The shareholder of ABLV, the second-largest Latvian bank, Ernest Bernis forever remembered on February 23, 2018: on that day, the European Central Bank called it to a teleconference and ordered to liquidate the bank due to the lack of funds to fulfill all obligations. Investors withdrew about € 600 million from ABLV just a week after the publication of the devastating report to the US Treasury Financial Crime Reporting Network (FinCEN) about the involvement of ABLV in money laundering, bribery, and asset withdrawal. “We planned to bring ABLV to the Riga Stock Exchange, but instead decided to agree to liquidate the bank,” Ernests Bernis recalls in an interview with Forbes. “Thus, all our work was crossed out in 25 years.”
He is confident that the Americans attacked his bank as a punishment for serving the Russians: in early 2018, about 30% of bank depositors and account holders were from Russia.
Latvia opened its doors to foreign capital in the 2000s. “We are closer than Switzerland!” - this slogan Latvia invited money from the CIS. Estonia focused on legal entities. A few streams from the monetary river flowing from Russia went to Lithuanian banks as well. But Switzerland or, at worst, Hong Kong did not succeed. The Baltic financial miracle, according to the international tax authorities, turned out to be a banal laundry.
Zurich in the Daugava
By the time Latvia entered the European Union in 2004, Latvian banks and branches of Scandinavian conglomerates have established themselves as a friendly haven for Russian money. They easily opened accounts for the Russians, often without even making the initial amount, took deposits, provided brokerage services, and some even gave them mortgage loans in local currency.
After the crisis of 2008, which had hit the Latvian economy painfully, the love of local banks for Russian capital became even stronger. In 2012, according to Bloomberg, in the Latvian banking system, the share of non-resident deposits approached 50%, reaching $ 10 billion; in Switzerland, the share of foreign deposits at that time was 42%. The only clients of Latvian banks were mostly Russians, who could not open accounts in Switzerland and other more prestigious jurisdictions, says Svetlana Lavrenyuk, senior specialist of the financial department at UFG Wealth Management.
Among wealthy Russians, ABLV, Rietumu, Citadele Banka, Expobank and Norvik Banka were popular. They were attracted by loyalty to the origin of funds, the low cost of services and an acceptable level of requirements for documentary substantiation of transactions, explains Lavrenyuk. The client was assigned a personal manager, with whom it was possible to promptly discuss all issues related to account maintenance.
Bernis said that he does not lose his presence of mind and is now creating an investment company in Latvia. According to the Forbes interlocutor in the investment services market, the loyal customers of ABLV will become participants in the future fund. “The Fund will try to buy out part of the bank’s assets as part of liquidation and continue to manage them. The bank has rather good assets, and no holes were found in the capital, ”he explains. Sympathizing participants "have already gathered about € 300 million".
The end of the tale
The defeat of ABLV is fraught with big problems for Latvia: because of it, local banks can be blacklisted by FATF - an international group against money laundering, said Latvian Ambassador to the US Andris Teikmanis in late December. “The fact that your credit card is not accepted in Germany will be the least of the evils. Our exports will be reduced, because transactions on payment for deliveries will be complicated. This will greatly affect our entire economy, ”Teikmanis outlined the scale of the problems.
This threat mobilized the Latvian authorities to fight Russian money. Local “patriots” in the government wondered why there is so much Russian money in the banking system and whether this is not a risk to stability that could lead to a crisis like the Greek, says the general director of the company “Third Rome” Andrei Lyakhov.
In February 2018, the Latvian Ministry of Finance set a goal to reduce the volume of foreign deposits in banks to 20%. And at the beginning of October 2018, the volume of deposits of non-residents decreased from € 8.1 billion to € 3.2 billion, or from 40% to 20.5%. Of these, 10% are deposits from the EU, 5% - deposits from clients from the CIS countries and 5% - from other countries. Nevertheless, 15 banks and five branches of foreign players operate in Latvia, 11 of them mainly with non-residents, follows from the comment of the Latvian regulator for Forbes.
