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Did local regulators in Estonia and Denmark fail to flag the Danske Bank’s money laundering scheme? Seems EU regulators can’t decide whether it was clearly money laundering or not.

EU bank regulators looked into it and said yes. But their superiors, the European Banking Authority (EBA) board of supervisors, felt the failings did not amount to a breach of EU law. The European Commission, which requested the review, disagrees and plans to pursue the EU investigation into Danske Bank’s scandal.

All this inspired a Bloomberg columnist to write:

Money launderers and financial criminals should — in theory — have good reason to fear the European Union’s army of white-collar cops. The bloc boasts 28 national financial regulators, a euro-zone banking regulator in Frankfurt (the Single Supervisory Mechanism), an EU-wide banking supervisor in London (the European Banking Authority), and a financial markets watchdog in Paris (the European Securities and Markets Authority). It’s a blizzard of three- and four-letter acronyms. 

Whistleblower Howard Wilkinson exposed the Danske bank scandal. He reported suspicious activity at bank’s Estonia branch, where he worked until 2014. Since then, investigators have identified up to $20 billion in fraudulent financial activity. National Whistleblower chair Stephen M. Kohn is Wilkinson’s whistleblower lawyer.…
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The European Union approved EU whistleblower protection rules Tuesday.

Virginie Rozière EU member head shot
Virginie Rozière / Wikimedia Commons

“This is a good step toward protecting whistleblowers and toward protecting European democracy,” Virginie Rozière, a member the European Parliament (MEP) said in French at a press conference following the decision.

The new law, approved by the European Parliament on Tuesday, shields whistleblowers from retaliation. It also creates “safe channels” to allow them to report breaches of EU law. It is the first time whistleblowers have been given EU-wide protection.

The rules have previously been in the hands of member states, resulting in a range of vastly different approaches.The law was approved by 591 votes, with 29 votes against and 33 abstentions.

Moments after the vote, Virginie Roziere, the French centre-left MEP who steered the file through the parliament, in a tweet claimed victory for European democracy.

“There were a lot of links in the chain for this to be passed,” she said at a press conference in Strasbourg, noting that the negotiations had taken some 13 months.

Danske Bank Whistleblower EU testimony
Kohn and Wilkinson at the EU Parliament

Both Danske Bank whistleblower, Howard Wilkinson, and his attorney, Stephen M. Kohn, chair of the National Whistleblower Center, pushed for stronger protections in the law.

Wilkinson testified before a European Parliament Committee in November. In a letter to EU, Kohn noted the proposed E.U. whistleblower directive “should not undermine the ability of whistleblowers to remain confidential, throughout the reporting process, as this creates the opportunity to intimidate witnesses and may tip criminals off to the evidence against them.” …
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A provisional rule approved in March by the European Commission and member countries ensures “robust” protection for whistleblowers, according to the agency’s response to a letter from the National Whistleblower Center (NWC).

Click for EU whistleblower video

Under the proposed rule, whistleblowers would be permitted to report wrongdoing to outside authorities before reporting to their company or agency internal review program. Earlier versions required internal reporting first, which the NWC believes would interfere with the right of employees to confidentially report suspected crimes.

The new rule specifically addresses that issue, wrote Georgia Georgiadou, deputy head of the EU’s Fundamental Rights Policy program. in a letter to Stephen M. Kohn of the NWC.

In particular as regards the agreed rules on reporting channels, whistleblowers are encouraged to report first internally, if the breach they want to reveal can be effectively addressed within their organisation and they consider that there is no risk of retaliation. They may also report directly to the competent authorities as they see fit, in light of the circumstances of the case.…
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From the markets to the boardroom to the picket line, the reach of Danske Bank’s money laundering fraud scandal continued to play out this week.

Reuters delivered several stories. A Wednesday morning story reported  that foreign investors sold Danish shares worth almost $14 billion in 2018, according to a report from Denmark’s central bank.

The divestment of bank equities may reflect a loss of confidence in the Danish banking sector in the wake of Danske Bank’s money laundering case, it said.

“The trust from international investors has certainly been reduced,” governor Lars Rohde told reporters in Copenhagen. He said political initiatives to combat money laundering were paramount to restore foreigners’ trust in Danish banks.

Rohde is the chairman of the board of governors of Danmarks Nationalbank.

Danske-Bank-Whistleblower-Howard-Wilkinson. Source: www.kkc.com
Howard Wilkinson

The Danske Bank scandal was exposed by whistleblower Howards Wilkinson. He reported suspicious financial transactions at bank’s Estonia branch, where he worked until 2014. It has been calculated that up to $20 billion in fraudulent financial activity have been brought to light by Wilkinson’s disclosures.

Stephen M. Kohn, Wilkinson’s whistleblower attorney, said in a statement that whistleblowers need to be supported, not vilified: “If the Bank had simply properly investigated Mr. Wilkinson’s initial disclosures in 2012 and 2013, they could have avoided most of this mess.”

