How Good Governance Could Have Avoided Swedbank’s AML Failings

Updated: Apr 14, 2020

The international law firm Clifford Chance has revealed in a recent report fundamental Anti-Money Laundering (AML) failings by Swedbank in its Baltic subsidiaries. The report published on 23rd March 2020, was mandated by the Swedish bank in response to allegations that it handled $155 Billion in suspicious transactions pertaining to foreign based customers who had previously been offboarded by other financial institutions, using local Baltic subsidiaries of the bank. [1]

Failings Highlighted In the Report?

  • High-risk customers were on-boarded without obtaining the required documentation regarding ultimate beneficial owners (UBO’s), such as, proof of source of funds, legitimate reasoning for the account being set up;

  • Swedbank failed to identify complex ownership and identify ownership structures through tax havens and other known jurisdictions which do not have strong transparency laws;[2]

  • Senior management failed to establish clear and coherent AML policies and procedures within the Bank. There was a systemic lack of understanding pertaining to the risk posed by high risk, non-resident customers to the bank; and

  • Finally, such red flags were raised and never addressed, allowing an environment conducive to money laundering.[3]

What Lessons Can Be Learnt?

Evidently for Swedbank, there have been systemic failings within its AML controls, combined with a culture that has facilitated vast quantities of money to be laundered through its Baltic subsidiaries. The Director-General Irk Thedeen of the Swedish Financial Regulator (FSA) stated, “the Baltics states geographical proximity to Russia, its membership in the European Union and the high number of foreign clients were all factors that should have raised alarm bells.”[4]

As a result of these seismic failings, the Bank was fined $368million. Given what the Bank were found to be guility of, and their significant complacency with respects to internal regulation, the fine was relatively low in comparison to fines given by other regulators around the word for similar practices. Nevertheless, the incident just added fuel to the file, with specific respects to their involvement in the Nordic ‘dirty money‘ scandal of 2019.

For the wider compliance world, it emphasizes at the management level the need for correct AML responsibility allocation across the entire organizational hierarchy and ensuring that this fosters an organizational culture that ensures accountability and communication that can prevent these Anti-money laundering failures.

At a more local level it highlights the necessity for diligent approaches to on-boarding by employees to ensure criteria is fulfilled for onboarding new customers. This can stem from a correct organization culture as well as the required training for employees as to correct approaches, including UBO identification and establishing the source of funds and sources of wealth. By doing this can take significant steps to ensure our responsibilities are not negated and not left vulnerable to the failings that are so apparent to Swedbanks anti-money laundering approaches.

By Gregory Collis , Junior Consultant at Lysis Group

[1] https://eng.lsm.lv/article/economy/banks/report-swedbank-latvia-actively-pursued-high-risk-customers.a352807/ [2] https://internetbank.swedbank.se/ConditionsEarchive/download?bankid=1111&id=WEBDOC-PRODE57526786 [3] https://www.bloomberg.com/news/articles/2020-03-23/swedbank-probe-unearths-40-billion-of-high-risk-transactions [4] https://www.reuters.com/article/us-europe-moneylaundering-swedbank/swedbank-hit-with-record-386-million-fine-over-baltic-money-laundering-breaches-idUSKBN2163LU


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