Estonia: Syed Rahman Of Financial Crime Specialists Rahman Ravelli Considers Danske Bank Shareholders' Unsuccessful Attempt To Argue Its Money Laundering Failings In Estonia Amounted To Fraud

Danske Bank and some of its former senior executives have defeated an appeal by shareholders who argued that they were defrauded due to the money laundering at the bank's Estonian branch.

The appeal was rejected by the US Second Circuit Court of Appeals, which upheld an original August 2020 ruling by a US District Judge. The appeal court stated that money-laundering at a single branch in Estonia cannot alone establish that Danske Bank itself carried out a deceptive scheme to defraud investors.

The legal action followed the bank's 2018 announcement that it had discovered that suspicious transactions with a total value of about 200 billion euros had passed through its Estonian branch between 2007 and 2015.

Four pension funds in New York and Massachusetts had led the proposed class action, arguing that investors should be paid damages for losing money in Danske's American depositary shares from 2014 to 2019.

But Circuit Judge Dennis Jacobs wrote that accusations that Danske improperly reported revenue from money laundering, underplayed failures of supervision and mishandled whistleblower complaints did not support the fraud claims. Claims against former Danske Chief Executive Thomas Borgen, the estate of its former Chairman Ole Andersen and two former chief financial officers were also dismissed.

Authorities in several countries investigated the flow of payments through Danske's Estonian branch, with Estonia ordering Danske to leave the country.

Danske has faced litigation in Denmark as a result of its problems in Estonia. After the US ruling, a Danske spokesman said the bank was pleased with the decision and would continue to defend itself against civil shareholder claims that have been brought in Denmark.

The case has illustrated that the investigation into money laundering in Estonia is not enough to suggest that the bank attempted to defraud shareholders. But there is no doubt that the wrongdoing - that was finally discovered during an internal investigation - certainly suggests major shortcomings when it comes to supervision and compliance.

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