In addition to the $150bn that Deutsche Bank cleared for Danske’s tiny Estonian branch between 2007 and 2015, the German bank processed another €31bn, according to people familiar with the matter.
This means that in total, Deutsche Bank processed four-fifths of the €200bn Danske has identified as flowing through its Estonian branch from clients from Russia and other former Soviet countries. About 1m transactions were processed by Deutsche Bank over the eight-year period, according to the people.
The revelation heaps more pressure on Deutsche Bank, which is facing scrutiny from authorities on both sides of the Atlantic on a number of fronts, from investigations stemming from the Panama Papers scandal, to an unresolved issue with US prosecutors over its own role in helping Russian clients to move large amounts of money out of the country.
The bank has already been asked for information by the US Department of Justice over its role as a correspondent bank for Danske’s Estonian branch. A senior Deutsche Bank source said the company was co-operating with “inquiries from a number of authorities” over the Danske transactions.
A senior employee at Deutsche Bank told the Financial Times that the bank “believes we faithfully executed on our surveillance and diligence responsibilities” with regard to its relationship with Danske.
“As a correspondent bank, we are clearing transactions and are expected to rely on Danske know-your-client activities,” this person said, adding that Deutsche was not aware of any instance in which a correspondent bank was held responsible for know-your-customer failings of an originating bank.
Howard Wilkinson, the former Danske executive who warned managers in Copenhagen about the suspicious fund flows in 2013 and 2014, told Denmark’s parliament last month that of the $230bn of potential dirty money that flowed through its Estonian branch, $150bn went through the “US subsidiary of a European bank”.
Danske’s Estonian branch offered non-resident clients accounts in various currencies, including dollars, euros and Swiss francs, according to people familiar with the situation.
Deutsche Bank quit its role clearing dollars for the branch in 2015 after the German lender’s internal controls started to flag a rising amount of suspicious transactions, which the bank reported to authorities.
Deutsche Bank told Danske that year that despite a reduction in payments from Estonia in the previous two years, there had been an increase in the proportion of suspect cases the German lender was having to investigate from the small branch. It told the Danish bank that in only three months, it had flagged 16 cases linked to narcotics and identity theft, according to a memo seen by the Financial Times.
In total, Deutsche Bank filed hundreds of so-called suspicious activity reports about the branch to supervisors, according to people familiar with the situation.
Even though it stepped away from dollar clearing, it still processed euro payments for Danske, with total volumes between October 2015 and October 2018 totalling €225m.
Eurozone banks such as Deutsche Bank are legally obliged to process standard cross-border money transfers within Europe for Danske Estonia, because both Germany and Estonia are part of what is known as the Single Euro Payments Area.
The fact that Deutsche Bank as well as Bank of America in 2015 turned its back to Danske’s Estonian branch raised an eyebrow among European monetary policymakers, according to people familiar with the discussion.
“The authorities were aware that this branch — and frankly the Baltic states — were slowly being cut off from international money transfers,” one person said.
In recent years, Deutsche Bank exited correspondent bank relationships with more foreign lenders than just Danske’s Estonia. Since 2016, it reduced the number of such customers by 40 per cent, completely exiting Estonia and Latvia and reducing its business in Lithuania and Russia.
Deutsche Bank declined to comment. Danske did not immediately return a request seeking comment.
Deutsche Bank is already vulnerable to action from the DoJ, which is still investigating its role in the mirror-trade scandal. The controversial strategy, which Danske also undertook for Russian clients, involved buying securities in roubles then selling identical ones for foreign currencies such as US dollars. Deutsche Bank paid $630m to US and UK authorities in 2017 but the DoJ’s investigation is continuing.
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