Danske Bank Ex-CEO Faces $387M Lawsuit over Money Laundering Scandal

February 24, 2020 by

The ousted chief executive of Danske Bank A/S, Thomas Borgen, has been personally targeted in an investor lawsuit arguing he withheld information about potential money laundering that subsequently destroyed the lender’s market value.

Deminor, a Brussels-based law firm, said on Friday it has filed a legal complaint against Borgen on behalf of 155 institutional investors seeking damages of 358 million euros ($387 million).

The case is the latest in a string of legal proceedings against Denmark’s biggest bank, after it failed to properly screen about 200 billion euros in non-resident flows through its Estonian operations, much of which was subsequently deemed suspicious. Prosecutors in Europe and the U.S. are now looking into the case, and the bank may be facing hefty fines.

Danske’s market value has halved since the beginning of 2018, leaving investors furious. Borgen, 55, was fired in late 2018 and has since had preliminary criminal charges brought against him by police in Denmark. He had been in charge of the bank’s international operations when the Estonian scandal was developing.

Deminor said it “believes that investors were misled as to the true situation of the bank as from February 2014.” A report published four years later showed that “the former CEO and other members of the senior management were briefed in detail by the internal audit team about the illegal activities in Estonia and the substantial risks the bank was facing at the group level.”

Edouard Fremault, a partner at Deminor, said that “as a former senior collaborator of the bank,” the expectation is that Borgen would “benefit from an indemnity clause issued by the bank, as it is standard practice,” in an emailed response to questions.

Danske Bank said it is “defending itself against these claims,” in an emailed response to a request for comment. “The timing and completion of any such lawsuit is uncertain, and we consider any development together with our external counsel. At this stage, we have no further comments.”

Norway’s sovereign wealth fund, the world’s biggest with about $1.2 trillion in assets, said in an email it’s one of the investors in the suit.

In a statement published on Friday ahead of Danske’s annual general meeting, the bank addressed the issue of liability coverage.

“The Directors’ and Officers’ (D&O) liability insurance taken out by Danske Bank for 2020 has a total coverage amount of EUR 85 million. In the view of the Board of Directors, this coverage amount is far from sufficient considering the size of Danske Bank’s business and the risks associated with this business, including a significantly increased risk exposure under Danish and international laws and regulations and the enforcement thereof by relevant authorities. Danske Bank has tried to take out insurance at a higher level, but this has not been possible due to limited capacity in the liability insurance market. It may not be possible to obtain such coverage in the years to come.”

It went on to note that its current liability insurance for directors and officers “excludes coverage for claims which are in any way related to or arising out of the Estonia matter.”

Since the money-laundering case erupted, Danske has replaced a number of executives and board members to bring in people who aren’t tainted by the scandal.

On Friday, Danske said Martin Blessing, a 56-year-old German, and Raija-Leena Hankonen, a 59-year-old Finn, will join its supervisory board next month. Until 2016, Blessing was the CEO of Commerzbank where he also worked with Stephan Engels, who’s joining Danske as chief financial officer in April. Blessing joined UBS in 2016 as co-head of the wealth management division, but left at the end of last year.

Danske also said it plans to increase the base pay for its board members by at least 23% after the laundering scandal added to their work load.. Danske’s board members face “increasing requirements and expectations from regulators and other stakeholders” and spend more time “both during and in between meetings,” the bank said in a statement.

–With assistance from Marion Halftermeyer, Steven Arons and Mikael Holter.

Photograph: Photograph: A stack of 20 euro banknotes are arranged for a photograph inside a Travelex store, operated by Travelex Holdings Ltd., in London, U.K., on Monday, Jan. 12, 2015. Photographer: Simon Dawson/Bloomberg.