KPMG, EY reported to police amid Danish laundering probes

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COPENHAGEN (April 12): Denmark has reported the local operations of Ernst & Young and KPMG to the police, amid a widening crackdown on money laundering in the country.

EY is being investigated for failing to alert the authorities to red flags linked to the Danske Bank A/S Estonian laundering case. KPMG was the auditor of Kobenhavns Andelskasse, a small local lender that was shut down last year amid concerns it was systematically used for money laundering.

Business Minister Rasmus Jarlov said, “It’s good that the authorities — the Business Authority, the police and the Financial Supervisory Authority — are 100 percent on top of this case”, which “needs to be investigated all the way.”

Estonian Laundromat

The Danish Business Authority started its investigation into EY last year, as the full scale of the Danske scandal became known. Denmark’s biggest bank is at the centre of a US$230 billion Estonian laundering saga that spans the years 2007 to 2015. The financial watchdog has more recently warned that smaller lenders are also at risk of being targeted by launderers, as the biggest banks beef up their compliance efforts.

Ernst & Young is on the hook for its work auditing Danske’s accounts for 2014. KPMG has been reported to police for its audit of the 2017 annual report of Kobenhavns Andelskasse.

Denmark has made clear it wants to set some of Europe’s toughest standards in the fight against money laundering, after the country’s reputation was tainted by the Danske Bank scandal. Lawmakers agreed last month to include in those new standards the freedom to ban accounting firms from doing business, if they don’t do their jobs properly.

The dirty-money scandal that’s swept through the Nordic and Baltic regions has more recently also engulfed Swedbank AB, Sweden’s oldest bank and biggest mortgage lender. Swedbank had initially hired Ernst & Young to conduct a review of its suspicious transactions, but dropped the firm amid public criticism due to the ongoing Danish investigation.

In a statement on Friday, the Danish Business Authority said it arrived at an “assessment that EY, in connection with its audit of Danske Bank’s reports for 2014, was made aware of information” meaning that “EY ought to have conducted a closer investigation, and informed the Financial Intelligence Unit.”

According to Ernst & Young, its Danish unit “has fully collaborated with the Danish Business Authority since October 2018 and has made available all documents regarding our audit,” it said in an emailed statement.

“EY Denmark has reported as required by the then applicable regulation and we will fully cooperate with the State Prosecutor,” it said.

Multiple Investigations

KPMG said it “reacted and drew attention to, among other things, procedural failures in connection with the area of money laundering, both to the management and the board. The Financial Supervisory Authority also received our reporting,” according to an emailed statement by Anette Harritz, who is the quality, risk and management partner at KPMG in Denmark. The firm believes it has “lived up to” its obligations as an auditor, she said.

The investigation into Ernst & Young was started a month after Danske published a report revealing the vast scale of the scandal. Danske is now the target of investigations in several European countries. In the U.S., the bank is being probed by the Department of Justice and the SEC. Its share price slumped almost 50% last year, amid bets that Danske is now facing hefty fines.

Between 2007 and 2015, Danske Bank changed auditors four times. In 2011, the bank dropped the accounting firm Grant Thornton in favour of PWC. A year later, PWC was dropped, leaving KPMG as Danske’s sole auditor. In 2014, the bank dropped KPMG and hired Ernst & Young. A year later, it dropped EY and hired Deloitte, which has stayed with Danske since.

Denmark has previously said that it won’t expand its investigation into Danske’s other auditors.