Fincrime Briefing: SEB bank group shares fall tied to scandal, Danske plied wealthy clients with gold, FinCEN renews GTOs, and more

By Brian Monroe
bmonroe@acfcs.org
November 15, 2019

Quote of the Day: “Find out who you are and be that person. That’s what your soul was put on this Earth to be. Find that truth, live that truth and everything else will come.”Ellen DeGeneres

In today’s ACFCS Fincrime Briefing, SEB shares tumble on feared news report linking group to laundering scandal, Danske Bank tried to keep wealthy clients on board with golden dreams, FinCEN renews GTOs, pulls back on publicly-listed corporate caveats, and more. 

Please enjoy this unlocked story, part of the many benefits of being an ACFCS member. 

Want to talk about industry trends, story ideas or get published? Feel free to reach out to ACFCS Vice President of Content Brian Monroe at the email address above. Now, on to more sweet sweet content! 

COMPLIANCE

SEB Bank shares drop ahead of TV program expected to talk about potential ties to EU money laundering scandals

A planned Swedish TV program on suspected money laundering in the Baltics will include information on Sweden’s SEB, the bank said on Friday, sending its shares down almost 13 percent, a trend following the drop in stock prices at other banks tied to a still-mushrooming EU money laundering scandal.

SEB has received questions from the public service broadcaster’s investigative news program “Uppdrag Granskning” but has no further knowledge on the content of the program, the bank said in a statement.

The news risks dragging SEB into a money laundering scandal it has so far mostly managed to avoid – the bank stated in October Latvia’s financial regulator was engaging in a financial crime review – but which has hammered the shares of Nordic rivals Danske Bank and Swedbank and rocked the wider banking sector in the region.

Danske Bank, Denmark’s biggest bank, is under investigation in several countries over 200 billion euros ($220 billion) of suspicious payments moved through its Estonian branch between 2007 and 2015 that have put it at the centre of one of the largest money laundering scandals in history.

The bank, whose shares have more than halved in the past 18 months, was forced in October to withdraw from Estonia entirely by the local regulator.

Swedbank has also lost around 40% of its market value since allegations surfaced that its Estonian branch processed suspect gross transactions of up to 20 billion euros a year from mostly Russian non-residents between 2010 and 2016.

SEB and Swedbank have a larger presence in the Baltics than Danske Bank had, focusing on traditional banking activities such as deposit taking and lending services, (via Reuters).To read the full comment by the SEB Group, click here

Monroe’s Musings: The more stories that come out related to the EU money laundering scandal that started with Danske Bank are revealing that the problems are not just related to one bank. 

In fact, there seem to be both broad AML compliance failings and billions of dollars in suspect funds that flowed throw certain institutions in the Baltic and Nordic regions, many from known high-risk region, Russia, a hub of corruption and a wealth of other criminal pastimes. 

It would not surprise me if many large domestic and international banks are re-risking regions like Denmark and Sweden to be at a high risk for money laundering, requiring their institutions to jump through more hoops to keep or secure correspondent banking connections. 

DANSKE BANK

Bankers at beleaguered Danske Bank offered gold to wealthy Russian clients to hide cash tied to $220 billion money laundering scandal: report 

At the height of the Danske Bank A/S dirty-money scandal, the lender started offering gold bars to wealthy clients to help them keep their fortunes hidden, according to documents seen by Bloomberg.

The bank’s Estonian branch, which was already wiring billions of client dollars to offshore accounts, told a select group of customers, mostly from Russia, that they could now also convert their money into gold bars and coins, according to the documents, which date back to the middle of 2012.

Aside from offering a hedge against risk, Danske pitched gold as a way for clients to achieve “anonymity,” according to the documents. It also said that using gold ensured “portability” of assets, according to an internal presentation dated June 2012.

In Danske’s September 2018 tell-all report on its non-resident unit, the bank listed the services it provided to clients. Aside from payments, these included setting up foreign-exchange lines, as well as bond and securities trading. The bank didn’t list the sale of gold bars.

Danske Bank, which is being investigated across Europe and in the U.S. after failing to screen about $220 billion that gushed through its non-resident unit in Estonia from 2007 to 2015, has now shuttered the operations at the heart of the scandal. That’s after local authorities kicked Danske out, as the scope of the affair became clear.

