Thu, 28 May 2020

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.

The Danish Business Authority started investigating EY last year as the full scale of the Danske scandal became known. Denmark's biggest bank is at the center of a $230bn 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 being investigated 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.

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."

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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.

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 percent 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 it won't expand its investigation into Danske's other auditors.

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