Daily Chatter: Something Rotten in the State of Denmark
The following article was first published at 10:12 a.m. eastern time on Wednesday, September 19 as part of TheStreet's daily 'Chatter on The Street' global news snapshot. To learn or subscribe, please click here.
Something Rotten in the State of Denmark
The late American tennis legend, Vitas Gerulaitis, pithily responded to a rare victory over his supremely-talented rival, Jimmy Connors, with one of the of the sport's most famous lines of self-depreciation: "Nobody beats Vitas Gerulaitis seventeen times in a row."
Despite being born and ra ised in New York, Gerulaitis had strong ties to Lithuania and remains adored in the Baltic region with a tennis stadium in Vilinus that carries his name.
Today's big market story also originates from the Baltic region, and, as fate would have it, carries a similar kind of blind faith in one's to combat the obvious.
Dankse Bank, the biggest lender in Denmark, published an internal probe into money laundering allegations in its Estonia branch that found that as much as $234 billion in cash, via some 6,200 clients and 9.5 million transactions, may have been funnelled through the unit from 2007 until 2015.
To make matters worse, the Wall Street Journal reported that the bank may have known it was dealing with blacklisted Russian clients as early as 2013.
Dankse put its foot down today, vowing to clean up its act and apply stricter procedures going forward, but the response was similar to the long-haired tennis great's: Nobody launders cash thro ugh our bank for ten years in a row.
The fact that a lender was able to allow dodgy transactions to persist for the better part of a decade is one thing -- and the CEO resigned today as a result -- but the larger concerns lies in the both the probity and the will within European lenders to resist the profits that dirty money, much of it Russian, can provide.
Danske, for example, saw a return on capital of more than 400% from its tiny Estonia division, and appeared not to think too much about the fact that billions of dollars were flying in and out of the satellite branch even in the midst of the region's crippling debt crisis.
Not that they're alone in this: earlier this month, the biggest lender in the Netherlands, ING, agreed to pay a â¬700 million money laundering penalty and Deutsche Bank, the biggest in Europe, paid a combined $700 million in penalties for allowing "fake trades" between clients that U.S. regulators said allowed $10 bill ion in Russian money to be laundered through London and New York.
The European Commission is trying to get a grip on all of this, and reports have said it will publish a framework for oversight relatively soon, but until next summer's parliamentary elections are done-and-dusted, it's doubtful that anything meaningful is likely to be achieved.
That's no small issue for the region, nor for the United States, which is finding itself on the business end of Russian meddling, much of it financed through illegally concealed transactions or directly laundered money, in things like national elections, cyber-attacks and the day-to-day news cycle.
Similar election meddling accusations have surfaced in Belgium, where authorities have been warned by intelligence chiefs, and France, where far-right parties were said to have had contacts with agents in Moscow.
In the meantime, 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.
Collectively, the moves to isolate Danske Bank aren't serious enough to create any systemic risk for either the European Union or the European Central Bank, which monitors systemic risks in the currency area.
That said, they do add an extra layer of mistrust -- or at least reticence -- between U.S. lenders, who are obviously keen on avoiding penalties from domestic authorities for dealing with peers linked to criminal activity, and their European counterparts.
That's never a good thing, even at the best of times, and is even more worrying when you consider that U.S. firms have repatriated more than half a trillion dollars' worth of cash and assets so far this year, according to data published today, ami d a Trump tax plan that envisages the return of at least four times more.
That kind of U.S. dollar withdraw from the global financial system requires an increasing reliance on American banks to gain access to greenbacks - access that could be denied, or made prohibitively expensive, if the firm seeking the cash is thought to be clouded by money laundering suspicion.
Added to this is the fact that, while the world is focused on the trade relationship between the world's two biggest economies, Russian interference in everything from global oil markets to national elections to the internet to former satellite states -- not to mention the alleged murder of two former spies on British soil -- continues to be met with little more than token economic sanctions and a few spicy newspaper editorials.
When Marcellus tells Horatio in Shakespeare's Hamlet, that there is, indeed, something rotten in the state of Denmark, he merely replies "Heaven will direct it ."
This kind of problem, where laundered money supports international malfeasance, may need a bit more help beyond the hope of divine intervention.
--Martin Baccardax, London Bureau Chief, TheStreet Inc.Source: Google News Denmark | Netizen 24 Denmark