Monday, December 9, 2019

Investment Insights

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Danske Bank's money-laundering scandal results in over $6 billion in investor losses

By Olav Haazen/Grant & Eisenhofer

In a series of successive disclosures over the past few years, Danske Bank, Denmark’s largest bank, admitted to a massive money-laundering scandal involving Danske’s branch in Estonia and causing CEO Thomas Borgen and other top executives to resign. These disclosures resulted in stock price declines that have wiped out almost $12.8 billion in market capital.

In February of 2018, credible news reports revealed that the bank’s top management had been part of a four-year long cover-up of large-scale money-laundering of illicit funds from Russia at the bank’s Estonian branch, which was first reported to management in December 2013 and then confirmed by the bank’s own internal audit committee in February 2014. In July 2018, Danske and several investigative news outlets reported that the money-laundering concerned at least $8 billion from which Danske had profited to the tune of more than $200 million. On Sept. 7, Danske disclosed that the scope of illegal money-laundering through Danske’s channels was closer to $150 billion, and on Sept. 19, Danske finally revealed that it actually involved a staggering $234 billion, nearly a thirty-fold increase over the already-shocking amount initially reported.

On the same day, Danske released a report of a year-long independent investigation ordered by the bank’s board of directors. The report erases any doubt that the bank’s anti-money laundering procedures ‘were manifestly insufficient and in breach of international standards as well as Estonian law’ and that the bank ignored that its non-resident customers were ‘categorized as high risk.’ The report also unambiguously states that by no later than early 2014 management knew of the problem – and that its internal controls had been manifestly inadequate – but failed to disclose it to banking regulators in Estonia and Denmark – let alone to its investors.

On March 14, 2019, the first civil damages claims against Danske were filed for over $450 million on behalf of 169 institutional investors in the City Court of Copenhagen, Denmark. In October 2019, a second wave of damages claims were filed on behalf of 64 additional institutional investors, bringing the total number of claimants in both waves to 232 investors with combined losses of nearly $800 million. The Grant & Eisenhofer (“G&E”) group of claimants alone represents 25 countries across Europe, North America, Asia and Australia and include some of the largest public pension funds in the world, and a third wave of damages claims will likely be filed in February 2020 on behalf of additional aggrieved investors.

G&E has been following the emerging story of Danske’s money laundering and continues to investigate avenues for investors to recover their losses under Danish law from Danske Bank. G&E is also investigating claims against Danske’s auditor Ernst & Young which the Danish Business Authority reported to the police on April 12, 2019, in connection with Ernst & Young's audit of Danske's annual and consolidated financial statements for 2014. Ernst & Young reportedly became aware of information that should have led it to carry out further investigations and notify the Money Laundering Secretariat, both of which it failed to do.

The views expressed herein do not constitute research, investment advice or trade recommendations, do not necessarily represent the views of Grant & Eisenhofer nor TEXPERS, and are subject to revision over time.

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