The law against fictitious companies, which entered into force on May 9, 2018, helped the Latvian authorities reduce the presence of foreign money in the banking system. It prohibits banks from servicing accounts of legal entities that do not have signs of real activity. The law led to a total failure of Latvian banks to work with non-residents. In the first nine months of 2018, Expobank (–82%), Danske Bank (–58%) and Rietumu (–55%) disposed of the fastest of all foreign clients in the first nine months of 2018. The process of getting rid of foreigners was more about companies than individuals, whose funds were reduced by only 2.5%.
According to one of the Latvian bankers, Rietumu had the hardest thing, this bank blocked some accounts or suggested that customers transfer funds to term deposits for three years in order to avoid liquidity problems. Some clients went to court.
Transactions of foreign clients in Latvian banks decreased by half compared to 2017 - to less than € 10 billion. Transfers in dollars decreased the most, in 2018 there were almost none. One of the Latvian bankers explained in a conversation with Forbes that operations in the US currency have become expensive, lengthy and require careful checks. Some banks focused on the domestic market, some made a focus on the premium segment, some make a turn in the direction of fintech. "In Latvia, of course, there is a political setting" the less Russian money in the system, the better. " But there is no direct ban on working with Russian customers, ”says Head of Signet Bank Robert Idelson.
Danish Corner
Of all the Baltic capitals, Tallinn built perhaps the most impressive business center. The compact quarter of glittering skyscrapers, which, however, is lower than the spire of St. Olaf's church in the old town, is remembered by the tower of the Scandinavian SEB bank, which looks like a huge sail. She makes it clear where the money wind is blowing. According to the Estonian Banking Association, about 90% of the assets of the banking system are controlled by Scandinavian banks. The market is mainly divided between the Swedish groups Swedbank and SEB, as well as the Latvian Luminor Bank. The share of the largest national player LHV Bank accounts for only 7% of banking sector assets.
The dominance of the Scandinavians in the Estonian market and the aspiration of Estonia to get into the ranks of the Nordic countries formed a more conservative financial industry in the country than in neighboring Latvia. “Unlike Latvian banks in Estonia, credit organizations practically do not work with non-resident individuals. They attracted mainly company funds. Estonian banks have always had more stringent compliance procedures and a generally more transparent business, ”explains Alexander Zakharov, partner at Paragon Advice Group.
According to the Bank of Estonia, non-resident deposits in the country's banking sector in 2017 amounted to only 8.5% (although in 2012 there were about 21%). But it was in Estonia that one of the biggest scandals in the history of the laundering of foreign money thundered.
In 2018, the Estonian branch of the Danish bank Danske Bank became involved in several investigations on suspicion of legalization and withdrawal of funds from Russia and the CIS countries. The first wake-up call was made in February, when the Danish newspaper Berlingske, the British The Guardian and the Center for the Study of Corruption and Organized Crime (OCCRP) reported on a report that an informant from the Estonian office in Copenhagen sent to the leadership of Danske Bank in 2013. The note stated that the bank blocked the accounts of 21 legal entities for which suspicious transactions, like money laundering, were taking place.
By 2015, Danske Bank stopped servicing non-residents in Estonia, and also suspended several employees responsible for risk management and compliance from work. This was facilitated not so much by the revealed gray schemes, as by numerous warnings from the country's financial inspectorate. The supervisory authority itself confirmed this information. “In 2014, it was obvious that risk control mechanisms in the Estonian branch of Danske Bank did not work properly. We instructed the bank to fix them, but he chose to reduce the risky business with non-residents and make some changes to the bank’s management in 2015, ”the financial inspection comments say.
And on May 25, 2018, the financial intelligence of the Estonian Police published a report on the legalization of more than € 13 billion through Estonian banks in 2011–2016. According to police, most of these funds were withdrawn from Russia, Moldova and Azerbaijan. Specific banks were not named, but the findings of the report overlapped with the February publications on gray schemes in Danske Bank.
