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Danske CEO to step down amid laundering scandal

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"Even though the investigation conducted by the external law firm concludes that I have lived up to my legal obligations, I believe that it is best for all parties that I resign," says Mr Borgen.

Copenhagen

DANSKE Bank A/S chief executive officer Thomas Borgen will step down amid allegations his bank was at the centre of a major European money laundering scandal with as much as US$234 billion flowing through a tiny unit in Estonia.

Mr Borgen, who was promoted to run Denmark's biggest bank in 2013, will continue in his job until a replacement is appointed, Copenhagen-based Danske said on Wednesday. The bank didn't say how long that might take.

The laundering case has shocked Denmark, a country generally associated with some of the world's lowest levels of corruption and highest levels of transparency.

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Danske is the target of criminal complaints alleging its Estonian operations were used to launder as much as US$9.1 billion between 2007 and 2015, with the illicit funds stemming mostly from Russia.

Danske said on Wednesday it wasn't able to provide an accurate estimate of how much dirty money was funnelled through its Baltic operations. However, the bank's estimate for total flows - about 200 billion euros (S$320 billion) - is roughly nine times Estonia's 2017 gross domestic product, raising serious questions about the bank's controls.

Shares in Danske opened more than 6 per cent lower in the Danish capital, bringing losses this year to 32 per cent. Since its latest peak in May 2017, Danske's market value has plunged by about US$14 billion.

"It is clear that Danske Bank has failed to live up to its responsibility in the case of possible money laundering in Estonia," Mr Borgen said in the statement. "I deeply regret this."

The total flows in the Estonian unit between 2007 and 2015 cover about 15,000 accounts, of which Danske says roughly 6,200 have the "highest risk indicators". The bank said "almost all of these customers have been reported to the authorities".

Danske is the latest in a string of big European banks to have been tainted by money laundering scandals, prompting authorities in the bloc to look into tougher measures. Deutsche Bank AG was fined almost US$700 million last year for helping wealthy Russians move about US$10 billion out of their country. ING Group NV earlier this month agreed to pay about US$900 million to settle a laundering case.

Analysts surveyed by Bloomberg have estimated that Danske may need to pay about US$800 million in fines for its breaches. The bank made no mention of provisions in Wednesday's press release.

"Even though the investigation conducted by the external law firm concludes that I have lived up to my legal obligations, I believe that it is best for all parties that I resign," Mr Borgen said. "As the CEO, I have the management responsibility for the things that take place in the bank, and, of course, I take on this responsibility."

The 54-year-old is leaving after half a decade at the helm of Denmark's biggest bank. His career spanned a number of key roles at Danske, most notably, as head of its international operations while much of the laundering was taking place.

"It has been clear to me for some time that resigning would be the right thing to do, but I have held off the decision, because I have felt a responsibility for seeing the bank through this difficult period towards presentation of the investigations," Mr Borgen said.

The scandal has triggered widespread indignation across Denmark, with both the government and the central bank warning that Danske's involvement in laundering could hurt the reputation of Denmark's entire financial system. S&P Global Ratings even said the case might end up affecting Denmark's AAA credit rating.

The government has already made clear that Wednesday's report won't be the final word on the case, and Danske remains the target of criminal investigations in Denmark and Estonia. Danish media have also reported that US authorities are looking at the case, which has the potential to drag on for several more months.

Danske also cut its full-year outlook on Wednesday, partly due to a 1.5 billion-krone (S$321 million) so-called donation it plans to make to an independent foundation to support the fight against international financial crime. The amount equals profit from suspicious transactions that took place in the non-resident portfolio of its Estonian branch from 2007 to 2015.

Danske now sees full-year net income on a range of 16-17 billion kroner down from a previous forecast of a result "in the lower end" of a 18-20 billion-krone range. Danske said a "subdued development in net trading income" was also to blame for the lower outlook. BLOOMBERG

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