This article is part of the special report Europe's dirty (money) secret.
STOCKHOLM — On a recent weekday, at the headquarters of Swedish lender Swedbank, in the Nordic country’s capital, Chief Executive Jens Henriksson admitted his bank’s failings.
“Swedbank has not done what it takes to stop money laundering,” Henriksson told reporters. “It has not had good enough governance or internal controls,” he said.
Henriksson’s frank admissions are part of a wider reckoning underway in Scandinavia, as a region of the world that prides itself on a squeaky-clean image grapples with a spate of dirty-money scandals.
A banking sector long seen as a model of transparency has, at least in its dealings in the Baltics, shown itself to be something far more opaque.
“We don’t want to see any weak link in the EU that criminals could exploit” — Vera Jourová, former European commissioner for justice
As Henriksson spoke, Swedbank had just been fined 4 billion Swedish kronor (€370 million) by the Swedish financial regulator for lax controls on massive suspected money laundering at its Baltic branches, while an external report commissioned by Swedbank itself had found similar faults and laid them out in a 218-page report.
Denmark’s biggest lender, Danske Bank, has also faced severe censure for allowing huge flows of largely Russian money to pass through its Estonian branch without adequate checks.
Sweden’s SEB bank is also facing questions about its Baltic operations.
Ill-gotten gains
At the European Union level, the emergence of Scandinavian banks as a weak link in the fight against money laundering is a wake-up call for the Commission as it deploys a fifth anti-money laundering directive for member countries to follow.
Money laundering, the process by which criminals use banks and other businesses to make ill-gotten assets appear legitimate, is a huge problem for authorities globally.
The United Nations estimates that between 2 percent and 5 percent of global economic output, which is between €715 billion and €1.87 trillion, is laundered each year.
When Scandinavian banks entered the Baltic states in the early 2000s, it was hoped that they would be guarantors against the kind of financial malfeasance that had by then become widespread in other parts of the former Soviet Union.
That such malfeasance should seemingly find its way inside the Baltic operations of well-respected institutions like Swedbank and Danske Bank is a sign of the EU’s vulnerability to flows of dirty cash, something its leaders are scrambling to reduce.
“We don’t want to see any weak link in the EU that criminals could exploit,” the then-European Commissioner for Justice Vera Jourová said last year as the problem in Scandinavia was escalating. “The recent scandals have shown that member states should treat this as a matter of urgency.”
Swedbank’s time in the Baltics dates back to 1998 when it invested in locally based Hansabank before buying it fully in 2005, a year after Estonia, Latvia and Lithuania entered the EU.
Danske Bank bought Finland’s Sampo Bank in 2006, giving the Danish lender control of Sampo’s Baltic business.
The idea that there were problems with potential money laundering within Danske’s and Swedbank’s Baltic operations began to emerge in 2017 in reporting by investigative journalists from a range of outlets, including the Organized Crime and Corruption Reporting Project, Denmark’s Berlingske and Sweden’s SVT.
Swedbank was fined 4 billion Swedish kronor (€370 million) by the Swedish financial regulator | Jonathan Nackstrand/AFP via Getty Images
Regulators in the Baltics, Scandinavia and the United States began investigations into potential breaches of anti-money laundering rules.
As it became increasingly clear that the banks would need to come clean with the regulators, Danske and Swedbank both ordered in-depth reports from external law firms to map the extent of the problem.
These reports, published in 2018 by Bruun & Hjejle for Danske and in 2020 by Clifford Chance for Swedbank, showed how the heart of the problem was with what were termed “nonresident” clients, customers based outside the Baltics who held accounts in the Baltics.
These customers, often based in Russia, the reports showed, used Swedbank and Danske to make huge quantities of suspect payments: In Danske’s case, payments of around €200 billion between 2007 and 2015 were identified as high risk for money laundering, and for Swedbank, the figure was around €37 billion between 2014 and 2019.
Reputational damage
For the two banks, the drip feed of bad news has been devastating in several ways.
Both saw dramatic swings in their share price and faced hefty fines by financial regulators. Danske is still waiting to hear exactly how much it must pay.
Executives also lost their jobs: Danske fired its chief executive Thomas Borgen in 2018 and Swedbank’s Birgitte Bonnesen was ousted last year. Bonnesen could still face criminal charges for her role in the scandal, Swedish media reported in late April.
Meanwhile, the reputational damage to both the banks and their home markets could also be significant.
As news of the Swedbank scandal was breaking, Swedish Prime Minister Stefan Löfven expressed his outrage.
“This is totally unacceptable and destroys the whole credibility of the financial system,” he told reporters. “It risks spoiling our nations’ reputations,” he said.
“We need a financial system that actually works for ordinary people and companies,” he added. “It should work for a good development of society, not for organized crime.”
“It must be one of the worst pieces of business Swedbank has ever done” — Jens Henriksson, CEO of Swedbank
Joacim Olsson, the chief executive of the Swedish Shareholders’ Association, a lobbying group which represents the interests of private shareholders, has been critical of the Swedish Financial Supervisory Authority.
In early 2019, Olsson told Swedish public service broadcaster SVT that, in his view, the authority had been slow to react to signs of money laundering in the Baltic branches of Swedish banks — and when it finally did act, its initial analysis was badly flawed.
“They chose to say that there were unlikely to be big problems within the Swedish banking operations in the Baltics, and that was obviously an incorrect conclusion,” he said.
At Swedbank headquarters, Henriksson, the chief executive appointed in August 2019 to lead a cleanup, presented the bank’s first-quarter earnings numbers.
The regulatory fine and the cost of the Clifford Chance report had totaled 6.7 billion Swedish kronor, sending the bank into the red.
The “nonresident” portfolio in the Baltics, which he said had earned “a few hundred million over a few years,” had cost the bank dearly both financially and in terms of the trust it must now work hard to rebuild, he said.
“It must be one of the worst pieces of business Swedbank has ever done,” Henriksson told POLITICO.
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