Further problems only increased. In September, the shocking results of the investigation of the consulting company Promotory Financial were made public: in 2013, foreign clients made about 80,000 transactions for the total amount of $ 30 billion through the Estonian branch of Danske Bank. This was mainly money from Russia and the CIS countries. As explained by the Financial Times source in the company-auditor, not all of these operations are suspicious, but the amount is “astounding for a small bank branch”.
The main surprise was the results of the internal investigation of Danske Bank. In 2012–2017, the organization conducted 9.5 million transactions for 15,000 non-residents worth more than € 200 billion. Approximately 23% of all foreign funds came to the bank from Russia. Danske Bank called 6200 customers a doubtful transaction, and 177 non-residents were suspicious of laundering Russian money.
After that, Danske Bank CEO Thomas Borgen resigned, although he was not guilty of violating anti-money laundering legislation. And in December, 10 employees of the Estonian branch of Danske Bank, who work in the Private Banking branch, were detained. The police did not name the names of the suspects, but noted that among them there is no former head of the Estonian branch of the bank, Aivar Rehe. Rosfinmonitoring also joined the investigation. The interlocutors of Forbes in the Russian department and in the financial inspectorate of Estonia said that the supervisory authorities of both countries are preparing a joint statement on the participation of structures from Russia in the Danske Bank schemes.
The omnipresent US Treasury had a hand in defeating the “laundry”, according to a Forbes source close to the Estonian branch of Danske Bank, and the source dealing with international capital management. According to them, the staff of the Office of Foreign Asset Control (OFAC), along with Marshall Billingsley, US Assistant Secretary of the Treasury on Terrorism, paid a visit to Estonia in the summer. The meeting was also attended by people from the leadership of Danske Bank. “A similar meeting of Mr. Billingsley with representatives of Cypriot banks in May of this year led to a tightening of procedures for checking non-residents. Now it’s not less difficult for Russians to open an account there than in any other EU country, ”said one of the Forbes interlocutors.
According to a banker close to Danske Bank, the credit institution launched an internal investigation, most likely under pressure from OFAC. “Financial authorities suspect some US banks, in particular JPMorgan Chase and Bank Of America Merrill Lynch, to participate in some gray schemes of the Estonian Danske Bank. So the Americans have a personal interest in this matter, ”he explains. The situation in Danske Bank will lead to a further decline in the share of non-residents in Estonian banks.
“The problem of the Estonian market is in small capacity. In a country with a population of just over 1 million people, it is difficult to earn on loans and raise funds for deposits, business growth is limited here, says the banker. - Though there are not many foreign clients-legal entities in banks, they provided a good transactional income. And now, banks apparently need to change their business models. ”
Transit account
Of the three Baltic countries, only Lithuania has not lost its service on foreign customers; the share of non-residents in the country's banking system is only 2.7%. The volume of cross-border payments for 2008–2015 turned out to be one of the smallest in the European Union - only 1.3% of GDP. In the early 2000s, Lithuania, like the neighboring countries, served Russian clients. Snoras Bank Vladimir Antonov, who went bankrupt in 2011, worked with them. But the habit of Russian money in Lithuania has not been formed.
Eldiyar Muratov, President of the Singapore Castle Family Office, notes that a year and a half ago, his clients deposited money in the Lithuanian branches of Nordea, Danske Bank and DNB. The average deposit was about $ 3.5 million. But now everyone who could have already transferred their assets to Singapore. “Relocation was initiated by the clients themselves, who are tired of constantly receiving“ letters of happiness ”with a new list of documents necessary for the bank to verify the legitimacy of the origin of funds and to confirm many other operations,” explains the financier.
Lithuanian bankers have repeatedly stressed that their approaches to doing business are different from those in Latvia and Estonia. After the events of 2018, they were further tightened. “In September 2018, I was in Lithuania, where I discussed one fintech project with banking lawyers,” says Sergey Vodolagin, a partner at Westside law firm. “During the negotiations, Lithuanian lawyers directly said that the fact of the Russian origin of the project entails additional risks.” Any “Russian mark” will be perceived by Lithuanian banks as a negative factor and will attract their attention. Banks want to make sure that Russian money, firstly, is of legal origin, and, secondly, does not apply to companies and individuals who are subject to sanctions, says Vodolagin. And the question of opening an account for a Russian can be resolved in Lithuania for months.
