World’s biggest money-laundering scandal: the true face of Danish capitalism

Upwards of a trillion-and-a-half Danish kroner in “dirty money” (an amount that corresponds to about 60 percent of the Danish GDP) appears to have passed through the Danish financial giant Danske Bank. This case is just one in a long series of scandals, which show that the bourgeois rule of law is an illusion.

The finance capitalists at the top of Danish society are above the law, and the state apparatus is their servant. Radical measures are required for fighting the corruption at the heart of this society.

Denmark has set a new world record: in money laundering. While the government, parliament and media spend all their time persecuting immigrants, the elites in Danish society are laughing all the way to the bank. Literally. These elites have no scruples. For almost a decade, Danske Bank helped criminals and corrupt fat cats launder their profits, while of course taking its due for services rendered.

The focal point was the ‘non-resident portfolio’ in Danske Bank’s Estonia branch. That is to say, the customers who did not live in Estonia, but primarily Russia and the former Soviet republics. A small portion of the upwards of 1.500 billion kroner that flowed through the bank which, according to Danske Bank themselves, may have been “suspicious”, stems from the so-called Magnitsky case.

A portion of the 1.500 dirty billion kroner that flowed through Danske Bank stems from the so-called Magnitsky case, in which a Russian lawyer (Sergei Magnitsky, pictured) exposed a mafia-controlled hedge fund. The lawyer was arrested and killed in jail / Image: VOA

In 2007, an American hedge fund operating out of Moscow was taken over by the Russian mafia with help from Russian police. The new ‘owners’ demanded and were paid back the company’s tax payments to the Russian state of 230 million dollars USD. The case was revealed in 2008 by the Russian lawyer, Sergei Magnitsky. But he was the one who was arrested, and then beaten to death in prison. The money from the case, according to the journalistic anti-corruption cooperation OCCRP.org, constitutes a part of the money that Danske Bank has helped launder.

Danske Bank’s Estonian branch has also managed 19 billion kroner of dirty money belonging to, among others, European politicians, from a fund established by the ruling elite in Azerbaijan. On the more exotic side, the bank’s name also showed up on the papers of an illegal North Korean weapons deal, which Jyllands-Posten exposed on 25 June this year. These cases make up just a very small fraction of the illicit cash the bank has handled.

Fully premeditated

The case around Danske Bank started with the purchase of the Finnish Sampo Bank in 2007, which had a branch in Estonia. As early as that year, the Russian central bank wrote Danske Bank to inform them that customers in Sampo Bank were “permanently participating in transactions of questionable providence for millions of rubles each month”. This information which was also given to the financial regulatory body, the Danish Financial Supervisory Authority. Danske Bank conducted an internal investigation, which concluded that there was nothing to worry about, and the Supervisory Authority was content.

Throughout the years, the transactions in the small Estonian branch reached unheard of proportions, more than seven-times the Estonian GDP in the years from 2007 to 2015. It was obvious that something was wrong. But Danske Bank made a fortune from these services, totalling 1.5 billion kroner.

Even Danske Bank’s correspondent banks, which help Danske Bank get access to American dollars, passed on the transactions, as everyone could see that they were getting caught up in business which was so obviously criminal, that it was only a matter of time before it was discovered. J.P. Morgan ended its collaboration with Danske Bank in 2013 and was replaced with Bank of America. But even Deutsche Bank, which was a correspondent bank throughout the entire period, refused to touch the worst transactions on several occasions.

It is hard to believe that the leadership of Danske Bank weren’t fully aware of what was going on. And if they hadn’t seen enough warning lights go off, the internal whistleblower Howard Wilkinson informed them through four reports published as early as 2013 and 2014 about serious irregularities. But why get in the way of good business?

