First Latvia, now Estonia. Reports that Danske Bank, Denmark’s largest lender, may have laundered up to $8.3bn through its Estonian subsidiary — following Latvia’s banking scandals this year — have highlighted anew the Baltic republics’ reputation as conduits for dirty money. They point, too, to a more fundamental issue. Europe is trying to fight an inherently international problem with a patchwork of national authorities.
In the Danske case, Danish newspaper Berlingske alleged this week that as much as DKr53bn of suspicious money — more than twice previous estimates — flowed through the bank’s Estonian branch, citing bank documents. The report poses questions for managers, including Thomas Borgen, the bank’s chief executive since 2013 who previously headed its international operations, including the Baltics. It also suggests the bank’s own internal probe is insufficient, and the fraud squad should be brought in.
The Estonian scandal has blown up only four months after the US Treasury in effect forced the closure of Latvia’s third-largest bank, ABLV, by accusing it of “institutionalised money laundering”, including helping finance North Korea’s nuclear programme.
The alleged laundering through Danske in Estonia is historical, dating from 2007-2015. The Baltic states, under EU and US pressure, claim to have clamped down on illicit money flows since then, and shrunk their outsized non-resident banking sectors, which largely serviced customers from Russia and other ex-Soviet states. But the US swoop on ABLV raised doubts about how effective that clampdown has been — and left Latvian and EU authorities looking ineffective. The US told Latvia in March that its banks were still involved in money laundering.
There are limits, in any case, to what national regulators can achieve on their own. Tackling money laundering requires close cross-border co-ordination. In Danske’s case, while Danish regulators supervise bank management, they must rely on Estonian authorities — and others beyond — to track the money flows. Dirty money, moreover, is like water. Plug holes in Latvia or Estonia and it will flow elsewhere — through Malta, say, or Cyprus.
As yet, no EU body exists with responsibility for co-ordinating efforts to plug the holes everywhere at once. The European Central Bank’s supervisory arm, the Single Supervisory Mechanism, scrutinises the business models and governance of banks. Competence for policing money laundering still lies with national authorities.
Each country has a financial intelligence unit, monitoring potentially suspicious transactions on behalf of law enforcement bodies. But there is no EU co-ordinating institution or central database. The outgoing head of Europol warned this year that the information-sharing that now exists on terrorism risks was not matched by that in the fight against financial crime.
Since Latvia’s banking scandals the European Commission has pledged to strengthen co-ordination. It is seeking better co-operation among national financial intelligence units, setting a deadline to respond to requests from counterparts in other EU countries, and trying to remove bottlenecks in sharing bank account data.
Danièle Nouy, the EU’s top financial regulator, has said Europe should go further, and create a centralised body for dealing with money laundering. For now, the political will does not exist. Until it does, the international McMafia will continue to find plenty of ways to funnel its illicit billions through the pipework of the European financial system.