Latvian and Estonian banks have already begun to follow the example of Lithuania. “Our client had to submit 23 documents in order to open a € 2 million account for a real estate purchase transaction in a Latvian bank,” complains Andrey Lyakhov from Third Rome. “If you collect all the papers, this does not mean that you will become a bank customer - they can refuse you without giving any reason.”
EuroCollegia Chairman of the Board, Igor Stukanov, notes that the procedures of checks in Baltic banks have tightened against all non-EU citizens, and not just Russians. “I think that in 3-5 years such a system will work everywhere: there is no link to a specific country - there is no bank account in it. Apparently, in anticipation of this, many clients are considering the possibility of obtaining a second passport or using investment programs for obtaining a residence permit, ”predicts Stukanov.
One of the questions is where the Russians transferred money from unfriendly Latvia and Estonia. According to Stukanov, wealthy clients switch to countries where financial regulation has not yet been restructured for new realities: Serbia and Montenegro, Kazakhstan, Armenia, Belarus and Georgia. But there, in the near future, similar problems are possible: for example, on December 10, the Central Bank of Montenegro imposed a 45-day moratorium on all payments by Invest Bank Montenegro and Atlas Banka.
Dmitry Gorbunov, partner of the law firm Rustam Kurmaev & Partners, believes that there is nothing critical in the current situation: capital will always find neutral jurisdictions. This is just a question of “transport leverage” and related overhead costs. “Now the Asian offshore countries are ready to accept significant money supply and create the most comfortable conditions. Among Russians, the Seychelles and Hong Kong, for example, are popular. The warming of Russia's relations with China also contributes to this trend, ”says Gorbunov.
He is confident that the Americans attacked his bank as a punishment for serving the Russians: in early 2018, about 30% of bank depositors and account holders were from Russia.
Latvia opened its doors to foreign capital in the 2000s. “We are closer than Switzerland!” - this slogan Latvia invited money from the CIS. Estonia focused on legal entities. A few streams from the monetary river flowing from Russia went to Lithuanian banks as well. But Switzerland or, at worst, Hong Kong did not succeed. The Baltic financial miracle, according to the international tax authorities, turned out to be a banal laundry.
Zurich in the Daugava
By the time Latvia entered the European Union in 2004, Latvian banks and branches of Scandinavian conglomerates have established themselves as a friendly haven for Russian money. They easily opened accounts for the Russians, often without even making the initial amount, took deposits, provided brokerage services, and some even gave them mortgage loans in local currency.
After the crisis of 2008, which had hit the Latvian economy painfully, the love of local banks for Russian capital became even stronger. In 2012, according to Bloomberg, in the Latvian banking system, the share of non-resident deposits approached 50%, reaching $ 10 billion; in Switzerland, the share of foreign deposits at that time was 42%. The only clients of Latvian banks were mostly Russians, who could not open accounts in Switzerland and other more prestigious jurisdictions, says Svetlana Lavrenyuk, senior specialist of the financial department at UFG Wealth Management.
Among wealthy Russians, ABLV, Rietumu, Citadele Banka, Expobank and Norvik Banka were popular. They were attracted by loyalty to the origin of funds, the low cost of services and an acceptable level of requirements for documentary substantiation of transactions, explains Lavrenyuk. The client was assigned a personal manager, with whom it was possible to promptly discuss all issues related to account maintenance.
Everything changed as soon as the United States and the European Union declared a crusade against money laundering and tax evasion. In June 2014, Latvia signed an agreement on the exchange of tax information with the United States under the Foreign Account Tax Compliance Act (FATCA). Later I had to join a similar agreement on the automatic exchange of information within the OECD. After this, problems fell on Latvian banks, like a horn of plenty. The Financial and Capital Market Commission (FCMC), a financial regulator that reports to the Latvian Ministry of Finance, routinely punished banks for violating the law on the prevention of money laundering and terrorist financing, as well as for weak client checks.
