CASE STUDY: Swedbank fined for failing to combat money laundering

31/03/2020

Swedish and Estonian financial supervision authorities hit Swedbank with a record fine of 4 billion Swedish krona (360 million EUR) in March 2020 for serious deficiencies in its anti-money-laundering (AML) program and said the bank had withheld information from authorities.

Investigation results of Swedish and Estonian financial supervision authorities

Parallel investigations into the parent company Swedbank AB and its subsidiary Swedbank AS in Estonia were conducted by the Swedish and Estonian financial supervision authorities.

The Estonian Financial Supervision Authority (FSA) has issued a ruling to Swedbank AS to take measures to improve its AML risk control systems as they have not been in line with AML requirements.

A criminal investigation in Estonia will determine whether money laundering or other criminal acts have taken place.

The Swedish investigation concluded that Swedbank:

• Had large deficiencies in its governance of AML measures in its Baltic subsidiaries.
• The bank’s awareness of the risk of money laundering and its processes, routines and control systems were insufficient.
• The Baltic operations were also lacking adequate resources to combat money laundering.

The investigation also showed that:

• Swedbank AB has been aware of suspected money laundering activities in the Baltics.
• Swedish management did not efficiently address the risk of money laundering in the Baltics.
• The bank on a number of occasions withheld information from the regulator that would have revealed the seriousness and scope of the problems.
• Despite several internal and external reports warning about deficiencies in the Baltic subsidiaries and the risk of money laundering, the bank did not take proper and sufficient action.
• The bank has had deficiencies in customer risk scoring and transaction monitoring.
• The banking group serviced higher risk clients without proper AML systems and controls in place, therefore not knowing to the fullest extent the money laundering risks posed from servicing these clients.
• In several occasions accounts were opened without having full information about beneficial owners of legal entities or such information was not recorded in customer management system;
• Swedbank has not invested enough in preventative measures to combat money laundering risks.

Remediation plan that Swedbank committed to implement:

• Under new leadership team, Swedbank has focused on transforming its approach to AML, counter-terrorist financing (CTF) and sanctions policies and procedures by creating new roles, appointing new personnel, increasing resources, revising and strengthening policies and procedures and taking steps to continue the process of de-risking its customer portfolio including in the Baltic Subsidiaries.
• As part of these ongoing de-risking and remediation efforts, Swedbank and its Baltic Subsidiaries have (a) embarked on a much more comprehensive approach and remediation plan to address and to strengthen the AML/CTF and sanctions frameworks; (b) undertaken a review of Swedbank’s corporate governance; (c) engaged external consultants to assist in remediation efforts; (d) increased AML/CTF resources; and (e) continued to off-board customers who do not meet Swedbank’s risk appetite.
• In addition, Swedbank is planning to engage a consultant to assess the current state of Swedbank’s AML/CTF policies, procedures, systems and controls, including their implementation. The consultant will identify any existing gaps against regulatory requirements and industry best practices, help Swedbank address those gaps and conduct assessments to ensure that gaps have been fixed.

Lessons to take from this case:

• Risks associated with money laundering and terrorist financing should be identified and managed. Risk Assessment should be carried out at least once a year. It should be a written report and results must be shared with management board.
• There should be clear lines of responsibility and reporting to upper management on a regular basis.
• Even though strict AML requirements may upset customers, those rules need to be followed.
• Necessity to train staff more extensively. It is crucial to give proper training to people: an introductory training to everyone, specific training to AML compliance personnel as well as plan refresh training.
• New technological solutions and smart information systems should be used to successfully manage the risk of money laundering in real time.

Money laundering and terrorist financing prevention is a challenging and demanding task, but we can guide you towards successful implementation of AML / CTF processes while your team focuses on business growth. More about ECOVIS ProventusLaw AML services here.