Corrupt institutions

The entire time, the authorities have been informed, and have flatly denied that there were any issues. On 16 September 2013, the Attorney General, the police Fraud Division and then-Social Democratic Minister of Justice, Morten Bødskov even received proof of the Magnitskij connection to Danske Bank and Nordea in Denmark. But the case was rejected. The state apparatus and Danske Bank stuck together, thick as thieves. And when Brian Mikkelsen from the Conservative Party became minister for the banks (Minister of Business) in December 2016, he took it a step further:

“I’m coming out with a new political message to embrace the banks. The bullying of the banks must stop. (…) The banks are crucial for society, so no, my order of the day is to make life easier for the banks through deregulation,” Brian Mikkelsen told TV2 Business.

The relationship was so close, that Danske Bank was nice enough to let the Conservative Party hold its business conferences in the bank’s facilities in the spring of 2018. For PR reasons, however, it had to be moved to a different location at the last minute. In the meantime, the Supervisory Authority had been forced to come out with what was at the time called “harsh criticism”, after a year of revelations in the newspaper Berlingske. It wasn’t, however, so harsh that the Supervisory Authority found it necessary to sanction the bank. Maybe the lack of sanctions wasn’t so strange when you consider that the chairman of Danish Financial Supervisory Authority had to recuse himself and later resign, because he himself a few years prior had been CFO of… Danske Bank.

But this was, according to the then-Conservative Minister of Business, not an issue: “The Supervisory Authority has delivered a thorough inspection, and I believe, that we can trust the  Supervisory Authority and its credibility,” was the response he offered to a question at a consultation on 3 May.  Brian Mikkelsen was mired in the scandal from top to bottom. Possibly, this was the reason that he was replaced on 21 July by Rasmus Jarlov, whose rhetoric towards the bank was tougher. He said it was time to clean up. People were meant to understand there was a new sheriff in town. But the tougher rhetoric didn’t go far. According to Ritzau, he said on 25 June:

“The Danske Bank scandal appears to be a big failure of leadership. But the Danish Financial Supervisory Authority has judged that a case cannot be raised against the leadership. (…) It is regrettable, but that is their judgement. It is not my role to dictate to the Supervisory Authority, which cases to raise.”

In September, Danske Bank’s own investigation came out, showing that the extent of the money laundering could be upwards of 1.500 billion kroner. But the investigation also concluded that the bank’s leadership in Denmark was completely free from responsibility. This was hardly a surprising conclusion, as they themselves had paid for the investigation. The CEO of the bank, Thomas Borgen, who had been the boss of Danske Bank’s Foreign Banking division, and thus the Estonian branch, during the period in which the money laundering took place, did have to resign. The media must be given their pound of flesh. But he walked on his own terms, not until after receiving his severance pay of over 13 million kroner.

The new, “tough” Minister of Business, Rasmus Jarlov, has admitted the authorities will not rigorously investigate every aspect of the case / Image: Flickr, OSCE

How did the new “tough” Minister of Business, Rasmus Jarlov, and his Supervisory Authority react to the report from September, which revealed the greatest money laundering scandal in world history?

“We won’t be going through all the material. We have a risk-based approach, where resource consumption across assignments must be commensurate with the expected results,” said the CEO of the Supervisory Authority, Jesper Berg, to BT on 25 September.

We’ll let that sink in. There can no longer be any doubts about where Supervisory Authority and the state’s loyalties lie.

Nothing to see

The Supervisory Authority and the authorities in general haven’t exactly been pushing for access to the information possessed by whistleblower Howard Wilkinson. This means that a large part of the information, which hasn’t been made known to the public, is from the bank’s internal investigation.

According to Howard Wilkinson, who was interviewed in Berlingske on 27 September, there are five serious errors in Danske Bank’s report, which he would very much like to inform the Danish authorities about, but which he cannot reveal before he has been released from his contractual confidentiality towards Danske Bank. This means that one of the most central persons of the case is still not in dialogue with the Danish authorities.

“The situation is really quite simple,” Wilkinson explained to Berlingske. “When the Danish regulatory body contacted me in June, I sent it a draft for a statement, drafted by my lawyer, which the bank had to undersign. The regulatory body responded, that this was unacceptable for the bank. Correspondingly, the bank’s draft for a statement, which the regulatory body sent back, was unacceptable for me and my lawyer. There’s not much more to it.” Again, the authorities’ concern first and foremost lies with the bank and its leadership.