In March 2016, the FCMC fined Baltic International Bank € 1.1 million, and in July 2017 Norvik Banka and Rietumu fined € 1.3 million and € 1.56 million respectively. The last two banks were also accused of a weak transaction control system, which allowed them to be used to circumvent US sanctions against North Korea. Three more banks received fines totaling € 640,000 in the summer of 2017. Against this background, non-resident deposits in Latvian banks dropped to 43% by the beginning of 2017, amounting to € 9.2 billion, which is € 800 million less than in 2012.
ABLV Volley
Founded in 1993, ABLV has avoided trouble throughout its history. Claims of the regulator regarding transactions with North Korea did not affect him, and this could provoke an attack by the American Ministry of Finance, Bernice says: “Perhaps when the US authorities saw that their prescriptions were ignored on the ground, they decided to deliver a death blow.”
The destruction of ABLV could be desired by people from the country's highest financial circles, Bernis believes. For example, the former head of the Bank of Latvia Ilmar Rimshevich, who is now under investigation due to suspicions of “trading in influence”. “I stopped communicating with the former head of the Central Bank in early 2015, since communication with him, from my point of view, became ethically unacceptable. I did not want to aggravate the situation and began to ignore it, ”says the banker.
ABLV liquidation is not yet complete. In March 2018, the bank transferred € 480 million to the Deposit Guarantee Fund for payments on insured deposits. Of the 22,000 clients of the bank, more than half have already received guaranteed amounts of € 100,000. Payments over the guaranteed amount have not yet begun, since the liquidation team decided to verify the origin of these funds.
Under the ABLV brand, there were also seven bond funds and four equity funds that invested in international markets. Their aggregate portfolio amounted to approximately € 120 million. The funds were available to all bank customers, but now these funds are blocked by the European Euroclear settlement depository, its representatives complain that they cannot identify investors, says a banker close to ABLV.
In March 2016, the FCMC fined Baltic International Bank € 1.1 million, and in July 2017 Norvik Banka and Rietumu fined € 1.3 million and € 1.56 million respectively. The last two banks were also accused of a weak transaction control system, which allowed them to be used to circumvent US sanctions against North Korea. Three more banks received fines totaling € 640,000 in the summer of 2017. Against this background, non-resident deposits in Latvian banks dropped to 43% by the beginning of 2017, amounting to € 9.2 billion, which is € 800 million less than in 2012.
ABLV Volley
Founded in 1993, ABLV has avoided trouble throughout its history. Claims of the regulator regarding transactions with North Korea did not affect him, and this could provoke an attack by the American Ministry of Finance, Bernice says: “Perhaps when the US authorities saw that their prescriptions were ignored on the ground, they decided to deliver a death blow.”
The destruction of ABLV could be desired by people from the country's highest financial circles, Bernis believes. For example, the former head of the Bank of Latvia Ilmar Rimshevich, who is now under investigation due to suspicions of “trading in influence”. “I stopped communicating with the former head of the Central Bank in early 2015, since communication with him, from my point of view, became ethically unacceptable. I did not want to aggravate the situation and began to ignore it, ”says the banker.
ABLV liquidation is not yet complete. In March 2018, the bank transferred € 480 million to the Deposit Guarantee Fund for payments on insured deposits. Of the 22,000 clients of the bank, more than half have already received guaranteed amounts of € 100,000. Payments over the guaranteed amount have not yet begun, since the liquidation team decided to verify the origin of these funds.
Under the ABLV brand, there were also seven bond funds and four equity funds that invested in international markets. Their aggregate portfolio amounted to approximately € 120 million. The funds were available to all bank customers, but now these funds are blocked by the European Euroclear settlement depository, its representatives complain that they cannot identify investors, says a banker close to ABLV.
