Danske Bank’s chief executive, Thomas Borgen, has resigned after an investigation confirmed potential money laundering of roughly €200 billion through the bank’s Estonian branch. Denmark’s biggest lender said “major deficiencies” in control and governance systems had allowed suspicious transactions between 2007 and 2015, mainly from non-resident customers. Analysis of 6,200 of the riskiest customers showed that “the vast majority [of transactions] have been found to be suspicious”. The Estonian branch has approximately 15,000 non-resident clients.

The bank had previously been criticised for its slow reaction to the money laundering allegations, with Estonian regulators and the internal auditor raising concerns as early as 2014. However, Mr. Borgen rejected demands for the bank to review and potentially reduce its non-resident portfolio in Estonia, and the bank did not initiate an investigation until 2017. This delay may have reflected the unit’s profitability: the portfolio had a return on allocated capital of 402% compared to 60% for Estonia as a whole. The investigation admits several breaches at management level in several group functions, concluding that the bank should never have had such a large portfolio of non-resident clients.

Following his resignation, Mr. Borgen will stay on until a new CEO is appointed. After he goes, he will be entitled to fixed salary and pension in respect of 12 months’ notice period (roughly DKK 13.7 million). It’s worth noting that the company has a clawback provision, and that Mr. Borgen received roughly DKK 3.7 million in cash and share-based variable pay for 2017; however, the company has not announced any intention of recovering these awards.

Nor does a clawback appear likely, given the terms of Mr. Borgen’s departure. That he resigned, rather than being terminated, reflects the findings of Danish law firm Bruun & Hjelje. Their investigation determined that the board, chair and CEO “did not breach their legal obligations” towards the bank and its shareholders. However, stakeholders have questioned the independence of Bruun & Hjelje given that it has previously provided other services to Danske Bank, and the law firm has conceded that it is neither impartial nor independent due to its previous relationship.

Reservations regarding the Bruun & Hjelje review have prompted Denmark’s financial regulator to reopen its own investigation into the matter. Shareholders have also signalled that they will ask for an independent inquiry, by way of a shareholder proposal, at the company’s next annual general meeting.

The fallout is spreading. Earlier this week, Danish parliament approved an eight-fold increase in maximum fines for money laundering (however, the legislation will not be retrospective and, therefore, not cover Danske’s scandal). The British National Crime Agency has announced its own investigation, and Věra Jourová, the European commissioner for justice, has summoned Estonian and Danish ministers to explain how the bank’s executives and regulators missed the misconduct.

The cost to shareholders is still being calculated. Denmark’s business minister, Rasmus Jarlov, said that he expected Danish authorities to fine the bank roughly €535 million, and overseas regulators could follow suit. Danske Bank’s share price fell 4.4% after the investigation report was released, capping off a decrease of nearly 30% over the past six months.

Quttab-Udin is an analyst covering the Danish market.