Never make assumptions – they can lead you into bad company

October 22nd, 2018
22 October

Money laundering – disguising money obtained by criminal activity as legitimate – is one of the areas we address here at IPD. In fact, along with accountants, bankers and solicitors (in fact, anyone involved with financial matters), insolvency practitioners not only have the skills and systems to detect and monitor money laundering activities but we also have a legal obligation to report it to the authorities.

The reason I mention this is that details are beginning to emerge about a gigantic criminal operation in the EU involving Danske Bank. This is a Danish bank with branches across Europe. According to a report published by the bank’s board there are thousands of suspicious customer deposits and withdrawals accounting for £180bn of transactions over a nine-year period, making it one of the biggest money laundering scandals of all time.

Now, despite the fact that we have the systems and data-mining software to track back the transactions and the individuals responsible I am not expecting a call from the European Banking Agency or the National Crime Agency to go and help them out any time soon. But having delved a bit deeper into this story there is a familiar pattern emerging.

According to the global affairs magazine/website the Danske Bank scandal is the tip of the iceberg.  I fear they may be right but it is the mechanics of this particular scandal that had me nodding in recognition.

So. Danske Bank, although headquartered in Denmark, has a branch in Estonia. Danske Bank buys Sampo Bank, based in Finland. Guess what? Sampo Bank also has a branch in Estonia. Well that’s cosy isn’t it, what could possibly go wrong?

According to an official report: “Because the Estonian branch had its own IT platform and many documents were written in Estonian or Russian, Danske Bank did not have the same amount of insight into this branch’s activity and simply assumed it was taking appropriate anti-money laundering procedures.”

Ah, the dreaded word ‘assumption’. Well no, actually, the bank did not know enough about the customers at its recently-acquired branch. Or that 10,000 of the customers at that branch were not even resident in Estonia. Or that between 2007 and 2015 they carried out about 7.5 million transactions involving up to 200 billion euros.

There’s more, much more. The vast scale of suspicious activities taking place on an almost day-to-day basis. The different customers who seemed to share addresses. The fact that the money coming in and out of the accounts bore no resemblance to the customers’ income stream. The members of the banking team who were in personal relationships with some of the customers. And on and on and on.

This is obviously a mega-example.  Back in every day life, money laundering can take many forms but it boils down to identifying “strange” or “unusual” transactions and it does not depend on the size of a business.  Anything out of an ordinary trading pattern can be identified relatively easily.  The same principles apply if you have one operating site or multiple sites nationally or internationally.

If you acquire a whole new business – a competitor for example – as part of an expansion it does not matter how much due diligence you carry out there will still be different processes, people and cultures to assimilate into your organisation.  If a business does not look after itself internally, it can lead to the potential for temptation and criminal activity. I’ve seen it lots of times – particularly if a business starts to struggle financially with insolvency looming.

The point is, business owners and advisers must be vigilant.  Insolvency Practitioners are and this is an area we look at in our investigation work.