Danske Bank is accused of funnelling $230bn in illicit funds through its Estonian branch. Here’s what you need to know.

Danske Bank, Denmark’s largest lender, has found itself at the centre of one of the world’s biggest money-laundering scandals.

EU Justice Commissioner Vera Jourova has described the $235bn of suspicious transactions as “the biggest scandal we have now in Europe”.

Here’s how it unfolded:

What happened at Danske Bank?

The bank is under investigation on both sides of the Atlantic for allegedly funnelling billions of dollars in illicit wealth through its Estonian branch, which it acquired in 2006.

From then until 2015, some 200 billion euros ($235bn) in suspicious transactions passed through the branch.

Danske Bank holds a third of Danish people's savings and faith in the country's financial system is being lost due to the scandal. Maira Martini, knowledge coordinator at Transparency International

The massive sum – 10 times Estonia’s Gross Domestic Product – was paid in by non-residents, with most deposits coming from Russia.

The story broke in March 2017, after the Estonian branch was mentioned by Danish newspaper Berlingske in connection with the Russia and Azerbaijani Laundromat money-laundering operations.

Initially, the sum allegedly laundered was thought to amount to around two billion dollars, however, following investigations by Denmark’s Financial Supervisory Authority (FSA) and Danske Bank itself, the figure was realised to be $235bn.

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“Experts have been talking about the largest ever money-laundering scandal in history, but we still don’t have a full picture,” Maira Martini, knowledge coordinator at anti-corruption NGO Transparency International, told Al Jazeera. “We know for sure that we are not talking about a few bad apples.”

Danske Bank’s report, released in September 2018, said the accounts of some 15,000 non-resident customers were being investigated.

Of the 6,200 accounts examined at the time of the report’s publication, the “vast majority” were considered “suspicious”.

“It turned out that this was so much bigger than anyone had ever imagined,” said David Bentow, the editor of Finanswatch, a Danish financial news website. “The report was really a bombshell”.

How did it happen?

Warnings from authorities in Estonia and Russia as early as 2007, about suspicious activities in the Estonian branch were apparently ignored, while internal mismanagement allowed the branch to effectively operate under a different set of standards to others in the Danske Bank group.

The Danish press also reported that a whistle-blower inside the bank alerted management to the trouble in the Estonian branch around 2012, but this was also apparently ignored.

“Not only did Danske Bank not look carefully enough at this, they were actually aware that there were a lot of suspicious transactions, but they consciously and deliberately chose to look the other way because it was very profitable to manage these types of transactions,” Jacob Kirkegaard, a senior fellow at Washington, DC-based Peterson Institute for International Economics, told Al Jazeera.

Non-resident accounts made up the lion’s share of the branch’s profits, according to the internal report, with 99 percent coming from clients outside Estonia in 2013.

“There are many reasons to be concerned,” said Martini. “By enabling or failing to crack down on money laundering, financial institutions and governments are also enabling predicate criminal activities. If a corrupt individual cannot hide illicit funds and cannot spend the money without raising suspicious then stealing public funds also becomes more difficult,” she told Al Jazeera.

Who is investigating?

In early October 2018, Danske Bank announced it was cooperating with requests for information from the United States Department of Justice regarding the Estonian branch.

Danske Bank’s former CEO Thomas Borgen, who stepped down after the internal report, admitted that the bank did not identify or react appropriately to concerns raised about the Estonian branch.

But he denied criminal wrongdoing, a claim analysts consider “highly dubious”.

“He’s saying that because if he is convicted of any criminality he will lose all his stock options,” Peterson Institute’s Kirkegaard told Al Jazeera.

“Now, he has just resigned, he has left the bank with millions of euros in bonuses. He will lose all of this money if the bank and its management is convicted of criminal activity, so he has a very, very strong incentive to say that, ‘Oh, all we did was morally dubious, but not criminal’.”

Danske Bank has reportedly struggled to find a CEO since Borgen, centre, resigned over the scandal in September [File: Liselotte Sabroe/Ritzau Scanpix via Reuters]

Authorities in Finland, France and the United Kingdom have also launched investigations, joining criminal probes in Estonia and Denmark.

Anti-money laundering regulations in the European Union – which cover both Denmark and Estonia – have been tightened significantly in recent years, meaning that while negligent, it is unclear whether Danske Bank’s actions were criminal.

Along with the bank itself, auditor Ernst & Young is also under investigation by Danish authorities. The bank’s internal report revealed it had provided incorrect information to auditors.

“We should hope for dissuasive and proportional sanctions against both the bank and its senior management. We also hope that relevant information is shared with authorities in other countries and that there is also a thorough investigation regarding where these suspicious funds came from and who benefited from it,” said Martini.

Where is the money now?

The suspicious transactions have so far been linked to clients in Russia, and several former Soviet republics, including Ukraine, Azerbaijan and Moldova.

Among those implicated are a number of Russian oligarchs, including members of President Vladimir Putin‘s inner circle, and several shell companies registered in the UK or its overseas territories.

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From Estonia, much of the money was invested in London and in tax havens, such as the Cayman Islands. Its ultimate destination, however, remains largely unknown.

“This is the main advantage of getting your money in Estonia, because it is a euro country you can go more or less anywhere from there,” said Kirkegaard.

Along with its global currency, Estonia’s status as a former Soviet republic, with lasting financial relations, geographical proximity and a shared language made it an attractive destination for Eastern European money launderers.

What’s next?

The scandal has hit Danske Bank hard. Since the start of the year, it has lost 40 percent of its value and analysts say looming fines are likely to run into the billions of euros.

A bigger problem will be removing the whiff of corruption from the bank, which has seen customers flee.

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“Danske Bank holds a third of Danish people’s savings and faith in the country’s financial system is being lost due to the scandal,” said Martini.

Bentow added that while financial losses to the bank are likely to be minimal, rebuilding credibility would be challenging and likely to take “several years”.

Meanwhile, criminals will be looking for a new location to launder money.

“It’s a kind of cat-and-mouse game: if you have billions of dollars that you have acquired through shady origins and you want to be able to invest it around the world, you’re constantly looking for ways to do that, you’re always looking for the weakest link in the chain,” Kirkegaard told Al Jazeera.

“Until recently, that was apparently Estonia; that’s no longer the case, so now they will be looking elsewhere: it could be Cyprus, it could be Singapore – who knows?”