Scandal at Danske Bank: a striking saga of lousy governance

The scandal at Danske Bank has been described as one of the most significant money-laundering operations that Europe has ever witnessed. 

Years of wrongdoing were followed by years of watchdog probes and international condemnation. But this week, the saga has concluded – in the form of a vast monetary penalty and more scathing criticism from US watchdogs. 

The bank hopes to draw a final line in the sand on its most turbulent period in history. It all depends, though, on whether it can learn from its governance failures.

In 2017, it emerged that Danske Bank had allowed over €200 billion in suspicious transactions to move through its channels. 

The action centred on the bank’s Estonian branch (now closed). Ten former employees of that branch were arrested. Then-Danske Bank CEO Thomas Borgen resigned.

Multiple watchdogs – chiefly Danish and US authorities – have been conducting an extensive probe of the bank ever since. 

This week, the bank announced a final settlement worth over €2 billion with those authorities and accepted “full responsibility for the unacceptable failures and misconduct of the past, which have no place at Danske Bank today.”

Because anti-money laundering protocols begin at the top levels of a business. That responsibility only increases when the business in question is one of the most prominent banks in Europe. 

Principles and processes start with organisational strategy and filter down. Over the past several years, we have seen that this simply didn’t happen at Danske Bank. 

Whether Danske Bank’s strategy was inadequate or simply ignored makes no difference now; its board and the executive team failed to give proper oversight. Now they are paying the price. 

If senior leaders didn’t facilitate money laundering themselves, they ignored red flags showing that others were doing so. This, in the eyes of government watchdogs, signals culpability. New laws mean that it’s becoming harder to hide from that fact.

At the heart of the issue was Danske Bank’s willingness to lie as part of its governance strategy. At least, that’s how US authorities see it. 

Much of the money attached to the scandal ultimately ended up moving through other banks based in the US, and because of this, Danske Bank has been accused by the US Department of Justice (DOJ) of “deceiving” these banks. 

“By at least February 2014, as a result of internal audits, information from regulators, and an internal whistleblower, Danske Bank knew that some NRP customers were engaged in highly suspicious and potentially criminal transactions,” a US Department of Justice (DOJ) statement said this week. 

“Danske Bank also knew that Danske Bank Estonia’s anti-money laundering program and procedures did not meet Danske Bank’s standards.”

Yes, and also, they didn’t act sufficiently to stop wrongdoing. 

You’ll notice that the DOJ accused the bank of inaction in 2014 – in other words, three years before the scandal’s impacts began to unfold in the public realm and two years before the dirty money stopped flowing. 

No corporate governing body should allow their company to fall into such reckless law-breaking. But pivotally, no governing body should allow their company to remain in that state. Danske Bank did, and now it is paying the price.

• In financial institutions, boards and executive teams have a crucial duty to ensure sufficient anti-money laundering (AML) controls. Watchdogs are as eager as ever to uncover such wrongdoing and turn it into an international example. 
• Corporate leaders must respect and act on internal audits, especially when they raise red flags. 
• Similarly, corporate leaders need to respect and act on whistleblower comments. 
• Action and inaction bring similar consequences. Whether a board facilitates laundering or stands by while it occurs, the responsibility falls on their shoulders.
• Look at the UK as an example of toughing legislation. A proposed law there specifically suggests jail time for directors if their company facilitates financial crime.

The scandal at Danske Bank is one of the biggest money laundering cases ever uncovered. Lawmakers have blasted it and vowed harsh responses should it ever happen again. 

Boards and executives in financial institutions should pay close attention to this and their companies’ channels. 

If those channels are being used to move dirty money, expect a fallout.