Baltic exchange

Suspect transactions, worth billions of euros, by non-resident customers of Nordic financial institutions have forced a re-evaluation of anti-money laundering in Northern Europe.

The Danske Bank and Swedbank cases, in which huge volumes of suspicious transfers were processed by Estonian branches for customers from former Soviet states. These have highlighted the risks for Nordic financial institutions of operating in the neighboring Baltic States, which have high ML risk profiles, being widely used by Russians and their corporations to funnel money into the EU.

Indeed, research published by UK-based PA Consulting last February [2021] said a combination of legacy, technology and “organisational structures that are not designed to place AML vigilance as a top priority” have hampered efforts to counter ML and TF in the Nordic countries.

Swedbank, based in Stockholm, has already been hit with a record fine of SEK4 billion (US$386 million) by Sweden’s Financial Supervisory Authority (FSA) (in March 2020) for serious shortcomings in its anti-money laundering work relating to the Baltics. Swedbank allegedly processed suspect gross transactions of up to €20 billion (U$22 billion) a year from mostly Russian non-residents through Estonia from 2010 to 2016. “The bank’s awareness of the risk of money laundering and its processes, routines and control systems were insufficient,” the FSA said.

While tough regulatory action is welcome, the fact that Nordic banks, apart from Danske, have remained operational in the Baltics is “a positive thing,” Christian Lynne Wandt, managing consultant in financial services, risk and regulations at PA Consulting, told MLB. “It is of major importance that the West helps the Baltic states to maintain financial prosperity, financial stability and resilience to the influence of neighbouring states that may want to destabilise the region,” he said. “If well-financed, reputable banks from the West leave the Baltics, it will open up for unscrupulous players from the East. This would instead increase the risk of dirty money reaching the western economy.”

In the past, Wandt told MLB, Nordic bank’s operations in the Baltics were attractive to money launderers precisely because of their positive reputation. “Other banks around the world almost assumed that money coming through the Nordic banks was clean,” he explained. “Therefore, they gladly accepted these [transactions] without asking questions to the same extent as [they did of those] from other banks in other regions. That has changed. Today it is widely accepted that Nordic banks are not spared money laundering.” They must now prove to correspondent banks that they have control over their transactions and customers “and do a good job stopping dirty money”, he added.

“Corporate AML knowledge is still nascent” in the Nordic region, the report said. “Individual banks are progressing with pieces of the puzzle but without a coordinated effort, the financial systems through which the financial criminal operate will still have plenty of gaps for [criminals] to exploit.”

Overall, ML/TF risks in the Baltic States, and to Nordic financial institutions operating there, remain significant, but governments, private sector and law enforcement in the region are all actively engaged in mitigation.