Since the interview, Danske Bank has had to loosen its grip on Mr Wilkinson’s non-disclosure contract, which for a long time prohibited him from informing the authorities on his own. But at a testimony today before the Danish parliament, the lawyer of Mr Wilkinson criticised the fact that even to this day he is subject to the Danish laws about bank secrecy, which means that he is not allowed to name anybody in the bank either in front of the Danish parliament or to the Danish prosecutors.

“I think it’s pretty shocking that, four-and-a-half years on, I need to be here because this disgrace is still being investigated,” he said. He then explained he had heard recordings of his own phone conversations, tapped from his phone by Danske Bank.

So, here we have a quite different image of Denmark revealing itself, in contrast with the thoroughly regulated welfare society, which all politicians love to praise. Rules and regulations, it clearly appears, only apply to ordinary people, while the rich can act as they wish with impunity.

The scandal with Danske Bank comes on top of the news that one or more officials over the course of at least 16 years have diverted 111 million kroner from a fund for programmes aimed at the poorest people in Denmark, to enrich themselves and their families. At the same time, DR and other European media sources have revealed the so-called CumEx case, where Danish tax authorities have handed more than 12 billion kroner of Danish taxes over to international finance capitalists, who (in collaboration with some of the world’s largest banks, lawyers and accounting firms), have ripped off European treasuries for more than 410 billion kroner. Now Nordea, the second biggest bank in Denmark after Danske Bank, has also been reported to the police for laundering 2.6 billion kroner, through 365 different accounts in Danish, Norwegian, Swedish and Finnish branches. In all the cases, the banks are at the centre. Their role is also emphasised by Jack Irvine, spokesperson for Sanjay Shah, one of the main perpetrators of the CumEx scandal:

“The banks have made these trades for years, so I suspect that their share is much larger, but that would make Danish tax authorities look even dumber than they already do,” wrote Jack Irvine, according to DR.

The direct consequences

Danske Bank is now being investigated by three American authorities, the British authorities and the European System of Financial Supervision (ESFS). And finally, but only after massive pressure, the Police Fraud Division is also investigating the case.

But, naturally, the investors are not scared of the Danish authorities. It is the American sanctions against Russia that has them worried. The analysts are guessing that Danske Bank will receive fines of between 12 and 50 billion kroner. But these are probably far into the distant future, and nobody knows how large the fines will actually end up being. Goldman Sachs estimate that Danske Bank can absorb fines of up to 50 billion before core capital is threatened.

Too big to fail

In 2008, Danske Bank would have cracked after participating in the speculation orgy in the years up until the crisis. But the Danish National Bank stepped in, and Danske Bank was given government guarantees, state loans, and a de facto direct emergency line to the Danish currency reserve. Since the bank has been declared “of systemic importance”. That isn’t for no reason. The bank has actives worth more than 165 percent of the Danish GDP. If Danske Bank falls, so does the Danish economy.

Instead of “systemic importance” meaning massive control from the state, it turns out that it’s exactly the other way around: Danske Bank and the other big banks are too “important” to be subjected to the law of mortals. The banks control the state institutions, not the other way around. Or rather: finance capital and the state are completely fused. But it isn’t just a question of corruption. It is also about the interests of the nation – that is, the interests of the ruling class.

A question of trust

Denmark has for many years held a reputation as a safe haven. The international investors have trusted the Danish economy, but first and foremost the Danish institutions. Together with the large central banks’ expansive monetary policy, where hundreds of billions of dollars and euros have been pumped into the financial markets, this has meant unprecedentedly low interests rates in Denmark. And that has been crucial in protecting the Danish economy, as Danish households are some of the most indebted in the world.

But the many scandals are damaging the country’s credibility. This is the reason that authorities and politicians are doing everything they can to put the lid on the Danske Bank case, and at any cost avoid raising questions about the integrity of authorities and institutions. Because if state institutions (directly or indirectly) have allowed laundering of 1,500 billion kroner, and the theft of billions from the Treasury, what else have they let slide or not discovered? How solid is the bloated financial sector in Denmark really?

