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EY probed in Denmark as Swedbank hires firm in laundering review

[COPENHAGEN] EY, the accounting firm engaged by Swedbank AB following a report that the lender was involved in money laundering, is being probed in Denmark over the Estonian dirty-money scandal surrounding Danske Bank A/S.

The investigation of EY has been running since October, after Danske admitted that much of the US$230 billion that flowed through a tiny Estonian branch between 2007 and 2015 was suspicious, a Danish government spokesman said on Friday.

Sweden's Financial Supervisory Authority declined to comment, as did Swedbank spokesman Gabriel Francke Rodau. Calls to EY seeking comment weren't immediately answered.

Swedbank was this week forced to backtrack on its previous assertions that it wasn't involved in the Danske case and has now acknowledged that it also handled suspicious transactions. The admission follows a report by Sweden's main broadcaster, SVT, alleging that the bank helped transfer 40 billion kronor (S$5.8 billion) in illicit funds from Danske Bank between 2007 and 2015.

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The development is a reminder that Danske wasn't the only bank involved in the Estonian dirty money scandal, in which it's alleged that billions in suspicious funds from the former Soviet Union made their way into the West. Danske is being investigated by the US Justice Department and the Securities and Exchange Commission, among others, and investors are bracing for fines, potentially in the billions of dollars.

On Thursday, the financial supervisory authorities of Sweden and Estonia said they were launching an investigation into Swedbank.

The sequence of events unnerved investors, and Swedbank lost more than a fifth of its market value as the news broke this week. For now, the bank's board has stood behind Chief Executive Officer Birgitte Bonnesen, with Chairman Lars Idermark saying he "absolutely" thinks she should continue in her role.

Meanwhile, a number of senior people at Swedbank have been buying thousands of shares in the lender. These include board members Ulrika Francke, Bo Johansson and Anna Mossberg. Ola Laurin, head of large corporates and institutions, and Anders Ekedahl, head of group IT, also bought shares in their bank since Wednesday. Swedbank shares rose almost 4 per cent on Friday.

But others are less convinced.

"Bonnesen's communication strategy has been beyond all criticism," said Joakim Bornold, a savings adviser at Soderberg & Partners, which helps Swedish retail investors decide where to put their money.

At Swedbank's third-biggest shareholder, Alecta, head of ownership Ramsay Brufer says that they "welcome the bank's decision to have an independent review of the events. The important thing now is to let the investigation take its time, that it's handled in a professional way and that all information comes forward."

Bill Browder, the investor best known for chasing money launderers, says he also has evidence directly linking Swedbank to the Danske scandal. He says a claim by Ms Bonnesen that he's assured Swedbank he won't file a criminal complaint is "not true."

Mr Browder has consistently made the point that Danske wasn't alone. "What's emerging is that a good part of the Nordic banking system has been used by Russian money launderers and neither the regulators nor the banks did anything about it for many years," he said.

Stefan Ingves, the governor of Sweden's Riksbank, hinted that banks operating close to the Russian border are putting themselves at risk.

"Given the history in the Baltic countries and their geographic location, one has to be aware that you're not too far away from some bad guys," he said in an interview with Swedish newswire TT on Friday.

Mr Bornold says it's positive that Swedbank, which is the biggest bank in the Baltic region, has now started an independent investigation to get to the bottom of the matter but warns that that's not enough to regain investors' trust.

After two days of steep losses, Swedbank's shares gained on Friday. But "the danger is far from over," Mr Bornold said. "Be prepared for a really bumpy ride that can still end in the ditch."

The laundering scandal has already been costly for Danske, even before prosecutors reveal how much the Danish institution faces in fines. The bank's share price has plunged about 50 per cent over the past year, wiping more than US$18 billion off its market value.

BLOOMBERG