MAA 763 - Corporate Governance: Danske Bank Scandal Report

This report analyzes the Danske Bank scandal of 2018, a major case of money laundering involving the bank's Estonian branch. The fraud, which spanned eight years and involved approximately $234 billion in suspicious transactions, is examined in detail. The report highlights the reasons behind the scandal, including over-expansion, the failure of CEOs Peter Straarup and Thomas Borgen to address early warnings of financial wrongdoing, and inadequate internal controls. The analysis covers the failure of Danske Bank to uphold its responsibilities, the role of various executives, and the consequences of the fraud, including reputational damage and regulatory scrutiny. The report references academic sources to support its findings and concludes with the student's perspective on how the scandal could have been prevented and the importance of ethical leadership and robust compliance measures in the banking industry.

The Danske Scandal (2008)1
THE DANSKE SCANDAL (2018)
By (Student’s Name)
Professor’s Name
College
Course
Date

The Danske Scandal (2008)2
THE DANSKE SCANDAL (2018)
The type of fraud case is money laundering. The fraud is related to over-expansion. The
fraud led to money loss amounting to 234 billion dollars. The duration of this fraud was eight
years.
Reasons:
Danske Bank remained a blue-chip brand in European banking industry for over a
century having been founded in Denmark in the year 1871. Nonetheless, such a pristine image or
reputation got tarnished in the late 2018 following the reports that its Estonian branch allegedly
involved in money laundering activities. This Estonian branch got acquired in 2006 by Danske
Bank when the Bank purchased Finish Sampo Bank.
During the time of buying, the Financial Times highlighted properties of Sampo Bank in
other economies as a big boon for Danske indicating that the deal gave Danske desired control of
the third largest bank in Finland, however, importantly include the current operations of Sampo
in high growth areas of Latvia, Russia, Estonia and Lithuania.
Russia alongside the Baltic economies might have been high growth regions, however,
the Wall Street Journal reported that even before the 2006’s deal, Andrei Kozlov, Russian
Central Bank Chairman, warned Estonian branch’s officials was servicing clients suspected of
financial wrongdoing including corruption and tax evasion but Danske ignored.
In 2010, the Wall Street Journal further reported that Danske’s CEO, Peter Straarup, got
worried regarding how much money was streaming via such a small branch-specifically when a
significant deal of such money came from nonresident customers. However, the CEO did not

The Danske Scandal (2008)3
stand its ground after being reassured that all was okay by Dansk head of International Banking
(2009-2012), Thomas Borgen who became the CEO of Danske in 2013.
In 2013 September, following the intense pressure from Denmark and Estonia authorities,
Danske published a report that indeed confirmed its Estonian branch and headquarter failed for 8
years to deter suspected money laundering that involved thousands of customers as reported in
the NYT. The Bank indicated that it was not able to approximate the correct figure for total
value of suspicious transactions recognized, however, it disclosed that its Estonian branch had
improbably huge streams of nearly 234 billion dollars (Ehrenhard and Fiorito 2018).
Transactions encompassed over 6000 clients from year 2007 and 2015 and showed severe
control and compliance failures. It was reported by the Guardian that broad scope of economies
engaged indicating that Danske fraud case encompassed 32 currencies, firms from the British
Virgin Islands, Cyprus and the Seychelles. The Estonian branch’s clients were traced to Ukraine,
Azerbaijan and Russia (Meklin 2018).
Due to the fraud, Borgen resigned and stated that it was apparent that Danske Bank failed
to live up to its expected responsibility in the case of probable money laundering in Estonia. He
deeply regretted the failure. Despite the investigations by external firm concluded that Borgen
had lived up to his legal obligation, he believed that it was best for every party that he resigned
(Welch, Ricci and Meselson 2009).
My View:
It is apparent from this fraud case that Danske Bank failed to live up to its responsibility.
They had the early warnings that they could have maximized on to probe the Estonian branch
even before they purchased Sampo Bank (Jackson 2018). The CEOs (Peter and Borgen) failed to
stand their grounds to save the reputation of the Bank. This case could have been prevented by

The Danske Scandal (2008)4
using the information about the suspicion in the Estonia branch before proceeding to buy and
continue with operations (Hoff-Clausen 2013).
Despite the CEO, Peter Straarup getting worried about the huge flows of money in the
small Estonian branch, he did not investigate the suspicion comprehensively. Peter ought to
have order a probe into Estonia branch to ascertain whether the alleged wrongdoing was true
before proceeding with Estonian branch operations (Ardigó and Iñaki 2016). This could have
ensured control and compliance that could have saved the Bank its reputation (Tol 2018).

The Danske Scandal (2008)5
References
Ardigó, Ö.A. and Iñaki, P., 2016. Overview of Corruption and Anti-corruption, 11(1), 2-65.
Ehrenhard, M.L. and Fiorito, T.L., 2018. Corporate values of the 25 largest European banks:
Exploring the ambiguous link with corporate scandals. Journal of public affairs, 18(1), p.e1700.
Hoff-Clausen, E., 2013. Attributing rhetorical agency in a crisis of trust: Danske Bank's act of
public listening after the credit collapse. Rhetoric Society Quarterly, 43(5), pp.425-448.
Jackson, O., 2018. Repeat of Danske Bank AML issues ‘almost certain’without EU
changes. International Financial Law Review.
Meklin, H., 2018. Anti-Money Laundering Risks and Challenges at the Time of Crypto
Currencies. L’Europe Unie, 13(13), pp.59-67.
Tol, T., 2018. Transitions Online_Around the Bloc-Estonian Dirty Money Scandal
Balloons. Transitions Online, (10/09), pp.11-12.
Welch, D.B.M., Ricci, C. and Meselson, M., 2009. Bdelloid rotifers: progress in understanding
the success of an evolutionary scandal. In Lost sex (pp. 259-279). Springer, Dordrecht.