Following revelations in the media of alleged money laundering committed using Estonian banks, making payments in USD may become extremely difficult in Estonia and Latvia.
According to Aivar Paul, head of the Anti-Money Laundering Unit at LHV Pank, making payments in U.S. dollars may become difficult in Estonia and Latvia should Deutsche Bank stop handling dollar settlements in these countries.
"Each piece of negative media coverage that involves as big amounts of money as this has a negative effect on the reputation of the Estonian financial system," Paul told BNS. "We used to be part of the Soviet Union; we still have that history and they will continue to look at us this way." He added that even without cases such as this one, Estonia must try harder than others due to this history.
"There are quite a number of banks in Estonia that have a very difficult time finding correspondent banks that would offer U.S. dollars — this article definitely doesn't make things better for them," Paul said, referring to an article on the subject published in the Tuesday edition of daily Postimees. "Speaking of LHV, we don't offer dollar settlements. Our problem is that we are an unknown small bank — we are not particularly attractive to the big banks commercially either."
There is one major provider of a correspondent relationship when it comes to the U.S. dollar in the Baltics — Deutsche Bank — and then a couple of smaller ones, Paul said. "Effectively, of the market for retail settlements, mostof the settlements in dollars pass through one bank," he pointed out, adding that he wouldn't rule out Deutsche Bank exiting the Estonian and Latvian markets.
Deutsche Bank was recently fined a quarter of a million dollars, Paul said. The reason cited by the authorities was mirror trades involving funds channeled out of Russia and the intentional actions of its employees. A closer look at the penalty resolution, however, reveals that the main reason behind the fine was inability to monitor settlements in one's correspondent relationships, he noted.
Paul: Money moved through correspondent relationships
While there doesn't have to be a link between the fine for Deutsche Bank and the money laundering case made public on Monday night, there may be one, according to Paul. "All of that money that moved through here largely moved through these big banks in the same manner — through correspondent relationships," he pointed out. "Allegedly most of these payments were executed in dollars, which means that all of that money has moved through correspondent accounts at correspondent banks."
The LHV official believed that this large-scale money laundering was not actually a big surprise for the head offices of the correspondent banks active in Estonia and Latvia, noting that they had been effectively aware of this situation to a greater or lesser extent, at least.
If Deutsche Bank discontinues the handling of U.S. dollar settlements in Latvia and Estonia, such settlements would only be be available in these countries to clients of the foreign headquartered banks that have dollar settlements available at their headquarters.
"It will definitely not happen at the same price, it will definitely not happen as quickly, and I'm not ruling out that it will not be possible to conduct all transactions then," said Paul.
Nearly $1.6 billion in Russian money laundered through Estonia
Postimees reported in its Tuesday edition that an international group of investigative journalists had revealed how banks laundered $20.8 billion of Russian money of illegitimate origin, nearly $1.6 billion of which was laundered through Estonia.
It said that the three-year effort by the investigative journalism project Organized Crime and Corruption Reporting Project (OCCRP), which was assisted by Postimees, uncovered that banks in Estonia were used to pump vast amounts of money out of Russia as part of a scheme titled "Laundromat."
A document leaked to the team investigating the money laundering scheme listed tens of thousands of companies and revealed how the Estonian accounts of little-known offshore companies were used to move sums that equal a sixth of country's state budget. The lion's share of the funds moved through Estonia, $1.18 billion, were transferred to accounts of the Estonian branch of Danske Bank, Postimees said.
Editor: Aili Vahtla