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The Danske Bank Money Laundering Scandal: A Case Study

18/12/2024

“The Danske Bank Money Laundering Scandal: A Case Study” by Elisabetta Bjerregaard and Tom Kirchmaier, published by Copenhagen Business School in 2019

The Danske Bank scandal, in which €200 billion in suspicious transactions flowed through its Estonian branch (2007–2015), is a cautionary tale of what happens when client KYC is not adequately corroborated. The red flags that would have been obvious are missed.

This case study delves into the extensive money laundering activities at Danske Bank’s Estonian branch, highlighting the severe consequences of inadequate Know Your Customer (KYC) processes.

The report discusses how over €200 billion of suspicious transactions flowed through the bank’s Estonian branch between 2007 and 20152.

It underscores the importance of robust KYC procedures to prevent such large-scale financial crimes, which can impact the economic ecosystem.

What Went Wrong?

  1. Unverified Client Identities: High-risk clients, including shell companies, were onboarded without robust checks. Documents provided during onboarding needed to be corroborated against independent sources.
  2. Source of Funds (SOF) Neglected: Despite clear risks, no efforts were made to verify the legitimacy of clients’ sources of wealth or funds.
  3. Ignored Red Flags: Unusual transactions involving tax havens and politically exposed persons (PEPs) were accepted at face value without scrutiny or further investigation.

The Cost of Neglect:

  1. Regulatory fines in the billions, with long-term financial consequences.
  2. Severe Reputational damage, eroding customer trust and investor confidence.
  3. Criminal investigations targeting the institution and senior executives tarnish their legacies.

Lessons for Financial Institutions:

  1. Corroborate KYC Information: Always validate client documents and claims with independent, reliable sources.
  2. Strengthen Due Diligence: Ensure ongoing monitoring of client activity and revisit KYC information regularly to detect new risks.
  3. Foster a Culture of Accountability: Make compliance everyone’s responsibility, from front-line staff to leadership.

The Danske Bank case underscores that weak or unchecked KYC processes can lead to catastrophic consequences for institutions and the broader financial ecosystem.

You can access the full report through the Copenhagen Business School Research Portal

 SOURCES

(1) The Danske Bank Money Laundering Scandal: A Case Study. https://research.cbs.dk/en/publications/the-danske-bank-money-laundering-scandal-a-case-study.

(2) The Danske Bank Money Laundering Scandal - CBS. https://research-api.cbs.dk/ws/portalfiles/portal/60661878/Bjerregaard_Kirchmaier_The_Danske_Bank_Money_Laundering_Scandal_2019.pdf.

CASE STUDIES MONEY LAUNDERING

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