. The FSA has reported 10 cases “in relation to improper management” to police since the financial crisis, and “seven of them, they did not pursue”, Berg said. The FSA has reprimanded

Danske and ordered it to hold an extra five billion kroner (RM3.19 billion), or almost US$800 million, in regulatory capital. But the bank’s laundering scandal so far hasn’t led to prosecution.

“There’s a difference between bad management and a criminal event,” Berg said. “The standards for having done something which would result in a verdict — history suggests that you should have done some pretty outrageous things, given the court cases we’ve had.”

Denmark’s FSA is now working with the government on a national strategy to combat money laundering. The lack of a coordinated plan and insufficient resources were among the points raised in the FATF report, as well as the “weak” implementation of anti-laundering measures by banks.

Never Again

Berg said it’s his goal to “never, ever” get such a bad report again. The FSA plans to include even pension funds — typically considered safe — in its expanded oversight, he said.

“Because the criminals, they are smart and they will find new ways,” Nielsen said. “If you close down the channels in the banks, they’ll go else- where. What we hear is that they in fact know how to fly under the radar in the banks in order to avoid being scrutinised. They are very clever, so we have to be everywhere.” — Bloomberg