Criminal Investigation into Danske Bank Laundering Case A Good First Step

The decision by Estonia’s prosecutor general to open a criminal investigation into an alleged €9 billion money laundering scheme through the former Estonian branch of Danske Bank is a welcome, if not delayed, move by the Estonian government. The investigation was prompted by a criminal complaint submitted by Hermitage Capital Management CEO, activist and leader of the global campaign for Magnitsky sanctions, Bill Browder.

The complaint, targets a massive Russian money laundering scheme, allegedly facilitated by the now defunct Estonian branch of Danske Bank, in which part of the USD $230 million that was stolen by the Klyuev Organized Crime Group during the infamous Magnitsky affair, was laundered.

According to the complaint, 26 Estonian employees of bank were involved in the scheme that involved some 190 accounts and sums that exceeded €9 billion – beyond those connected to the Magnitsky affair.

“Estonia has an excellent reputation for transparency and fighting corruption,” said Browder. “Those responsible for this massive money laundering scheme need to be held accountable and I hope a proper criminal investigation will be conducted to do just that.”

In 2016, Estonia adopted Magnitsky legislation, which allows it to place visa bans on corrupt foreign officials who abuse human rights. However, it’s important to note in light of the Hermitage complaint, that the Estonian law does place asset freezes on targeted individuals, like the US, Canadian and UK laws.

the rapacity of a gaggle of unethical bankers, cannot be allowed to put Estonia’s otherwise excellent reputation on corruption and transparency at risk.

While this long delayed government reaction is a welcome step towards Estonia acknowledging and dealing with the issue of Russian money laundering, a broader government response is needed in order to buttress western confidence in Estonia’s financial institutions.

Estonia’s problems with money laundering have been simmering since a closed investigation was launched into allegations about laundering at Danske Bank’s Estonian branch already in 2015. Despite its otherwise strong reputation for anti-corruption policies, the Estonian government failed to adequately address the Danske Bank allegations, through which a staggering €9 billion in corrupt, Kremlin linked, money – just €1 billion short of the entire Estonian state budget – is alleged to have been laundered.

Dirty money laundering pipelines, like the massive one that Danske Bank’s Tallinn branch is alleged to be part of, have been used by Russian kleptocrats to ensure that the money they pump into London, Miami, Monaco, Marbella and elsewhere, has no ties to Russia or its criminal origins, and as such, made to seem like any regular investment.

The accounts at the Estonian bank, then known as “Sampo Bank,” were used to transfer money from Russian entities who sold UK based securities and then on to various offshore accounts. The Hermitage complaint claims that the bank was used to transfer some of the proceeds from the USD $230 million tax fraud that Sergei Magnitsky discovered, to a Swiss account controlled by a close friend of Vladimir Putin’s, Sergei Roldugin.

If true, the former employees of Sampo Bank and its parent, Danske Bank, could be subject to international sanctions laws for their participation in the Magnitsky affair.

The biggest concern for Estonians should be the risk that the case exposes the credibility of the country’s financial system to. Notwithstanding the allegations themselves, the painfully long delay in publicly acknowledging and confronting the allegations by the Estonian government is worrying.

Jaanus Tehver, an Estonian lawyer and anti-corruption expert told me earlier this year that he is “worried that the Estonian government isn’t taking this case or the problem with the laundering of Russian, Azerbaijani or other money seriously.”

While it may be uncomfortable to acknowledge that the seemingly incorruptible Estonian financial system has been abused by Kremlin connected officials and organized criminals, the risks of not doing so are much greater. By leaving these issues unaddressed, the government raises eyebrows among its trading partners and the global finance community. Ultimately, it is Estonia’s credibility that is at stake, as even the slightest whiff of corruption can be toxic to a small nation like ours.

Estonia is not alone in being slow to acknowledge corruption. When the threat of it is identified, it’s often difficult for a government to acknowledge it. It took years, and the poisoning of a former KGB agent and his daughter, for the UK to acknowledge the presence of dirty Russian money in London and the UK.

For years, British politicians openly embraced the arrival of corrupt Russian money in London. From football clubs to corporations listed on its stock exchange, London is today, awash with Russian cash.

Unlike Estonia, the UK is a leading hub of international finance and has been able to ignore the multiple perils of handling and absorbing corrupt money – in the short term. The Skripal poisoning changed that, and earlier this year, Teresa May said in The House of Commons, that “there is no place for these people, or their money, in our country.”

The reputation of Estonia’s small financial system and economy is sensitive and cannot afford the same risks.

This week’s acknowledgment by the Estonian prosecutor’s office, that a criminal investigation should be opened, is a good first step towards restoring the credibility of the Estonian financial system.

A proper criminal investigation will hold accountable those who facilitated the laundering of money obtained through, theft, the abuse of human rights and other corrupt practices. A comprehensive review of Estonian anti-corruption regulations must follow.

While some Estonian bankers and lawyers will balk at the government decision to investigate, the government must introduce additional deterrence measures, including augmenting the existing Estonian Magnitsky legislation with asset freezing capabilities.

The complaint lays bare the fact that some members of Estonia’s financial community feel unencumbered by moral or ethical concerns. For them, only the clearly articulated punitive consequences of participating in corruption, will outweigh the lure of profits.

Ultimately, the rapacity of a gaggle of unethical bankers, cannot be allowed to put Estonia’s otherwise excellent reputation on corruption and transparency at risk.

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