By Teis Jensen and Jacob Gronholt-Pedersen
COPENHAGEN (Reuters) – A money laundering scandal at Danske Bank <DANSKE.CO> involving billions of euros of suspicious flows is serious enough to potentially affect the country’s financial stability, the central bank warned on Friday.
Denmark’s state prosecutor filed preliminary charges on Wednesday against Danske Bank, Denmark’s largest lender with a balance sheet 1-1/2 times the country’s gross domestic product, for alleged violations of the country’s anti-money laundering act in relation to its Estonian branch.
In a report published on Friday the central bank said money laundering issues at a single bank could spread to the entire financial sector.
“It’s a question of trust, if there is a spillover effect to the rest of the sector. We haven’t seen that yet, but that is the concern,” Karsten Biltoft, assistant governor and head of financial stability, told Reuters.
Danske Bank, whose CEO Thomas Borgen resigned in September after an investigation revealed payments totalling 200 billion euros (178.27 billion pounds) through its Estonian branch, many of which the bank said were suspicious, is being investigated by authorities in Denmark, Estonia and the United States and could face sizeable fines.
However Biltoft said it is unlikely Danske Bank would be met by the same severe sanctions as those which led to the collapse of Latvian bank ABLV.
“We have of course looked at it and thought about it,” Biltoft said. “It is very unlikely, but if it did happen it would be quite terrible. If you imagine that Denmark’s largest bank would close, that would be really bad, to put it nicely.”
ABLV self-liquidated in June after being accused by the U.S. Treasury Department’s Financial Crimes Enforcement Network of money laundering, violating sanctions on North Korea and using bribery to influence Latvian officials.
Danske has itself previously said the involvement of U.S. authorities in inquiries into alleged money laundering by its own executives is very different to the case of ABLV.
The central bank’s report on financial stability said there was a need for coordinated efforts between firms and authorities to combat money laundering, calling for better European cooperation.
“Money laundering is a cross-border problem, which demands cross-border solutions. And at a European level the Banking Union is such a solution,” Biltoft said.
Prime Minister Lars Lokke Rasmussen has said the Danske Bank case has increased the chances of Denmark joining the European Banking Union, set up to ensure banks are better supervised. A decision on the matter is due in 2019.
The Danish government in September decided to double the cash cushion banks must hold to protect against economic shocks to 1 percent of risk-weighted exposure from September next year.
Central bank governor Lars Rohde said last week that a level of 2.5 percent would be reasonable. Biltoft declined to set up a timeline for when the central bank think that such a target should be set.
Danske Bank did not immediately respond to Reuters’ request for comment.
(Reporting by Teis Jensen and Jacob Gronholt-Pedersen Editing by Adrian Croft and David Holmes)