Here, the politicians face another dilemma: On the one hand, they have to show that they are cracking down hard and “cleaning up”, but on the other, they’d rather not reveal more problems than the public is already aware of, so as not to scare investors. As Minister of Business Rasmus Jarlov said to Ritzau on 20 September: “We’re handling it, and we crack down hard on money laundering, and we hope they notice this abroad.”

Danske Bank has had a rough period on the stock market. If the downturn continues, it could have catastrophic consequences for Danske Bank and the whole Danish economy / Image: RL0919

So far, Danske Bank has had a rough period on the stock market. Since the beginning of the year, the bank has lost almost half its value, 100 billion kroner, and the credit ratings bureau, Moody’s, downgraded its rating to “negative outlook” on 12 October.

If the downturn continues, it could have catastrophic consequences, not just for Danske Bank, but also for all of Denmark’s economy, and hundreds of thousands of families, which today are up to the ears in debt.

If the worst-case scenario plays out, and Danske Bank is brought to its knees, we can be sure that a unified capitalist class will suddenly be pro-state-intervention, and maybe even nationalisation – of the losses, that is – to rebuild the bank with tax money, paid by the working class, to prepare for privatisation when the good times return.

Even more than trust from global markets, the Danish ruling class is worried about the trust that the Danish working class has in the prevailing system. For almost 100 years, the ruling class, assisted by the leaders of the workers´ movement, have been building the illusion that the Danish state and major institutions were bastions of the rule of law. That all laws and rules apply to everyone equally and that the state bureaucracy is nothing more than an executor of these laws, aloof from its own interests. This mirage has been kept up with the assistance of the leaders of the trade unions and the workers´ parties, who for years have been using this as an excuse avoid waging a serious class struggle to defend the rising pressure on the working class.

But, as the current scandals show, all of this has been a lie. The state and big business are tied together by a million threads. Not only is the main regulatory body led by former top bankers, but there is also an even bigger flow the other way, with banks systematically recruiting state officials. In fact, most people coming up in the regulatory bodies are gunning for top paid jobs in the banks at a future time – neither they nor the banks make any secret of this – which means they have little interest in aggressively pursuing the banks for major crimes that they commit. The same process can be seen throughout the state apparatus. Far from working for the people, as the myth goes, the loyalties of top state officials is to the ruling class. They execute the law (or not) so as to make it compatible with the interests of this class.

All of this is being revealed just as the world economy, and along with it the Danish economy, is headed for a new decline, clearing the way for new austerity measures and attacks against living standards. In such conditions, the contrast between the politicians’ demand for austerity and “tightening belts” and their simultaneous corruption, will be fuel to the fire of class struggle. That is the main concern of the Danish ruling class.

A fight against finance capital and its state apparatus

Hence, as the rate of discoveries about the scandal has increased, the politicians have been falling all over each other show how “irate” and “shocked” they are. They are trying to distance themselves from the scandal and portray it as a number of one-off events, alien to the clean record of Danish “democracy” (or “Scandinavian Socialism” as some call it). But there’s nothing new under the sun. “The free market” isn’t free. The big actors twist and manipulate it and leave the bill for the working class and the lowest layers of society.

The problem isn’t a few bad eggs, or unusual greed in Danske Bank, but with capitalism itself. It has been more than 100 years since the banks went from being managers of capital for real production, to being the real masters of the entire capitalist economy.

The problem isn’t a few bad eggs, but with capitalism itself. The banks are no longer managers of capital for real production, they are the real masters of the entire capitalist economy / Image: Flickr, Stanislav Stankovic

This case proves quite clearly that, not only should the financial sector be expropriated and work for society’s interests, instead of the profiteering of criminal speculators, but also that the bourgeois state apparatus is in no way capable of handling society’s interests. It’s nothing more than an executive organ for finance capital. The entire top layer of society, across the public and private sector, needs to be expropriated, politically and economically.

Until the working class throws out these parasites and takes power into its own hands, one thing is certain: It will be the working class, young and old, which pays for the speculative and criminal orgies of finance capital.