Bernis said that he does not lose his presence of mind and is now creating an investment company in Latvia. According to the Forbes interlocutor in the investment services market, the loyal customers of ABLV will become participants in the future fund. “The Fund will try to buy out part of the bank’s assets as part of liquidation and continue to manage them. The bank has rather good assets, and no holes were found in the capital, ”he explains. Sympathizing participants "have already gathered about € 300 million".
The end of the tale
The defeat of ABLV is fraught with big problems for Latvia: because of it, local banks can be blacklisted by FATF - an international group against money laundering, said Latvian Ambassador to the US Andris Teikmanis in late December. “The fact that your credit card is not accepted in Germany will be the least of the evils. Our exports will be reduced, because transactions on payment for deliveries will be complicated. This will greatly affect our entire economy, ”Teikmanis outlined the scale of the problems.
This threat mobilized the Latvian authorities to fight Russian money. Local “patriots” in the government wondered why there is so much Russian money in the banking system and whether this is not a risk to stability that could lead to a crisis like the Greek, says the general director of the company “Third Rome” Andrei Lyakhov.
In February 2018, the Latvian Ministry of Finance set a goal to reduce the volume of foreign deposits in banks to 20%. And at the beginning of October 2018, the volume of deposits of non-residents decreased from € 8.1 billion to € 3.2 billion, or from 40% to 20.5%. Of these, 10% are deposits from the EU, 5% - deposits from clients from the CIS countries and 5% - from other countries. Nevertheless, 15 banks and five branches of foreign players operate in Latvia, 11 of them mainly with non-residents, follows from the comment of the Latvian regulator for Forbes.
The law against fictitious companies, which entered into force on May 9, 2018, helped the Latvian authorities reduce the presence of foreign money in the banking system. It prohibits banks from servicing accounts of legal entities that do not have signs of real activity. The law led to a total failure of Latvian banks to work with non-residents. In the first nine months of 2018, Expobank (–82%), Danske Bank (–58%) and Rietumu (–55%) disposed of the fastest of all foreign clients in the first nine months of 2018. The process of getting rid of foreigners was more about companies than individuals, whose funds were reduced by only 2.5%.
According to one of the Latvian bankers, Rietumu had the hardest thing, this bank blocked some accounts or suggested that customers transfer funds to term deposits for three years in order to avoid liquidity problems. Some clients went to court.
Transactions of foreign clients in Latvian banks decreased by half compared to 2017 - to less than € 10 billion. Transfers in dollars decreased the most, in 2018 there were almost none. One of the Latvian bankers explained in a conversation with Forbes that operations in the US currency have become expensive, lengthy and require careful checks. Some banks focused on the domestic market, some made a focus on the premium segment, some make a turn in the direction of fintech. "In Latvia, of course, there is a political setting" the less Russian money in the system, the better. " But there is no direct ban on working with Russian customers, ”says Head of Signet Bank Robert Idelson.
Danish Corner
Of all the Baltic capitals, Tallinn built perhaps the most impressive business center. The compact quarter of glittering skyscrapers, which, however, is lower than the spire of St. Olaf's church in the old town, is remembered by the tower of the Scandinavian SEB bank, which looks like a huge sail. She makes it clear where the money wind is blowing. According to the Estonian Banking Association, about 90% of the assets of the banking system are controlled by Scandinavian banks. The market is mainly divided between the Swedish groups Swedbank and SEB, as well as the Latvian Luminor Bank. The share of the largest national player LHV Bank accounts for only 7% of banking sector assets.
The dominance of the Scandinavians in the Estonian market and the aspiration of Estonia to get into the ranks of the Nordic countries formed a more conservative financial industry in the country than in neighboring Latvia. “Unlike Latvian banks in Estonia, credit organizations practically do not work with non-resident individuals. They attracted mainly company funds. Estonian banks have always had more stringent compliance procedures and a generally more transparent business, ”explains Alexander Zakharov, partner at Paragon Advice Group.
According to the Bank of Estonia, non-resident deposits in the country's banking sector in 2017 amounted to only 8.5% (although in 2012 there were about 21%). But it was in Estonia that one of the biggest scandals in the history of the laundering of foreign money thundered.
