Daily newspaper Postimees wrote parallel investigations into the parent company Swedbank AB and its subsidiary bank Swedbank AS in Estonia were conducted by the Swedish and Estonian financial supervision authorities.

The Estonian Financial Supervision Authority (FSA) has issued a ruling to Swedbank AS to take measures to improve its anti-money laundering risk control systems as they have not been in line with anti-money laundering requirements.

A criminal investigation in Estonia will determine whether money laundering or other criminal acts have taken place.

The Swedish investigation concludes that Swedbank AB had large deficiencies in its governance of anti-money laundering measures in its Baltic subsidiaries. The bank's awareness of the risk of money laundering and its processes, routines and control systems were insufficient. The Baltic operations were also lacking adequate resources to combat money laundering.

The investigation shows that Swedbank AB has been aware of suspected money laundering activities in the Baltics. Despite several internal and external reports warning about deficiencies in the Baltic subsidiaries and the risk of money laundering, the bank did not take proper and sufficient action. The Swedish FSA also found a number of examples of how the bank withheld documentation and information from the FSA that in retrospect reveal the seriousness of the situation. The Estonian FSA made the same discovery in the course of its investigation.

Erik Thedeen, director general of the Swedish FSA, said: "Our investigation shows that the Swedish management did not efficiently address the risk of money laundering in the Baltics."

He added: "It is also deeply concerning that the bank on a number of occasions withheld information from the FSA that would have revealed the seriousness and scope of the problems."

The Swedish FSA has also investigated how Swedbank AB's Swedish operations adhered to anti-money laundering requirements. The investigation concludes that the bank has had deficiencies in its risk classification of customers and its transaction monitoring. The authority therefore concludes that the bank has not lived up to the anti-money laundering requirements in its Swedish operations.

On the basis of findings in both investigations, the Swedish FSA decided Swedbank AB should receive a warning and an administrative fine of 4 billion Swedish kronor. In the assessment of the Swedish and Estonian FSAs, the sanctions and the precept imposed on Swedbank will not jeopardize the bank's current business or customers. The bank is well capitalized and has a good liquidity ratio.

The Estonian investigation concluded the Estonian subsidiary has had severe deficiencies in its anti-money laundering risk control systems and that the bank failed to live up to the anti-money laundering requirements.

"Swedbank has not invested enough in preventative measures to combat money laundering risks," Kilvar Kessler, head of the Estonian FSA, said. "The banking group made choices that allowed it to service higher risk clients without proper anti-money laundering systems and controls and without knowing to the fullest extent the money laundering risks posed from servicing these clients."

The Estonian authority has therefore issued a precept that obliges Swedbank AS to take comprehensive measures to properly understand and mitigate the risks it faced in the past and those it faces now.

Swedbank AS must also review and amend its organizational framework to manage risks more effectively. The bank needs to change its practices in understanding the activities of its clients and to review practices for reporting suspicious transactions to the Financial Intelligence Unit and operational risk to the FSA. The FSA also found a number of examples of how the Estonian subsidiary has withheld information that in retrospect reveal the severity of the problems in the bank.

The issue of whether money laundering or other criminal acts took place in the bank are currently being investigated by the Estonian prosecutor's office. As in many other countries, double jeopardy is not permitted in Estonia, and therefore the Estonian FSA terminated its own misdemeanor investigation into Swedbank AS in November 2019 to allow the prosecutor's office to continue with its criminal investigation.

Swedbank will comply with ruling issued by Financial Supervision Authority

Olavi Lepp, chairman of the management board of Swedbank Estonia, said that over the past year, Swedbank's anti-money laundering work has been subject to a lot of criticism and the bank has dealt with this topic thoroughly.

"We have cooperated fully with the Financial Supervision Authority. The ruling provides an assessment of Swedbank's activities as of March 31, 2019, and earlier. The Financial Supervision Authority has highlighted four main topics that were present a year ago that we must rectify by mid-November. We have already resolved a number of issues and I can assure you that we are committed to continuing our work in this respect. As one of the financial market leaders in Estonia, we must also be a leader in the fight against money laundering, and that is what we are aiming for," Lepp said.

The bank will develop the organizational structure in this area, defining clear responsibilities, chain of command and processes. In addition, new resources will be allocated, databases will be improved, and new technical solutions for better data exchange will be developed, the bank said in a press release.

"Regarding the events of recent weeks, in addition to the prevention of financial crimes, as a bank, we also have the goal of supporting our clients and their financial capabilities in the environment that has rapidly become very complicated. We have already facilitated taking grace periods and we are currently working with the government to find ways to alleviate the situation for our customers," Lepp added.

Bank of Estonia: The efforts of banks in Estonia to combat money laundering must be more successful

The Bank of Estonia called "Swedbank is a systemically important bank for the stability of the financial system in Estonia" on Thursday in a statement after the ruling was announced, adding "it provides banking services that are vital for the Estonian economy."

Deputy Governor of Eesti Pank Maive Rute said: "Banks are of critical importance for the normal functioning of an open and exporting economy like Estonia's. Even though stricter anti-money laundering requirements may upset the clients of the banks, those rules need to be followed because Estonia is not a place where money can be laundered."

The banks have closed the current accounts of their riskiest clients in recent years and have become more careful about starting new client relationships, the Bank of Estonia's statement said. Adding this reflects a change in the behaviour of all the banks, including Swedbank.

Rute said the banks in Estonia should target their anti-money laundering efforts better and more cleverly to maintain trust in themselves. This would require staff to be trained more extensively and new technological solutions to be brought in.

"The amount of information processed by the banks continues to grow, and without smart information systems in place the risk of money laundering cannot be managed successfully in real time. A good place to start in solving the problems is for banks and business associations to work together to find solutions that would allow money-laundering risks to be minimised better without honest business suffering for it," she said.

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