BRUSSELS (Reuters) – Europe’s biggest ever money laundering scandal is rippling through banks in the region.
It started in the Baltics and engulfed several Nordic lenders, including Denmark’s Danske and Sweden’s Swedbank, which had large operations in the Baltic.
Here are some facts about Europe’s problems.
HOW DID THE CURRENT SCANDAL EMERGE?
The proximity of the Baltic countries to Russia has traditionally made them vulnerable to illegal financial flows from their neighbour.
US investigators raised concerns about some banks in the region early last year, prompting domestic and European watchdogs to investigate.
WHICH BANKS HAVE BEEN AFFECTED SO FAR?
The first to be affected was Latvia’s ABLV, which was liquidated last year after US accusations of money laundering activities.
The scandal spread to the Estonian branch of Danske Bank, Denmark’s biggest lender, which is now under investigation in several countries for handling 200 billion euros ($224 billion) in suspicious transactions in Russian money between 2007 and 2015.
Swedish bank Swedbank has recently been embroiled in scandal, after it was reported to have processed some of the same payments passed through Danske, leading to the dismissal of its chief executive last week.
COULD IT SPREAD TO BANKS BEYOND THE BALTIC AND NORDIC?
Other lenders who helped deal with suspicious payments from the Baltic countries could also be in the frame. Deutsche Bank, which acted as Danske’s correspondent bank, is being investigated over its ties to the money.
IS THE PROBLEM LIMITED TO FLOWS FROM RUSSIA TO THE BALTICS?
The money from Russia and the countries of the former Soviet Union does not only go to the Baltic countries. Cyprus and Malta are among the EU states receiving the most such flows, according to the data, with Pilatus Bank in Malta closed last year following a US investigation into its owner and after allegations of transactions suspects involving the Azerbaijani ruling elite.
But the problem is not limited to Russian streams. According to estimates, EU-based criminal organisations, such as the Italian mafias, launder most of their illegal income in the largest EU states.
ING, the Netherlands’ largest financial services provider, was forced by the Dutch regulator to pay a $915 million fine last year for money laundering. Its Italian business is also being investigated over similar allegations.
HOW MUCH MIGHT THIS COST BANKS?
Many. EU banks paid more than $16 billion in fines between 2012 and 2018 due to lax money laundering checks, ratings agency Moody’s said in a report on Tuesday, with US regulators levying more 75% of these fines.
Now the allegations have escalated, and so have the fines.
WHO IS MONITORING THIS AND WHY HAS SO MUCH MONEY BEEN LAUNDERED?
Although money laundering is a cross-border crime, it is not tackled at EU level, but almost exclusively by national authorities, which often lack the necessary capacities to fight it.
In some cases, national supervisors have shown little interest in acting, as reputational damage could affect national economies. Malta’s financial supervisor has been found guilty of breaching EU law in the Pilatus case, and the EU is investigating the Estonian regulator after the Danske scandal.
Many banks do not report all suspicious transactions because their due diligence units are often understaffed.
Reporting is not standardized, often producing irrelevant data and hampering cooperation between national supervisors.
WHAT ARE THE DIFFICULTIES IN DETECTING THESE FLOWS?
EU anti-money laundering rules have been revised, but some loopholes have never been closed. They are also applied differently and EU states are often behind in enforcing them.
States, including Luxembourg and Germany, are using loopholes in EU rules that allow them to withhold fines imposed on banks that breach money laundering rules. This drastically reduces the effectiveness of sanctions which are mostly feared by lenders for their impact on reputation.
In the latest reforms, EU lawmakers have added stricter transparency requirements for business owners, but allowed them to remain hidden in some cases. Money laundering is often done through shell companies whose owners are unknown.
Data likely to sound the alarm, such as the share of deposits by non-residents or oversized cross-border flows, are collected at the national level, often without details on the final beneficiaries. No one controls them at EU level.
The EU also failed to agree on an updated list of jurisdictions that pose money laundering risks due to lax rules. This reduces banks’ ability to spot questionable payments.
Reporting by Francesco Guarascio in Brussels; additional reporting by Anthony Deutsch in Amsterdam; Editing by Alexandra Hudson