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After Danske, Next Dirty Money Route Gets Scrutinized in Denmark
As one avenue for money launderers is shut, another one may be opening.
In Denmark, home to Danske Bank A/S, the authorities are now taking a closer look at companies that provide payment services. The worry is that the process is becoming so complex that criminals might be able to hide their illicit transactions.
Danish Business Minister Rasmus Jarlov says the goal is “to all the time be ahead of the criminals.” Because they’re “trying to exploit any loophole and any weakness in the financial system.”
Jarlov is part of a government that is still reeling from allegations that the main bank in his home country was at the center of one of the world’s biggest money laundering scandals. Danske has itself admitted that much of about $230 billion that flowed through a tiny branch in Estonia until as recently as 2015 was probably illicit. That’s amid accusations that the bank became a European bridge for criminals from Russia to get their money into the West.
Denmark in Shock
The scandal surrounding Danske, which is being investigated by the U.S. Justice Department, among others, has left Denmark in a state of shock. Jarlov, as the minister in charge of financial regulation in Danske’s home market, is now going out of his way to push some of the toughest anti-money laundering rules in Europe, including raising maximum fines eight-fold to $4.5 billion and making it easier to throw bank executives in jail.
“The financial system is so complex that there could be so many ways of exploiting it that we have not even thought of,” Jarlov said in an interview in Copenhagen this month.
His decision to include payment companies on the list of targets for review comes as banks in Europe face a September deadline to give such third-party providers access to their accounts. The idea is to let payment services firms carry out transactions on behalf of customers, provided they give their consent.
Ideally, such service providers should add a layer of competition to the payments market, which has been dominated by banks. But banks in the Nordic region, many of which have been targeted by money laundering allegations that are now being investigated, are protesting. They argue that the development leaves them with less visibility over what’s flowing through their systems.
Julie Galbo, head of risk management at Nordea Bank Abp, says she’s seen evidence that, in some cases, the money going through such providers flows “from, for instance, Russia to, for instance, exotic places that are not known for their high tax payments in the EU — Cyprus, Malta — and nice islands in the Caribbean.”
Payments can go through multiple service providers but the information “is owned” by the payment service provider, so banks can’t see all of it, Galbo said. Like banks, payment service providers must vet customers, but they don’t pass on their information to the banks, she said.
“Under sanctions we can block suspicious transactions if we concretely can specify that they are violators of the sanctions list, but that is just the sanctions list,” she said. “And these are not necessarily sanctioned, and we can only see part of the chains.”
“I am looking at the next problem,” Galbo said. “There are definitely super-good payment service providers. But then there are a few bad apples, and my concern is that those bad apples have a different incentive structure than banks.”