TheStreet

Danske Bank A/S (DNKEY) shares traded sharply lower Thursday after the Nordic lender said it was in active discussions with the U.S. Department of Justice amid a criminal investigation into allegations of money laundering at one of its branches in Estonia.

The bank also said it had received "an inquiry" from the Securities and Exchange Commission linked to the broader probe, which the lender itself found that a "vast majority" of around $234 billion in examined client flows from the Baltic branch, which were mainly connected to clients in Russia and the former Soviet Union, were deemed suspicious. Danske Bank said yesterday it had closed the branch and ceased it banking activities in Russia and the Baltics.

"We have no information about when the investigations conducted by DOJ and SEC are expected to be completed, nor do we know what the outcome of these will be," said interim CEO Jesper Nielsen. "We continue to cooperate with the authorities in order to establish a complete picture of the events of the case."

Danske Bank shares were marked 3.5% lower in Copenhagen following news of its contact with the DoJ and the SEC, and have lost more than half of their value over the past 12 months.

Danske Bank could face further action from U.S. regulators, who may forbid both domestic banks, and international lenders with licences to operate in the United States, from dealing with the Danish firm, a move that would lock it out of U.S. dollar funding markets and cripple its ability to operate outside of its home market.

The Wall Street Journal has reported that U.S. Justice Department, as well as the Treasury and the Securities and Exchange Commission, are looking into dollar denominated transactions at the bank amid allegations that it knew some were connected to blacklisted Russian clients as early as 2013.

Danske Bank acquired the Estonian branch in 2007, when it purchased assets from Finland's Sampo Bank. Seven years later, following a warning from an internal whistleblower, Danske said it "became clear that (anti-money laundering) procedures at the Estonian branch had been manifestly insufficient and inadequate."

In 2017, the bank acknowledged that "major deficiencies in controls and governance that made it possible to use Danske Bank's branch in Estonia for criminal activities such as money laundering." 

It also said that even though former CEO Thomas Borgen and chairman Ole Andersen did not beach their legal obligation to the bank, Borgen nonetheless decided to step down.

"It is clear that Danske Bank has failed to live up to its responsibility in case of possible money laundering in Estonia," Borgen, who oversaw the operation from 2009 to 2012, said last fall. "I deeply regret this."

Dankse is the latest in a string of European lenders implicated in money laundering allegations, with ING Groep NV (ING) of the Netherlands agreeing last September to pay a €775 million ($900 million) fine after it admitted that "shortcomings ... resulted in clients having been able to use their bank accounts for money laundering practices for years."

The European Union is looking at ways it which is can crack down on the practice, including setting up a region-wide authority similar to the European Central Bank's remit to monitor financial stability risks, but the proposals aren't expected to gain traction until after European parliamentary elections in May.