Denmark’s largest bank, Danske Bank, announced that it’s quitting Russia and the Baltics after being ordered out of Estonia on Feb. 20.
Meanwhile, the European Banking Authority is investigating Danish and Estonian financial regulators to see how they missed 200 billion euros being laundered through Danske Bank’s Estonian branch. While most of the dirty money came from Russia, reports on the Estonian branch found that some nonresident portfolio clients were from Ukraine.
In 2018, the bank’s net profit was $2.3 billion, according to the bank’s official report.
Anti-money laundering experts told the Kyiv Post that this scheme could have helped crime and corruption to flourish, as well as have deprived the Ukrainian economy of funds. While European Union members, including Denmark, try to help Ukraine’s economic development and transparency reforms, the EU’s lack of oversight may create some of the same problems it hopes to stomp out.
“This case shows the hidden connection between problems in developing countries like Ukraine or dictatorial countries like Russia, and problems in Western Europe,” Daria Kaleniuk, the executive director of the Anti-Corruption Action Center, told the Kyiv Post.
Steadfast friend
Denmark has been Ukraine’s steadfast friend. Recently, it gave $9.2 million to a United Nations program to assist internally displaced Ukrainians in the war-torn Donbas region. And recently it poured $5.7 million into alternative energy investments in Ukraine.
Denmark’s government also called for sanctions against Russia over the capture of Ukrainian sailors near the Kerch Strait. And Denmark has consistently encouraged Ukraine’s anti-corruption reforms, to move the country towards becoming a liberal democracy.
However, Graham Barrow, an anti-money laundering consultant based in the U.K., said that it’s Denmark’s very status as a transparent liberal democracy that blinded its regulators to the volume of suspicious money passing through its largest bank.
“The Scandinavian countries were victims of their own success — it made them a target for these crimes,” Barrow told the Kyiv Post. “One reason they didn’t see the problem is because they didn’t believe they had a problem.”
Denmark has a “moderate level of understanding” of its money laundering risks, according to a 2017 assessment by Moneyval, an anti-laundering committee in the EU. A 2018 update found that Denmark had made “good progress” but its risk assessment was still only “partially compliant” with the committee’s standards.
Moneyval’s assessment of Ukraine found that corruption poses an “overarching money laundering risk” and creates a lot of criminal proceeds. Ukraine has “reasonably good” understanding of its laundering risks and is trying to improve its capacity to fight them. However, it still has many problems with transparency, corruption and the shadow economy.
According to a report commissioned by Danske Bank, as well as a statement by the Danish financial regulator, money from Ukraine comprised a very small portion of the total amount. Anna Babinec, an investigative reporter who examined international money laundering schemes, said that this makes sense, as Ukraine doesn’t have a lot of money.
Shell companies
It’s hard to tell whether money coming from Ukraine was tied to corruption, criminal activities or simply tax avoidance. Specific records can be very hard to track down, let alone tie to illegal actions, experts said.
Barrow pointed to two “companies,” Milltown Corporate Services Ltd. and Ireland & Overseas Investments Ltd., which had created thousands of other companies used in so-called laundromats or international laundering schemes.
Many of the “limited liability partnerships” created by Milltown and Ireland & Overseas did their banking with Danske Bank’s Estonian branch. Ukrainian officials had previously investigated Milltown in the laundering of public funds, including money stolen from the state by former president Viktor Yanukovych.
“Most of the LLPs were Milltown and Ireland & Overseas entities, so there is lots of evidence specifically tying them to Danske Estonia,” said Barrow. According to the International Consortium of Investigative Journalists, both entities were tied to “directors” in Latvia, which was an integral part in international laundromats.
Babinec said that it’s unlikely that any Ukrainian money went directly into Danske Bank. It was most likely filtered through several layers, including shell companies in countries like Panama or the Seychelles. These would then open accounts in Latvian banks. From there, funds would be transferred into Danske Bank. After enough transfers, these funds could emerge “clean” in the EU.
Danes ashamed
The laundered money could be used for various purposes. It could be squirreled away in some foreign account and used to buy villas. Or it could re-enter Ukraine as liquidity for people involved in the scheme. Some of this money could be used for corrupt purposes, experts said.
“A lot of it ends up (overseas) and a lot goes back into the home country to influence and to bribe,” said Barrow, referring to laundered money in general.
Kaleniuk added that laundered money from Russia might have been used to finance anti-Ukrainian propaganda in Russia’s hybrid war against Ukraine. “It could be used in the financing of far-right movements to try to break up the EU,” she said.
Babinec said that the most obvious problem with these kinds of schemes is that money is being drained from the Ukrainian economy, putting the brakes on the country’s economic development.
All these problems counteract Denmark’s goals of helping Ukraine develop, become transparent and hold its ground against Russia, several experts said.
Last summer, Danish Prime Minister Lars Loekke Rasmussen urged Ukrainian Prime Minister Volodymyr Groysman to hasten reforms, some of which are “moving forward at a snail’s pace.” Rasmussen added that “hard work still remains” for Ukraine to become free and stable.
Kaleniuk and Barrow said that hard work also still remains for the EU to improve its ability to crack down on international laundering, which penetrates even its best-developed economies.
“The Danes are ashamed of what’s happened,” said Barrow. “It’s been terrible for them.”
