Baltic Bank Scandals Show EU Can’t Contain Money Laundering

Bribery charges against Latvia’s central bank chief, a board member of the European Central Bank, and reports that Denmark’s Danske bank laundered up to $8.3 billion through an Estonian branch show the European Union may be losing its fight against money laundering, the Financial Times said.

The Scandinavian states annually rank among the least corrupt in the world in Transparency International standings and have a no-nonsense reputation when it comes to not tolerating financial wrongdoing but the bank scandals are leading to more scrutiny.

The Danish government said it wants the EU to have a bigger role in helping national authorities fight the phenomenon, with its lawmakers trying to figure out how the country’s biggest bank became a conduit for financial crime that funneled money to an Estonian branch from Russia, Moldova and Azerbaijan for several years up to 2014.

Danish Business Minister Brian Mikkelsen told the financial news agency Bloomberg that the EU needs more powers to track cross-border money laundering even as the bloc’s new directive was set to come into force on July 9 providing financial intelligence units with unfettered access to information and required reporting of transactions as low as 50 euros.

It’s relevant to look into providing the EU with more competencies in this field,” he said. “Because it happens across borders and it’s difficult to be a national regulator, the way things are moved around.”

Despite the severity of the Danske Bank case, the only government action was a reprimand and order to add $800 million to capital requirements with no one held accountable for the apparent money laundering and the cross-border reach making it hard to pin down.

The problem, said the Financial Times, is that the EU is trying to tackle a global problem by leaving investigation and prosecution in the hands of national authorities instead of having a bloc-wide program.

Estonia’s involvement came as the US Treasury forced the closure of Latvia’s third-largest bank, ABLV, by accusing it of “institutionalized money laundering, including helping finance North Korea’s nuclear program.

The Baltic states had claimed they were getting tough on corruption and money laundering and reduced their non-resident banking sectors that mostly serviced customers from Russia and ex-Soviet states.

The US told Latvia in March its banks were still involved in money laundering, but without cooperation between countries the fight against corruption is being hamstrung.

Danish investigators are relying on Estonian authorities to find out where the money went with a kind of whack-a-mole approach which finds wrongdoers moving money to banks in other countries when there’s a crackdown.

Each country has a financial intelligence unit, monitoring potentially suspicious transactions on behalf of law enforcement bodies but the EU doesn’t coordinate institution or central databases, leading the outgoing head of Europol to warn there’s a critical lack of information sharing.

European Central Bank Supervisory Board Chairwoman Danièle Nouy said Europe should create a centralized agency to oversee money laundering probes between countries to help rein them in but there’s been no political will yet to do it.

I won’t comment on the specifics of the Danske case, but there’s no doubt that something happened in that case that prevented the exchange of information that could have been useful to the national authorities,” Mikkelsen said.