March 19, 2020 / 7:14 PM / 16 days ago

Swedbank hit with record $386 million fine over Baltic money-laundering breaches

STOCKHOLM (Reuters) - Sweden’s financial watchdog hit lender Swedbank (SWEDa.ST) with a record fine of 4 billion crowns ($386 million) on Thursday for serious deficiencies in its anti-money-laundering work and said the bank had withheld information from authorities.

Sweden’s oldest retail bank saw its share price collapse by a third last year after details of the dirty money scandal — which also engulfed Danish peer Danske Bank (DANSKE.CO) — emerged at the end of 2018 and through 2019, forcing Swedbank to fire its chief executive and much of its board.

“Swedbank has had serious, systematic shortcomings in its work to prevent money laundering in the Baltics,” FSA Director General Erik Thedeen said at a news conference.

“The investigation also shows that on several occasions, Swedbank has withheld information from the FSA, information that clearly showed how big the problems, in fact, were. We look on that as particularly serious,” he said.

The FSA said Swedbank received several warnings. One external report from 2017 commissioned by Swedbank and obtained by the FSA expressed surprise at the volume of entities and individuals accepted as clients by Swedbank Estonia without any proper identification of the real owners.

“Despite that and many other warnings, the leadership did not take sufficient measures to sort the problem out,” Thedeen said.

Thedeen said the Baltic state’s geographical proximity to Russia, its membership in the European Union and the high number of foreign clients were all factors that should have raised alarm bells.

“By definition, this should have prompted Swedbank to have rigorous systems and controls for its Baltic operations. Our investigation shows that this was not the case,” Thedeen said.

Swedbank acknowledged later on Thursday that it has had shortcomings in anti-money laundering work and disclosure.

“Swedbank has failed to uphold the trust of customers, owners and society. This is troublesome and very serious”, CEO Jens Henriksson said in a statement.

U.S. INVESTIGATION

Estonia’s FSA financial watchdog said in a simultaneous statement following their joint investigation that a criminal inquiry in Estonia will now determine whether money laundering had taken place.

Swedbank allegedly processed suspect gross transactions of up to 20 billion euros ($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. “The Baltic operations were also lacking adequate resources to combat money laundering.”

The penalty exceeds the bar set in 2015 when the FSA hit lender Nordea with a fine of 50 million Swedish crowns ($4.83 million), which was the maximum allowed at the time.

Swedbank remains under investigation in the United States and Estonia. Last week, Swedbank said an internal investigation by its law firm found that transactions totaling $4.8 million potentially violated U.S. sanctions.

Analysts said that in terms of the potential U.S sanction breaches, the total amount of suspect transactions was fairly small.

Violating U.S sanctions can lead to significant fines. French lender BNP Paribas paid a $8.9 billion settlement in 2015 to resolve claims it committed major violations of sanctions imposed on Sudan, Cuba and Iran.

Swedbank entered the Baltics in the 1990s after the fall of the Soviet Union and it is now the biggest bank in Estonia in terms of market share for services such as deposits and lending.

The lender had to sign up for a Swedish state aid scheme during the financial crisis as loan losses in its Baltic operations threatened to bring the bank down.

“The fine comes in slightly below expectations. I haven’t seen anything in the FSA’s statement so far that makes me more concerned ... so I think we can start to move on,” said Andreas Hakansson, an analyst at Danske Bank.

Reporting by Colm Fulton, Johan Ahlander and Simon Johnson; Editing by Catherine Evans and Leslie Adler

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