Wed, May 09, 2018 - Page 11 News List

Danske Bank’s culture fed scandal

Bloomberg

Denmark’s biggest bank might have let its “efficient machinery” blind it to years of warning signals that something was seriously wrong, the head of the nation’s financial regulator said.

At Danske Bank A/S, “the culture was to solve issues at a lower level rather than to bring them to people’s attention higher up,” Danish Financial Supervisory Authority (FSA) Director-General Jesper Berg said on Friday last week in an interview at his office in Copenhagen.

Berg, whose agency just published a scathing report after spending more than half a year digging into the details of anti-money laundering breaches at Danske’s Estonian branch, said the evidence he saw pointed to an environment in which employees were not comfortable bringing bad news to their superiors.

“Obviously, that reveals a problem in terms of culture: It shows a very efficient machinery in terms of execution — problems are dealt with — but they’re not escalated,” Berg said.

Danske Bank chief executive Thomas Borgen has apologized for failing to stop the bank from becoming a laundromat for alleged criminals who, according to the Berlingske newspaper reports that triggered the FSA’s probe, channeled billions of dollars from Russia, Azerbaijan and Moldova through its Estonian branch between 2010 and 2014.

The Danish government has called Danske Bank’s role in the scandal “unforgivable.”

The central bank says the case has put the whole nation’s reputation at risk.

The regulator stopped short of taking action against Danske Bank executives, but said that could change should new evidence emerge.

Danske Bank, which has delivered record profits in recent years, has acknowledged it fell short in risk management.

Borgen said measures have been put in place to ensure anti-laundering rules are not breached again.

One Danske Bank executive has left as a consequence of an ongoing internal investigation and, since last month, the compliance department has had to report directly to the chief executive.

Borgen, who was in charge of international banking operations at Danske Bank while much of the alleged laundering took place, will not be asked to step down by a board that the FSA says was partly to blame for the scandal.

Berg points to a 2014 case in which warnings about Estonia from a Danske Bank employee were not given enough attention at board level.

“You have a situation in which a key staff member says this is the worst report he’s ever seen, and then, shortly after, at a meeting of the board of directors, somebody says there’s no need to panic,” Berg said. “That exemplifies that something went wrong. I mean, how can somebody on the one hand be that alarmed and somebody else send that signal.”

Berg said Danske Bank’s culture meant that the message had been watered down by the time it made it to the very highest levels of the board, which was a “mitigating factor.”

“They’re not completely excused, but they’re somewhat excused because the information that was escalated up became less and less candid in relation to the truth,” he said.

Danske Bank has until June 30 to live up to the FSA’s list of orders, including creating a better compliance function and holding about US$800 million more in capital.

The bank has also been ordered to be more upfront with the regulator.

“Clearly it’s somewhat unusual for us to order them to make sure that what they report to us is actually correct,” Berg said. “That’s not something we have to do normally.”

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