Danske Bank’s Estonia branch lived for years on the proceeds of crime. But only recently has the global reach of the Estonia branch’s dodgy dealings come to light. A report produced by the Danish law firm Bruun & Hjejle for Danske Bank says that the Estonia branch was involved in three international money laundering schemes: the “Russian Laundromat,” the “Azerbaijani laundromat,” and what it calls “Hermitage Capital Management.”

This last one blew my mind. It is the Magnitsky case.

Sergei Magnitsky was a lawyer and auditor who worked for the Moscow-based law firm Firestone Duncan. During an investigation on behalf of Hermitage Capital Management, which had been accused of tax evasion and fraud by the Russian Interior Ministry, Magnitsky discovered that an estimated $230m of taxes paid by Hermitage Capital Management had been diverted to organized criminals by corrupt Russian officials.

Magnitsky was arrested in 2008 on suspicion of aiding tax evasion, and spent over a year in prison without charge. He died on November 16^th, 2009. The official cause of death was heart failure due to acute pancreatitis and toxic shock, but there have been repeated allegations that Magnitsky was tortured during his imprisonment and eventually beaten to death. To this day, the circumstances of his death remain unclear.

After Magnitsky’s death, human rights activists and Hermitage Capital Management compiled a list of about 60 officials - including some from the interior ministry, police, and tax authorities - whom Magnitsky had alleged were involved in the fraud. This list, known as the “Magnitsky list,” has never been released in full, though 18 individuals were named by President Obama’s administration in 2013. However, many of those thought to be on the list may have been sanctioned under the 2012 Magnitsky Act, which authorized the U.S. government to sanction Russians suspected of human rights abuses, seize their assets, and ban them from entering the U.S.

In 2016, Congress passed the Global Magnitsky Act, under which the U.S. can impose visa bans and targeted sanctions on individuals anywhere in the world who commit human rights abuses or acts of corruption. In December 2017, sanctions were imposed on 52 people from Russia and various other countries.

Other countries have also introduced “Magnitsky Acts”. One of those countries is the U.K., whose lax administration of shell companies facilitated the Estonia branch’s money laundering activities. And another is Estonia, which enacted its Magnitsky Act in 2016. By that time the Estonia branch’s money laundering activities were already being wound down and its non-resident portfolio dismantled.

Not that any of this is evident from Bruun & Hjejle’s report. Here is how the report describes Danske Bank Estonia’s involvement in the fraud uncovered by Sergei Magnitsky:

Included in the Portfolio Investigation is an examination of the allegations made by Hermitage Capital Management of alleged tax fraud of USD 230 million involving high-ranking officials in the Russian Government. The proceeds of the fraud are believed to have been laundered through various countries. Hermitage Capital Management is registered as a victim in a criminal investigation in France in which Danske Bank is currently an assisted witness. Hermitage Capital Management has also reported Danske Bank and employees of Danske Bank’s Estonian branch to the police in Estonia and Denmark.

Anyone would think Sergei Magnitsky had never existed.

But the cat is out of the bag and heading for the hills. The world is very much less tolerant of financial crime than it was before Magnitsky’s death. $230m is a lot of money, and quite a bit of it seems to have gone through Danske Bank Estonia. Bill Browder, the firebrand co-founder of Hermitage Capital Management, has already called for criminal investigation into Danske Bank Estonia’s activities, alleging that it is a key part of the Magnitsky fraud. Admittedly, he has made this allegation before: but this time, it seems he is being taken seriously. Prosecutors in Estonia and Denmark are now investigating.

The Danish regulator has now re-opened an investigation that it closed earlier in 2018. The U.K.'s FCA and Switzerland's FINMA have both indicated that they will investigate the bank's activities, and the U.K.'s National Crime Agency is belatedly investigating the role of British-registered shell companies in the money laundering scandals. There may be more investigations by regulators and prosecutors in countries that were the sources and recipients of flows through Danske Bank Estonia. Additionally, the European Commission has asked the European Banking Authority to conduct a full investigation into the Estonian and Danish regulators' disastrous oversight of Danske Bank and its Estonian outpost. According to the Financial Times, the Commission says that the bank and its regulators may have broken EU law.

So far, the U.S. has not taken action against Danske Bank. However, according to Reuters the U.S. Treasury is “closely following” developments in the money laundering case. So, if the Treasury decided to act, what would it do?

If Treasury officials concur with Bruun & Hjejle that Danske Bank had failed to manage its wayward branch properly but was not itself involved in the money laundering, it might just issue a fine sufficient to reprimand Danske Bank without breaking it. But it is worth recalling the fate of Latvia’s largest bank, ABLV. Earlier this year, the U.S. Treasury cut off U.S. dollar supplies to ABLV on the grounds that money laundering had become a “pillar of its business practices”. A week later, the bank failed due to lack of dollar liquidity and was placed into liquidation by Latvian authorities on the instruction of the European Central Bank. If the U.S. Treasury decided to apply a similar sanction to Danske Bank, it could be in serious trouble.

And this explains why Danske Bank’s Board decided to release Bruun & Hjejle’s report in full. It pins all the blame on the Estonia branch and ancillary legal, compliance and AML functions. Executive management is exonerated of any legal liability. Despite the report’s damning findings, it is an exercise in damage limitation.

Hopefully, those investigating Danske Bank’s involvement in international money laundering will see through this attempt at a whitewash. The memory of Sergei Magnitsky demands that all those responsible for the fraud that cost him his life are brought to justice. Including those who willfully turned a blind eye.

This piece has been amended to focus exclusively on the Magnitsky connection.