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Regulator warns of ‘panic’ risk from money-laundering scandals

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Danske Bank A/S, Swedbank AB and Nordea Bank Abp, often via their Baltic operations, have all been tainted by claims that they handled vast amounts of money associated with crime.

[HELSINKI] Once considered the safest of them all, Nordic banks are now navigating a world dominated by allegations of laundering.

Danske Bank A/S, Swedbank AB and Nordea Bank Abp, often via their Baltic operations, have all been tainted by claims that they handled vast amounts of money associated with crime. But the big risk now lies in the response, according to the head of the Financial Supervisory Authority (FSA) in Finland, who oversees Nordea.

"This money laundering discussion is very close to panic, and that is very dangerous," Anneli Tuominen, director general of the FSA in Helsinki, said in an interview.

Danske, whose US$230 billion Estonian laundering scandal dwarfs allegations against the other banks, is responding by withdrawing from the entire Baltic region and Russia. Nordea is carrying out a partial retreat. Estonia's financial watchdog has already voiced concern that Sweden's banks might leave, though Swedbank, which dominates the Baltics, says it's still committed to the region.

"It would be the worst possible end result of this discussion if banks would suddenly start to withdraw money from certain markets," Ms Tuominen said. The lesson shouldn't be to evacuate, but to "learn and do better," which also applies to the regulators, she said.

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Nordic banks underpin the entire financial system across the Baltic region. When Latvia, Lithuania and Estonia suffered an economic crisis in 2009, it was the Swedish krona and Swedish bank shares that showed the most palpable signs of market distress. Nordic lenders stuck by the Baltic region through that crisis and then enjoyed the fruits of the economic rebound that followed.

All three Baltic countries, once forced into the Soviet empire, are now members of the euro zone. But their proximity to Russia appears to have made them a first port of entry for money launderers eager to gain access to the West, according to Bill Browder, the Hermitage Capital Management co-founder who has brought criminal filings against Danske, Swedbank and Nordea.

Ms Tuominen, who is the only Nordic supervisor operating inside the euro zone, wants the European Union to create a body that oversees banks, using national watchdogs as its muscle. She also points to the extra funds banks are now spending on compliance in response to allegations that go back more than a decade, in some cases.

It's been "crystal clear" since the laundering crisis began that "we need an independent EU-wide supervisory anti-money laundering authority," she said. It needs to be tough and intrusive, have a high level of integrity and operate "at an arm's length" from national authorities and countries, she said.

The money laundering scandal has engulfed not only Nordic and Baltic banks, but also their regulators. The financial watchdogs of Denmark and Estonia are both being investigated by the European Banking Authority to find out whether they should have done more to prevent the Danske scandal. In Sweden, the head of the FSA has stepped away from the case because of a potential conflict of interest, due to his relationship with a Swedbank board member.

The banks to have suffered the worst investor exodus are Danske and Swedbank. Denmark's biggest lender has lost almost half its market value over the past year. Swedbank lost almost 20 per cent after Swedish media last month published a report alleging it handled close to US$6 billion in dirty funds tied to the Danske scandal.

Ms Tuominen says banks can no longer risk being sloppy and need to take compliance seriously.

"As we have seen, if you don't do that, your share price falls, you get fired, your bank loses its license," she said. "There's no way out of it, you need to be able to block this criminal use of the banking system".


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