Dutch Prosecutors Investigating 'Money Laundering & Terrorism Financing' Violations At ABN Amro

As avid Zero Hedge readers are probably aware, a wave of money laundering scandals has swept across the European banking sector over the past two years, exposing gaping holes in both individual banks' compliance schemes and the EU-wide regulatory framework which, according to critics, is routinely exploited by criminals from the former Soviet Union and...possibly even certain heads of state.

And the latest bank to be swept up in the controversy is perennially troubled Dutch lender ABN Amro, which is still majority-owned by the Dutch state after being bailed out during the financial crisis. Bloomberg reports that the Dutch lender has disclosed a criminal probe into alleged AML and KYC failures. Specifically, the bank is being investigated for possible violations of a Dutch anti-money laundering and terrorist-financing law.

The disclosure prompted the largest slump (as much as 10.3%) in ABN shares in three years when the Amsterdam market opened on Thursday. The bank's bonds also fell.

And the selloff could easily intensify in the coming weeks and months. KBW banking analyst Jean-Pierre Lambert said the uncertainty surrounding the investigation could continue to weigh on ABN Amro's shares. Like Danske Bank, seen as the epicenter of the European money-laundering shockwave, investigators has unearthed unreported suspicious transactions - but it's unclear whether evidence of actual money laundering or tax evasion has been uncovered.

"There’s so much uncertainty for the shareholders now," said KBW analyst Jean-Pierre Lambert by phone. "The big question is whether there’s actual money laundering involved in this case. That’s what the prosecutor’s investigation probably is trying to find out."

Indeed, details about the probe remain sketchy:

The Dutch probe adds to a series of money laundering cases that have engulfed lenders particularly in northern Europe, and highlighted weaknesses in the region’s efforts to fight the flow of illicit funds. Only this week, the former head of Danske Bank in Estonia, the unit at the center of a $220 billion money-laundering scandal, was found dead after disappearing from his home on Monday. On Tuesday, Germany’s Deutsche Bank AG received a visit from law enforcement officials over its role in the scandal.

ABN Amro is under investigation for failing to report suspicious transactions and not conducting sufficient checks on its clients, the Dutch prosecutor’s office said on Thursday. The bank said separately that it faces an investigation under the Dutch anti-money laundering and terrorist-financing law, without providing further detail.

And all of this is happening during the waning days of CEO Kees van Dijhuizen's rule: He said in June that he would step down when his contract term ends in April 2020. The bank is still looking for a successor.

Another issue: According to Bloomberg Intelligence banking analyst Philip Richards, it's impossible to anticipate the extent of the ABN Amro's wrongdoing and - more pertinently - the size of any potential fine. The only clue we have is that the bank took a €114 million ($124.62 million) proviso during the second quarter. That came after the Dutch Central Bank asked ABN Amro to to review all domestic retail clients (which would suggest that the international money laundering rings and shadowy Moldovan criminal syndicates aren't the focus here).

At the time, ABN Amro warned that it could face sanctions by Dutch authorities, but claimed that it would be impossible to estimate the size of any potential fine.

But there's one critical factor working in ABN Amro's favor here: A very interesting conflict of interest. If ABN Amro's share price plummets, that could make it harder for the state to unload its 56% stake - something the government pledged, four years ago during the bank's 2015 IPO, to do as quickly as possible.

ABN Amro isn't the first Dutch bank to have AML issues: ING Groep, a larger rival of ABN Amro, agreed to pay €775 million euros ($900 million) to settle the case last year. Since then, Dutch banks have pledged to spend more on compliance, and ABN Amro said it would spend another €220 million ($240 million) to "tighten its procedures in its consumer banking, credit card and small business lending operations," according to the FT.

As the scandal unfolds, ABN senior bankers should probably watch their backs. ABN Amro bankers suffered a string of suspicious suicides a few years back in the wake of the bailout. Earlier this week, a Danske Bank executive embroiled in the bank's money laundering scandal was found dead.