In 2018, the Estonian branch of the Danish bank Danske Bank became involved in several investigations on suspicion of legalization and withdrawal of funds from Russia and the CIS countries. The first wake-up call was made in February, when the Danish newspaper Berlingske, the British The Guardian and the Center for the Study of Corruption and Organized Crime (OCCRP) reported on a report that an informant from the Estonian office in Copenhagen sent to the leadership of Danske Bank in 2013. The note stated that the bank blocked the accounts of 21 legal entities for which suspicious transactions, like money laundering, were taking place.
By 2015, Danske Bank stopped servicing non-residents in Estonia, and also suspended several employees responsible for risk management and compliance from work. This was facilitated not so much by the revealed gray schemes, as by numerous warnings from the country's financial inspectorate. The supervisory authority itself confirmed this information. “In 2014, it was obvious that risk control mechanisms in the Estonian branch of Danske Bank did not work properly. We instructed the bank to fix them, but he chose to reduce the risky business with non-residents and make some changes to the bank’s management in 2015, ”the financial inspection comments say.
And on May 25, 2018, the financial intelligence of the Estonian Police published a report on the legalization of more than € 13 billion through Estonian banks in 2011–2016. According to police, most of these funds were withdrawn from Russia, Moldova and Azerbaijan. Specific banks were not named, but the findings of the report overlapped with the February publications on gray schemes in Danske Bank.
Further problems only increased. In September, the shocking results of the investigation of the consulting company Promotory Financial were made public: in 2013, foreign clients made about 80,000 transactions for the total amount of $ 30 billion through the Estonian branch of Danske Bank. This was mainly money from Russia and the CIS countries. As explained by the Financial Times source in the company-auditor, not all of these operations are suspicious, but the amount is “astounding for a small bank branch”.
The main surprise was the results of the internal investigation of Danske Bank. In 2012–2017, the organization conducted 9.5 million transactions for 15,000 non-residents worth more than € 200 billion. Approximately 23% of all foreign funds came to the bank from Russia. Danske Bank called 6200 customers a doubtful transaction, and 177 non-residents were suspicious of laundering Russian money.
After that, Danske Bank CEO Thomas Borgen resigned, although he was not guilty of violating anti-money laundering legislation. And in December, 10 employees of the Estonian branch of Danske Bank, who work in the Private Banking branch, were detained. The police did not name the names of the suspects, but noted that among them there is no former head of the Estonian branch of the bank, Aivar Rehe. Rosfinmonitoring also joined the investigation. The interlocutors of Forbes in the Russian department and in the financial inspectorate of Estonia said that the supervisory authorities of both countries are preparing a joint statement on the participation of structures from Russia in the Danske Bank schemes.
The omnipresent US Treasury had a hand in defeating the “laundry”, according to a Forbes source close to the Estonian branch of Danske Bank, and the source dealing with international capital management. According to them, the staff of the Office of Foreign Asset Control (OFAC), along with Marshall Billingsley, US Assistant Secretary of the Treasury on Terrorism, paid a visit to Estonia in the summer. The meeting was also attended by people from the leadership of Danske Bank. “A similar meeting of Mr. Billingsley with representatives of Cypriot banks in May of this year led to a tightening of procedures for checking non-residents. Now it’s not less difficult for Russians to open an account there than in any other EU country, ”said one of the Forbes interlocutors.
According to a banker close to Danske Bank, the credit institution launched an internal investigation, most likely under pressure from OFAC. “Financial authorities suspect some US banks, in particular JPMorgan Chase and Bank Of America Merrill Lynch, to participate in some gray schemes of the Estonian Danske Bank. So the Americans have a personal interest in this matter, ”he explains. The situation in Danske Bank will lead to a further decline in the share of non-residents in Estonian banks.
