Banking Money Laundering Scandals — Crypto and Blockchain Companies also Come Under Scrutiny

Mar 7, 2019 · 5 min read

Last year shed a light to the most recent years biggest money laundering scandal involving Danish Danske Bank branch in Estonia. Over €200 million mainly originating from Russia was laundered using offshore businesses. The Estonian Financial Supervisory Authority has since revoked Danske Banks banking license in Estonia and has to stop operation in the country within 8 months.
Danske Bank has announced it will shut down all of its operations in the Baltic states and Russia. The bank is now under investigation in Estonia, Denmark, France, UK and US. This has now started a tightening in regulations in the finance sector all over Europe. Kilvar Kessler, the head of Estonian Financial Supervisory Authority has since pointed out that the fines financial institutions face today are way too low and need to be reassessed.

In Estonia the fines range between 1200–32 000 and in rare cases 400 000 euros which for large banks is frankly pocket money.He proposes fines of up to €5 million or in cases of consecutive violations 10% of revenue of the business. Kesslers criticism is pointed at Estonia’s government and parliament who have passed the buck on to the next government soon to be appointed hence no changes in laws and regulations were made.

The Plot Thickens

Recently some new info has emerged. One of Swedish biggest banks Swedbank and Nordea of Denmark are also involved in the scandal. A Swedish tv show “Uppdrag granskning” stated that

At least 3.8 billion euros were moved between Danske Bank and Swedbank’s Baltic entities.

The transfers took place between 2007 and 2015, according to Swedish national news service SVT. Approximately 50 shelf companies and business clients with no revenue or activity were making transfers amounting to millions of euros. Swedbank’s stocks plummeted 13.8% after the announcement by SVT.

The Swedish Financial Supervisory Authority (FSA) said that information from the television news report had confirmed the risk that Swedish banks were being used for money laundering, even though the scope of the suspected transactions in Swedbank’s case appeared to be much smaller than those at Danske.

“The disclosures are very serious and will be included in FSAs ongoing and future supervision activities,” FSA Director Erik Thedeen said in a statement in late February.

The Finnish broadcaster YLE reported a news story on Monday night that €700 million euros were moved through Nordea bank that has signs of money laundering. The story was based on The Troika Laundromat data leak which amongst a lot of other activities shows that hundreds of millions worth of suspicious money has gone through Nordea.

Huge banking corporations have done this before, HSBC for example was involved in laundering money from Mexican drug cartels. It is important that the financial watchdog keeps a close eye on what financial institutions are doing, evidently this has been well thought out and on purpose.

Opening Bank Accounts for E-Residents and Crypto Businesses in Estonia Difficult

Kessler, who has the power to withdraw a lender’s license to operate, has been cautioning bankers for some time that they need to thoroughly vet e-residents before signing them on.

He has stepped up his warnings since the Danske scandal. Understandably banks are being rather careful.

This leaves Estonia and e-residents in a difficult position. On one hand Estonia is keen to promote its e-residency program promising a gateway to banking in the EU, on the other hand the Financial Supervisory Authority is demanding banks hit the brakes on this.

Some 50,000-plus people hold the digital identity card but there is no public data on how many also bank in Estonia. Thorough checks on e-residents and anyone opening a bank account is important but it is also important to keep in mind that the huge amount of money laundered was done by non e-residents.

Getting a bank account in Estonia if your business is involved in blockchain-tech or crypto makes things even more difficult. This leaves legitimate businesses in a chicken and egg situation — easier way would be to use a fintech business for banking, however it is a legal requirement to have an Estonian bank account when operating a business in Estonia. Should businesses simply operate in crypto? That brings about many other issues like how to pay your employees, how to pay rent, bills and for services used?

LetKnow reached out for an answer from the Estonian Financial Supervisory Authority on this. Here is their response:

It should be noted that credit institutions are subject to more stringent customer selection and diligence measures relative to traditional business. As a result, credit institutions must be guided by the Money Laundering and Terrorist Financing Prevention Act (hereinafter referred to as “MoneyFPA”. Available: It must be taken into account that, pursuant to § 10 (1) of the MoneyFPA, “risk appetite’” means the total of the exposure level and types of the obliged entity, which the obliged entity (credit institution in this case) is prepared to assume for the purpose of its economic activities and attainment of its strategic goals, and which is established by the senior management of the obliged entity in writing.

According to the § 10 (3) of the MoneyFPA the credit institution determines at least the characteristics of the persons with whom the obliged entity wishes to avoid business relationships and with regard to which the obliged entity applies enhanced due diligence measures, and thereby the obliged entity assesses risks related to such persons and determines appropriate measures for mitigating these risks.

At the same time, according to the paragraph 60 of the EBA Guidelines, the application of the risk-based approach does not in itself mean that the credit institutions should refuse, or terminate, business relationships with entire categories of customers that they associate with higher risk of money laundering and terrorist financing, as the risk associated with individual business relationship will vary, even within one category.

Therefore, it is up to the credit institutions to decide with whom to conclude a contract for the provision of services. Finantsinspektsioon expects that the supervised entities will behave in accordance with the applicable regulations, however Finantsinspektsioon cannot decide for them with whom to establish or terminate the contractual relationship.

Could Blockchain Help Lower the Risk of Money Laundering?

It seems that anything to do with crypto or blockchain comes under a lot of scrutiny from the financial watchdog and banks. This seems counterproductive as blockchain technology has the potential to bring transparency into the sector. All transactions on a blockchain can be traced and this would in fact make monitoring suspicious activity a whole lot easier.

The problem in our view is that there is still a lack of understanding and knowledge about the technology, especially in the public sector. One can hope that this will change in a timely manner. LetKnow news has taken education in this field on as its mission.

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