1:27 What is money laundering?
4:00 Setting the scene
7:00 The warning signs
8:59 Problems brewing
11:26 Dubious revenue
14:54 Allegations & downfall
20:07 Final thoughts
What Is Money Laundering?
In short, money laundering is the process by which the proceeds of crime are disguised to mask their illicit origins. This process can be broken down into three key stages:
1. Placement: When that dirty money is put into the traditional financial system.
2. Layering: When funds, securities or insurance contracts are layered to complicate the paper trail.
3. Integration: When dirty money is fully integrated into the financial system. That’s done by purchasing assets like real estates or luxury goods like watches.
Setting The Scene
Danske Bank is a Nordic bank who is the largest financial institution in Denmark. Naturally, these chaps wanted to make even more money and wanted to expand. A great place for that seemed to be the Baltics given their close proximity.
So, amongst that backdrop Danske announced the acquisition of Finnish-based Sampo Bank. That deal went through in 2007 and included the Sampo Pank branch in Estonia – a branch that had strong links to Russia and a large Russian nonresident portfolio.
The Warning Signs
Just before the acquisition, the Estonian newspaper Eesti Express reported how the Russian Central Bank’s Deputy Governor, Andreai Kozlov, visited the Estonian capital Tallinn to demand the closure of suspicious accounts at Estonian banks. Some of those accounts were at the Sampo Pank branch.
Andreai also warned the Estonian FSA before being assassinated in mysterious circumstances.
In 2007, the Estonian FSA did an inspection at Sampo Pank – which scrutinized their non-resident portfolio. The findings were highly critical of the bank’s know your customer checks.
However, even then, the Russian Central Bank was telling the Danish FSA that Sampo Pank clients were making dubious transactions.
Yes, the banking crisis hit the revenue of banks hard. However, Danske bank cooked up a plan to increase profitability by expanding the non-resident portfolio. That saw the number of non-resident accounts expand by 6500 from 3300.
A lot of those new accounts were created at the Sampo Pank branch. That expansion was powered by the branch being given greater independence from the group. This involved things like issuing foriegn exchange lines of credit to non-residents, even if the company involved didn’t provide any financial statements of where the money had come from.
Allegations & Downfall
2014 saw whistleblower allegations hit the bank about their non-resident portfolio. One insider uncovered that a UK dormant company had deposited nearly $1 million at the Estonian branch. So, that UK company filing was fraudulent.
In the face of the whistleblowing, Danske Bank prioritized profit over everything else and postponed further investigations for another three years. When that report was finally published, it turned out that between 2007 to 2015, around €200 billion of suspicious non-resident transactions had flowed through that single bank branch in Estonia. That figure was ten times Estonia’s GDP back in 2007.
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The information contained herein is for informational purposes only. Nothing herein shall be construed to be financial, legal or tax advice. The content of this video is solely the opinions of the speaker who is not a licensed financial advisor or registered investment advisor. Trading cryptocurrencies poses considerable risk of loss. The speaker does not guarantee any particular outcome.