Denmark has for decades maintained a reputation as one of Europe's most cleanest and most credit-worthy countries. But that reputation now lies in tatters thanks to the widening scandal involving the country's largest lender, Danske Bank, and allegations that it blithely aided shadowy criminals from the Soviet Union by helping them launder money through Danske's branch in Estonia.
An internal audit published Wednesday by Danish law firm Bruun & Hjejle only exacerbated the situation by revealing that the potential for fraud was even larger than authorities initially believed - with a total of $234 billion in transactions now labeled "suspicious" by the bank. Denmark’s government, which is presently investigating the bank along with authorities in Estonia and the US, revealed that the bank is potentially facing as much as 4 billion kroner ($630 million) in fines, according to Bloomberg. That sum is many multiples of Estonia's GDP.
Danske officials estimated at the time that they had done business with some 6,200 "suspicious" clients between 2007 and 2015, when the bulk of the alleged money laundering occurred.
That would be tantamount to the largest fine ever levied by Danish authorities, which is understandable, since the Danske scandal is one of the largest money laundering cases in European history. Bloomberg Intelligence estimates Danske may have to pay more than 1 billion euros ($1.2 billion) in total.
This could have a serious impact on the bank's financial health, which could be hugely problematic for Danes because the bank holds one-third of all deposits in the country. Indeed, the scandal could have far-reaching ramifications for the entire Danish financial system and Danish companies as S&P has warned that the case might impact Denmark's AAA credit score. Germany, Norway, the Netherlands, Switzerland, Sweden, Leichtenstein and Luxembourg also have AAA ratings from S&P in Europe.
According to EU Observer, Danish authorities began seriously investigating the allegations only after a whistleblower, and investigative reporters, shed light on it last year. These revelations followed warnings from Estonian, US and Russian authorities. Yet the bank refused to act on the warnings as now-former CEO Thomas Borgen, who resigned earlier this week, brushed them aside. Before ascending to the top job, Borgen was in charge of the bank's international business, and the Estonia branch was a crucial locus of profits. Borgen said at a board meeting in 2010 that he did not "come across anything that could give rise to concern," according to meeting minutes released by the bank on Wednesday.
To save face, the bank pledged €200 million ($235 billion) to create an anti-money laundering foundation in Denmark and Estonia that will "serve only subsidiaries of our Nordic customers and international customers with a solid Nordic footprint." Meanwhile, Danish Trade Minister Rasmus Jarlov on Wednesday said he would begin drafting "significantly sharper" penalties for money laundering.
According to the internal audit, Bruun & Hjejle said many of the transactions originated in Moscow and St. Petersburg, and some may have involved "members of the Putin family."
Since the scandal first surfaced earlier this year, Danske bank shares have tumbled 35%.
And if S&P moves through with the downgrade, or the US Treasury Department hints that it may be considering sanctions that would ban Danske from handling dollars - a punishment known as "the death penalty" - that selloff could get much, much worse.