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Whistleblowers would be permitted to report wrongdoing to outside authorities before reporting to their company or agency’s internal review program, according to a provisional rule approved this week by the European Commission and member countries.

Virginie Rozière, a French Member of the European Parliament (MEP)
French MEP Virginie Rozière, via press conference video.

Action on the EU whistleblower directive had been stalled over the reporting issue. Several member countries, led by Germany and France, wanted to require employees to report potential crimes and fraud internally before going to regulators and law enforcement. Transparency, anti-corruption groups and their supporters believe that approach would have made it more difficult for individuals to come forward with information about wrongdoing.

“The debate has been quite lively over the course of the last few weeks,” Virginie Rozière, a French Member of the European Parliament (MEP) said in French at a press conference following the decision.

The provisional rule allows for what are called “safe reporting channels.”

From the European Commission release:

Whistleblowers are encouraged to report first internally, if the breach they want to reveal can be effectively addressed within their organisation and where they do not risk retaliation. They may also report directly to the competent authorities as they see fit, in light of the circumstances of the case.

Transparency International called the provisional rule “a pathbreaking piece of legislation,” citing the case of Danske Bank whistleblower Howard Wilkinson.

“Whistleblowers in the EU, like Howard Wilkinson, the Danske Bank whistleblower, have spent far too long facing unjust retaliation for speaking out. It is quite an accomplishment that negotiations between the institutions have come to a positive end,” according to a statement from Nick Aiossa of Transparency International.

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Estonian Financial Supervision Authority logo
Seal of the Estonian EBFS

Danske Bank has been ordered to close its troubled Estonian branch before the end of 2019.  Estonian regulators noted on February 19 that the bank violated anti-money laundering regulations for many years by allowing high-risk money-laundering clients to make suspicious transactions through the bank.

In addition, they stated that Danske Bank misled the Estonian public authorities by providing them with inadequate information and thus actually hampered their investigation, according to a statement from the Estonian Board of Financial Supervision.

Danske Bank announced the same day that it is also closing banks in Latvia and Lithuania and Russia.

In a related move, the European Union Banking Authority has opened a formal investigation “into a possible breach of Union law by the Estonian Financial Services Authority and the Danish Financial Services Authority in connection with money laundering activities linked to Danske Bank and its Estonian branch in particular.”

Here’s a roundup of reaction and reporting:

“This is a lesson to corporate banks.  Danske Bank made a grave error when it forced Mr. Wilkinson to sign a restrictive non-disclosure agreement, instead of working with Mr. Wilkinson in trying to fix the problems,” according to a statement from Kohn.…
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Whistleblower Protection in EU

The proposed European Parliament directive on whistleblower protection could make it more difficult for individuals to come forward with information about wrongdoing, according to a coalition of transparency and anti-corruption groups.

At issue is a provision that requires employees to report potential crimes and fraud internally before going to regulators and law enforcement.

A letter signed by a range of groups calls on the EU to protect the “free flow of information necessary for responsible exercises of institutional authority.” Disclosures to law enforcement and regulatory agencies provide a “safety net for protecting the public interest and the public’s right to know when organisations are corrupt or fail to take responsibility,” they write.

If this mandatory internal disclosure regime stands, the directive will have abandoned responsible Europeans who raise concerns appropriately to their employers through their supervisors or normal management channels of communication, who disclose information to competent authorities who have the power and mandate to address wrongdoing, or who provide information to the journalists who investigate and report in the public interest. They will suffer. Europe will suffer.

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Whistleblowers in the European Union will be at risk of retaliation unless they can report crimes to regulators and law enforcement without first reporting them internally.

Danske Bank Whistleblower EU testimony
Danske Bank whistleblower Howard Wilkinson testifies during hearing at the EU Parliament Brussels, Belgium November 21, 2018.

That is the message from Stephen M. Kohn in an article published Wednesday on the website of Whistleblowerprotection.eu. Kohn, a Washington-based lawyer represents Danske Bank whistleblower Howard Wilkinson.

Kohn writes that a fundamental principle in whistleblower law is the protection of employees who come forward.

Common sense dictates that reports directly to government officials must be protected. For example, if you are looking out your window, and see youthful offender mugged a senior citizen, you do not call the young person’s parent. You call the police. The same goes for corporate crime. If a company is stealing from its investors, or engaging in money laundering, illegal secret banking or other offenses, it is clearly important to report these crimes directly to the police as quickly as possible…
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Whistleblower Directive heading for approval by the European Parliament contains serious deficiencies that impede direct reporting to law enforcement agencies

WASHINGTON, D.C. | July 13, 2018—The National Whistleblower Center (NWC) and leading international bank whistleblower, Mr. Bradley Birkenfeld, have filed a formal response to the European Commission’s proposed Whistleblower Directive. The response highlights serious deficiencies in the proposed Directive that undermine international anti-corruption treaties and place restrictions on the ability of private sector employees to directly report corruption to law enforcement officials.

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