Camilla Barlyng, who has researched fraud-related issues and is presently conducting a traineeship at the ECA, has been looking into fraud in the private sector in Europe, using four recent incidents as examples. The instances chosen cover diverse sorts of fraud and involve a wide range of political, financial, and business actors from across Africa. Fraud is a problem that affects everyone, not just governments.
There are a variety of reasons to keep fighting fraud and corruption. They stifle democracy and cost a lot of money – the EU alone spends between 179 and 990 billion euros every year. Apart from that, and possibly even more importantly, fraud undermines public trust. A government’s major weapon against fraud is robust and effective supervision systems, although flaws in these procedures can occasionally be the source of fraud. Detecting and appropriately penalizing these wrongdoings is a difficult endeavor, as every tool put in place to combat and prevent fraud risks creating new loopholes.
To make problems worse, globalisation adds to the complexity, for example, by making cross-border lawsuits more challenging. Fraud is a problem that affects more than just governments and the public sector. It has an impact on a wide range of businesses, comes in a variety of shades, and can involve a variety of actors. I concentrated on four separate incidents below, all of which are well-known to the general public due to their size, qualities, political ramifications, or direct impact on people’s lives.
Denmark is one of the least corrupt countries in the world, according to Transparency International. It is known around the world for its excellent governance, thriving economy, and high living standards. According to surveys, Danes are among the happiest people on the planet, which experts credit to a “hidden” ingredient: trust. Denmark is probably not the first country that comes to mind when you think of fraud for these reasons.
Despite this, the country has had a succession of money-laundering crises in its banking system in recent years, pointing to flaws in Danish oversight procedures. Danske Bank and Nordea, two major Scandinavian banks, have been mentioned in national and international investigations into unlawful activities since 2015. The banks were allegedly implicated in a number of international money laundering schemes, with questionable transfers at specific Danish and Estonian branches being routinely missed. Knowing your customer was a crucial issue, but it was also a changing goal. Between 2007 and 2015, almost €200 billion in payments had passed through Danske Bank’s Estonian branch’s non-resident portfolio. According to the Financial Times, roughly €700 million in suspicious money went via Nordea from Russia and former Soviet nations between 2005 and 2017. Both banks appear to have made severe errors in terms of successfully managing anti-money laundering threats. One major issue was who was in charge of external oversight. While Danske Bank is based in Denmark, the suspicious activities took place in the bank’s Estonian office, which has a very different backdrop than the Danish office.
As a result, neither the Danish nor the Estonian financial supervisory authorities were sure who would or should disclose the observed anomalies to sanctioning bodies. The case’s cross-border nature hampered cooperation and altered supervision systems, blurring the issue of ultimate accountability. Nordea, which does business in Denmark, Sweden, and Finland, follows a similar logic. When Nordea reorganized from a subsidiary to a branch structure, and then transferred its legal headquarters from Sweden to Finland, a member of the European banking union, in 2018, the problem provided by cross-border supervision grew.
The fundamental issue in these cases is that money launderers may complete transactions through banks in numerous countries in a matter of seconds, whereas law enforcement can take years, if not decades, to unravel the money flow and alter regulations accordingly. In response to the scandals and the declaration of a general election, Danish lawmakers recently agreed to increase funding for the Danish Financial Supervisory Authority (FSA) to help combat financial crime. Investors and customers have been wary of Danske Bank and Nordea. Customers have left and the stock has dropped.
Operation Marques (Case 2) An multinational plan of influence peddling, embezzlement, tax evasion, illegal campaign financing, and corruption involving people from many walks of life and sections of society in Portugal and Brazil caught Portugal off guard in 2014. The system involved public officials at all levels of government rewarding construction corporations with state procurement contracts, as well as the selling, purchasing, and merging of state and privately owned telecommunications businesses.
Banco Espirito Santo, a large Portuguese financial organization, funneled and laundered money from Portugal and Brazil, finally leading to the bank’s demise (BES). Millions of clients were left impoverished, and investigators were directed to European, Latin American, and African countries by the common phrase “follow the money.”
Another significant feature of the controversy was that it occurred during the Portuguese economic downturn. In practice, it is widely acknowledged that there were serious failings in financial institution management and oversight, topped off by a delayed, expensive, and unpredictable legal system. Portugal’s bailout conditions included extensive improvements to the legal system and the central bank as a response to the crisis.
Nonetheless, these steps were ineffective in preventing the failure of several banks in 2014 and 2015, as well as reducing legal and judicial bottlenecks. In conclusion, the scandal has had substantial economic and societal consequences, particularly in terms of private stakeholder financial losses. The collapse of the BES is thought to have cost the Portuguese government more than €5 billion, and the cost is still rising.