Imagine how shocking it would be for a bank to launder almost ten times the country’s GDP. That’s not all. Now, imagine if all the money came from non-residents of the Ukraine, Russia, Moldova, Azerbaijan and several other countries of the now-defunct Soviet Union. Indeed, this would make it the largest money laundering scandal of all time. Well, this is no fairy-tale. It happened in September, 2018 and involved the Danske Bank.
What really happened in the Danske Bank scandal?
Have you ever heard of Danske Bank before? If not, read this. Headquartered in Copenhagen with over 5 million customers, the Danske Bank moved money for its customers in the above-mentioned countries.
The brain behind the fraud planned to move a staggering €200 billion through the Estonian branch in one decade. In fact, the plan was to have the deal perfectly executed between 2007 and 2015. Meanwhile, Estonia’s GDP in 2016 stood at $23.14 USD (approx €20.15 billion). How daring!
The regulators couldn’t stop the fraud
Financial experts have always argued that regulators don’t do enough to prevent money laundering in banks. And it is even more shocking that people knew about this scandal while it happened under the nose of regulators. When the Danske Bank kicked off operations in Estonia, the regulators berated the bank for its approach to KYC (know your customer) rules.
Therefore, people say that the regulators refused to act because the Estonian branch accounted for about 11% of the bank’s total profit. However, the money laundering that played out in the Danske Bank exposed the weakness of the country’s anti-money laundering regulations.
How the blockchain could have helped
In truth, the Danske Bank scandal would not have happened if it had deployed blockchain technology. Basically, this innovative technology offers a ledger that guarantees a transparent and secure financial system.
In the blockchain, when a user stores records, it works proactively and smartly. Indeed, it is not a typical system that is reactive. What’s more? The technology has no room for illicit transactions.
Apart from recording transactions on the blockchain, it can also store client documentation. Therefore, the owner will have access to the public and private keys, believing that the system is tamper-proof. Well, the new Payment Service Directive (PSD2) is already implementing this. So, developers of the as-is banking infrastructure designed it in a way that the customer leaves interfacing with giant conglomerates. As a result, the existing system leaves a room for such errors as is evident from the Dankse Bank scandal.
However, using a decentralized system of documentation and storage could have solved this problem. Additionally, in the current infrastructure that banks use, customers know next to nothing about underlying assets and where they come from. On the other hand, the blockchain guarantees full transparency of asset provenance and how it interacts with a particular product. Therefore, blockchain technology would have averted the Danske Bank fraud.
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