Finantsinspektsioon (FSA), Estonia's official financial watchdog, has ordered Danske Bank to close its branch in Tallinn.
The Danish lender has to be out of the country within 8 months. Danske's reputation in the Baltics was hit by money-laundering scandals that involved billions of Danish krona passing through the Estonian branch between 2007 and 2015.
“After analysing [Danske Bank’s] report thoroughly, together with the results of on-site inspections by Finantsinspektsioon at the branch and input received from the Estonian Financial Intelligence Unit, Finantsinspektsioon has concluded that the bank should not be allowed to operate in Estonia,” FSA said in a statement on Tuesday (Feb.19).
“Serious violations by Danske Bank over many years and the damage done to the credibility of the Estonian financial environment require unambiguous condemnation,” the supervisory authority added.
“We acknowledge that the serious case of possible money laundering in Estonia has had a negative impact on Estonian society, and we acknowledge that the Estonian [regulator], against this background, finds it best that Danske Bank discontinues its Estonian banking activities” Jesper Nielsen, the interim CEO of Danske Bank, said in reaction. “We will close down our remaining activities as requested.
Denmark’s largest lender announced on the same day it would also be closing its branches in Lithuania, Latvia, and Russia in order to refocus on the Nordics. However, Danske Bank’s shared services centre in Lithuania, which undertakes a number of administrative functions for Danske Bank, will continue its operations, the bank said.
Danske has more than 3,000 employees in those four countries while its operations there earned 657 million Danish Crowns ($100 million) of income, according to the bank's 2018 annual report. The Estonian branch had around 14,700 depositors and 12,300 borrowers.
Finantsinspektsioon said Danske will have to return funds to all of its 14,700 depositors as well as move loans to 12,300 borrowers to an independent entity or, if that does not work, come up with a solution on how those loans will continue to be serviced.
Failing to meet the conditions of the ordered closure will cost the Copenhagen-based bank a fine of €100,000 per day up to 10% of the bank’s net turnover.
Estonian authorities also gave Danske 20 days to submit an action plan for closing the branch.
Kilvar Kessler, head of the FSA said Tuesday that the scandal had "dealt a serious blow to the transparency, credibility and reputation of the Estonian financial market.” We have every right to put an end once and for all to this very exceptional and unfortunate case, as serious and large-scale violations of the local rules have been committed in Estonia through the branch of a foreign bank.”
Eesti Pank, Estonia’s central bank said Tuesday the closure would have little effect on the Estonian economy as Danske had already stopped providing services to private individuals and local businesses. Last December, 10 former employees at Danske Bank’s Estonian branch were detained in connection with the scandal.
The Estonian ultimatum was made public as the European Banking Authority (EBA), the European Union’s own banking watchdog, announced on Monday it was opening a formal investigation into a possible breach of EU laws by Finantsinspektsioon and Finanstilsynet over the alleged money-laundering at Danske Bank.
Meanwhile, Swiss banking giant UBS was found guilty of laundering the proceeds of tax evasion by a court in Paris on Wednesday (Feb.20). The bank will have to pay 4.5 billion euros in penalties, Reuters reported.