“The problem of the Estonian market is in small capacity. In a country with a population of just over 1 million people, it is difficult to earn on loans and raise funds for deposits, business growth is limited here, says the banker. - Though there are not many foreign clients-legal entities in banks, they provided a good transactional income. And now, banks apparently need to change their business models. ”
Transit account
Of the three Baltic countries, only Lithuania has not lost its service on foreign customers; the share of non-residents in the country's banking system is only 2.7%. The volume of cross-border payments for 2008–2015 turned out to be one of the smallest in the European Union - only 1.3% of GDP. In the early 2000s, Lithuania, like the neighboring countries, served Russian clients. Snoras Bank Vladimir Antonov, who went bankrupt in 2011, worked with them. But the habit of Russian money in Lithuania has not been formed.
Eldiyar Muratov, President of the Singapore Castle Family Office, notes that a year and a half ago, his clients deposited money in the Lithuanian branches of Nordea, Danske Bank and DNB. The average deposit was about $ 3.5 million. But now everyone who could have already transferred their assets to Singapore. “Relocation was initiated by the clients themselves, who are tired of constantly receiving“ letters of happiness ”with a new list of documents necessary for the bank to verify the legitimacy of the origin of funds and to confirm many other operations,” explains the financier.
Lithuanian bankers have repeatedly stressed that their approaches to doing business are different from those in Latvia and Estonia. After the events of 2018, they were further tightened. “In September 2018, I was in Lithuania, where I discussed one fintech project with banking lawyers,” says Sergey Vodolagin, a partner at Westside law firm. “During the negotiations, Lithuanian lawyers directly said that the fact of the Russian origin of the project entails additional risks.” Any “Russian mark” will be perceived by Lithuanian banks as a negative factor and will attract their attention. Banks want to make sure that Russian money, firstly, is of legal origin, and, secondly, does not apply to companies and individuals who are subject to sanctions, says Vodolagin. And the question of opening an account for a Russian can be resolved in Lithuania for months.
Latvian and Estonian banks have already begun to follow the example of Lithuania. “Our client had to submit 23 documents in order to open a € 2 million account for a real estate purchase transaction in a Latvian bank,” complains Andrey Lyakhov from Third Rome. “If you collect all the papers, this does not mean that you will become a bank customer - they can refuse you without giving any reason.”
EuroCollegia Chairman of the Board, Igor Stukanov, notes that the procedures of checks in Baltic banks have tightened against all non-EU citizens, and not just Russians. “I think that in 3-5 years such a system will work everywhere: there is no link to a specific country - there is no bank account in it. Apparently, in anticipation of this, many clients are considering the possibility of obtaining a second passport or using investment programs for obtaining a residence permit, ”predicts Stukanov.
One of the questions is where the Russians transferred money from unfriendly Latvia and Estonia. According to Stukanov, wealthy clients switch to countries where financial regulation has not yet been restructured for new realities: Serbia and Montenegro, Kazakhstan, Armenia, Belarus and Georgia. But there, in the near future, similar problems are possible: for example, on December 10, the Central Bank of Montenegro imposed a 45-day moratorium on all payments by Invest Bank Montenegro and Atlas Banka.
Dmitry Gorbunov, partner of the law firm Rustam Kurmaev & Partners, believes that there is nothing critical in the current situation: capital will always find neutral jurisdictions. This is just a question of “transport leverage” and related overhead costs. “Now the Asian offshore countries are ready to accept significant money supply and create the most comfortable conditions. Among Russians, the Seychelles and Hong Kong, for example, are popular. The warming of Russia's relations with China also contributes to this trend, ”says Gorbunov.
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Danske Bank helped Russians withdraw funds through mirror transactionsBusiness | 09.10.2018
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Danske Bank laundered $ 150 billion from Russia and CIS countriesBusiness | 08.09.2018
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The National Bank of Ukraine banned the sale of Sberbank's subsidiary to GutserievBusiness | 28.07.2017
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Sberbank and Ukraine: why there is a new contender for the bank's subsidiary Business | 02.07.2017
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Sberbank Ukraine will be bought by Grigory Guselnikov and Said GutserievBusiness | 28.03.2017