Financial corruption scandals are not a novel phenomenon in the Baltic States. Multiple Baltic banks have repeatedly been implicated in money laundering schemes involving politicians and businessmen from Russia and other former Soviet countries. But what is notable about the latest wave of revelations is that the financial malfeasance has spilled over into the Scandinavian region.
The current banking scandal first came to light in early March 2019, when the Swedish television channel SVT conducted an independent study of the “black” cash flows passing through Swedbank, one of the country’s largest private financial institutions. The inquiry was carried out by William Browder’s Hermitage Capital Management and was submitted to Swedish law enforcement authorities. The investigation concluded that Swedbank and its Baltic subsidiaries have been involved in servicing illegal Russian money flows—thus laundering these funds—including from some sanctioned individuals on the so-called Magnitsky List (named after Browder’s Russian lawyer, Sergei Magnistky, who died in prison after being denied medical care) (Bnn.lv, March 28). Additionally, Swedbank, and the Danish Danske Bank, via their Baltic subsidiaries, were found to be implicated in servicing Russian, Ukrainian, Azerbaijani and Moldovan dark money. According to Browder, Hermitage Capital estimated that, between 2005 and 2017, suspicious money transfers through Swedbank’s and Danske Bank’s Baltic subsidiaries totaled approximately $3.6 billion, involving about 50 private accounts (Delfi.lv, April 15).
Within weeks, the money laundering scandal drastically expanded, with evidence emerging that the aforementioned banks may have processed at least $100 billion in black cash flows during the aforementioned period (Tvnet.lv, April 1). And this time, Swedbank itself admitted in its internal report that $135 billion was laundered through its accounts over the past ten years (https://www.tvnet.lv, April 15). In turn, Danske Bank confirmed that, in 2005–2017, suspicious money transfers through its Estonian branch totaled $230 billion (Db.lv, March 6).
It is worth recalling that, last fall, news reports found that, in 2013 alone, the Estonian subsidiary of Danske Bank laundered $30 billion from Russia. And during 2005–2017, the Estonian branch of Danske Bank housed accounts for 20 Russian firms known to have been involved in the massive fraud case earlier exposed by Sergei Magnitsky (for which he was incarcerated in retaliation) (Business Day, September 4, 2018). Moreover, independent researchers believe that, between 2011 and 2014, Latvian banks were collectively used to launder $7.982 billion, while Estonian banks handled $1.6 billion of such dark money flows from Russia (Lsm.lv, March 21, 2019).
Swedbank President Birgitte Bonnesen initially denied these revelations but was later forced to acknowledge them and leave her executive position at the bank. Likewise, the head of the Swedbank Group, Lars Idermark, also stepped down (Tvnet.lv, April 23).
These high-profile resignations do not address the root of the problem in the Baltic-Scandinavian financial system, however, which will require heighted attention to these banks’ security procedures as well as greater oversight by national bank supervisors. This could result in significant changes to banking supervisory regulations or even the possible replacement of the national regulators’ leadership.
Banking supervisory authorities in Estonia have already announced they would begin investigations of Swedbank over the current money laundering scandal (Tvnet.lv, April 23). In contrast, the head of the Latvian Financial and Capital Market Commission, Pēteris Putniņš said this scandal was a thing of the past and that Swedbank had already been punished for it earlier (Delfi.lv, April, 23), thus suggesting that Riga would not carry out any further inquiries. On April 1, the Swedish Economic Crime Authority also announced that it would not be launching an investigation into Swedbank for money laundering related to Browder’s complaint from March. The institution’s chief prosecutor, Henric Fagher, announced in a press release that the case does not concern Swedish jurisdiction and that it, therefore, falls outside the remit of Swedish law enforcement authorities (Tvnet.lv, April 1).
The Scandinavian and Baltic banks have not been implicated solely in illicit cash flows from Russian citizens or economic entities. For instance, the aforementioned Swedish SVT investigation revealed that money of former Ukrainian president Viktor Yanukovych may also have passed through Swedbank’s Lithuanian branch (Tvnet.lv, April 15. And United States President Donald Trump’s former election campaign chair, Paul Manafort, may also be involved in this scandal (Tvnet.lv, April 15). Additionally, according to the Estonian newspaper Äripäev, Estonia’s former minister of interior Ain Seppik (2002–2003) was implicated in illegal Russian cash flows through the Baltic States’ banking systems. Specifically, he and his relatives allegedly transferred millions of dollars to accounts of several companies named in the scandal. Moreover, the former minister and his family allegedly used at least two offshore shell companies to assist in laundering billions of dollars in illicit cash flows related to Azerbaijani authorities (Tvnet.lv, April 15).
Recently, Latvia’s second-largest bank—ABLV—was closed down by the government for servicing illegal Russian money. Most ABLV clients had been from countries of the Commonwealth of Independent States (CIS). However, ABLV Bank was also criticized for its involvement in financial schemes that were found to support North Korean missile programs. In 2014, ABLV was the country’s largest single taxpayer in the banking sector, paying 27 million euros ($35.9 million) into the Latvian treasury (Tvnet.lv, April 23), out of a total state revenue that year of 6.843 billion euros ($9.101 billion) (Oecd.org, accessed April 24).
Since the Baltic States regained their independence, local elites had hoped to expand and bolster their countries’ economies by attracting large inflows of foreign money. However, these governments paid insufficient attention to its origins, which left them exposed to exploitation by individuals or entities from Russia and the CIS looking for ways to launder illicit cash as well as evade Western sanctions. As a result, the Baltics (and by extension Scandinavia) have over time become one of the most important regions for servicing illegal cash flows from Russia (Lsm.lv, March 5)—a state of affairs in large part caused by Baltic political leaders’ inadequate long-term thinking on economic policy as well as their failure to build up more financial linkages with Western Europe. That reality, as long as it remains insufficiently addressed, endangers the national security of the Baltic States and their allies while providing support to corrupt Russian oligarchs, organized crime syndicates (many with links to the government) and the Kremlin.
The scandal is far from over, particularly as authorities in the region finally begin to more thoroughly investigate the matter. As Browder himself noted, further remarkable revelations should be expected (Tvnet.lv, March 1).