By Lionel Laurent / BLOOMBERG
AS THE numbers tumbling out of the Danske Bank A/S money-laundering scandal get bigger, the tempting question is: “How could anyone let this happen?” The answer is that quite a lot of people already do. And no, it’s not just bankers.
When criminals exploit the global financial system, they rely on existing flaws and chinks that take willpower and effort to fix.
Cross-border illicit money flows are helped by weak enforcement, politics, accountability and reporting standards.
There’s no such thing as a zero risk country for money laundering, according to the Basel Institute on Governance, a non-profit.
Which means it’s hard to swallow the idea that politicians are being caught unawares.
In Denmark’s case, gaps in its national oversight were broadly known. A 2017 assessment of the Scandinavian country by the Financial Action Task Force found that it lacked coordinated policies and resources to fight money laundering, a crime which was usually punishable by a prison sentence of 1.5 years at most — hardly dissuasive.
And beyond the banking sector, in areas like real estate or accounting, understanding and knowledge of compliance and financial sanctions was deemed poor.
This doesn’t just happen “over there” in Denmark — it happens everywhere. Danske’s US$234 billion (RM973.44 billion) money trail reportedly ran through the Baltics, where its Estonian branch seems to have had virtually free reign to process payments by non-residents, and the UK, where registered companies were used as vehicles. Those who think the US is a paragon of virtue should also recall that, 20 years ago, the Bank of New York was found to be at the heart of a multibillion-dollar Russian money-laundering scandal.
Now, why would any country accept sub-par, or flawed, monitoring of financial crime? Surely, being tough on money laundering is an instant vote-winner? Well, not always. The City of London’s history is instructive in this regard.
Many policies that today are viewed as unacceptably attractive to dirty money — investor visas for the rich, offshore tax havens and light financial regulation — were for about 20 years part of government policy to attract investment.
It took the Brexit vote, and the subsequent March 2018 poisoning of former Russian spy Sergei Skripal on British soil, for public opinion to harden and for the House of Commons Foreign Affairs Committee to accuse officials of turning a blind eye to corruption. The cost to the public had become clear. This isn’t just a UK phenomenon.
It’s a global issue, and is explained in a 2005 University of Utrecht research paper dubbed the “Seychelles Strategy”, referencing the island state’s madcap mid-1990s proposal to offer immunity from prosecution to anyone who would make a US$10 million investment.
Looser regulations can win votes, because the initial impact is a boost to business or property investments.
Only once the after-effect of more crime is felt does tougher enforcement become a demand from the electorate down the line.
More details, more allegations, and the threat of more fines have kept pressuring Danske shares.
The Danske test is not whether governments and regulators express outrage and take action after years of free-wheeling, illicit financial activity.
The test is whether long after the dust has settled on Danske — and laws have been changed, fines paid out and international cooperation improved — money laundering stays as high on the agenda. Don’t count on everyone to pass.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its