It’s not known how much gold Danske managed to sell while the now defunct Estonian unit was still running. But according to an internal email seen by Bloomberg, at least some clients used the service. Local private banking clients were also offered the service.

For gold bars weighing 250 grams or more, clients at Danske’s non-resident unit could obtain the precious metal without a sealed pack or paper certificates. Anti-money laundering approval was needed before customers could collect the gold, but such approvals weren’t necessary if the gold was kept in long-term storage, according to the documents.

One Danske Bank presentation seen by Bloomberg and dated June 2012, when gold was trading close to an all-time high, told prospective clients that “the product is not being advertised publicly or in the media.” There’s no evidence that Danske continued to offer the service after 2013, when the price of gold tanked, (via Bloomberg).

Monroe’s Musings: The Danske Bank laundering scandal has had more twists and turns than a swirly straw. But, as you might imagine, this is not the way a bank should respond to tightening AML compliance restrictions and encroaching investigators. 

But the hilarity of action will not be lost on longtime fincrime and compliance professionals – a bank feeling the heat on dirty money flows starts turning to gold in a bid to keep wealthy clients on board and tell them their money will be kept anonymous, a move made by countless organized criminal groups, corrupt kleptocrats and other financial criminals. 

FINCEN

FinCEN reissues GTOs targeting real estate in 12 key regions, with minor pullback on reporting purchases by publicly traded companies 

The U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) has renewed its very successful geographic targeting order (GTO) program to counter financial crime and money laundering through all-cash real estate purchases by criminals attempting to hide their identity by working through anonymous impenetrable shell companies. 

The terms of the latest order, spanning from November 12 to May 9 of next year, will cover the same regions as prior orders more aggressively scrutinizing major U.S. metropolitan areas:  Boston; Chicago; Dallas-Fort Worth; Honolulu; Las Vegas; Los Angeles; Miami; New York City; San Antonio; San Diego; San Francisco; and Seattle. 

The only wrinkle in the updated orders: the new GTOs will not require reporting for purchases made by legal entities that are U.S. publicly-traded companies as they are “identifiable through other business filings.”

FinCEN, which has had GTO authority for more than two decades, started its latest initiative focusing on requiring title insurance companies to capture beneficial ownership details at certain thresholds – from as high as $2 million for California to $500,000 for Texas – in January 2016, though the figure for capturing the required ownership details currently stands at a uniform $300,000.  

The lower price point is likely to capture a wider range of real estate transactions, beyond the high-end luxury market that was the original focus. The latest round of orders also covers transactions done in cryptocurrencies. 

Several FinCEN leaders have stated in recent years that GTOs has been a powerful tool in gathering useful intelligence for law enforcement on suspicious flows of funds, raising speculation that formal regulations for the real estate sector were on the horizon.

“GTOs continue to provide valuable data on the purchase of residential real estate by persons possibly involved in various illicit enterprises,” FinCEN said in a statement. “Reissuing the GTOs will further assist in tracking illicit funds and other criminal or illicit activity, as well as inform FinCEN’s future regulatory efforts in this sector,” (via FinCEN).

Monroe’s Musings: FinCEN has stated countless times in recent years these GTOs have been an absolute goldmine for investigators, with the information time and again making connections to current cases where individuals were suspected of being part of an organized criminal group or political corruption and attempting to safeguard their illicit gains in real estate. 

But it’s clear law enforcement wants more. The original goal of the GTO initiative was to review “high-end” lux properties, in some regions only focusing on listings more than a $1 million or $2 million. But that has clearly changed, with the current figure at only $300,000. 

In certain locales, like Miami-Dade and Broward Counties in South Florida, that kind of money won’t buy you a luxury home. In some cases, it may only buy you a smaller two-bedroom home, townhome or condo. 

At issue here is that in the quest to get more information for law enforcement, FinCEN is going to start catching and reviewing more and more individuals and families simply attempting to buy a home for the first time or upgrade – setting up a clash between innocent individuals and the prying eyes of federal investigative agencies. 

MONEY LAUNDERING

Dirty Money on the Big Screen: Why Media Portrayals of Money Laundering Matter

In this insightful analysis from financial crime and compliance thought leader, Dev Odedra, he reveals that some of the key concepts typically in the wheelhouse of anti-money laundering (AML) professionals and tactics for investigators are being detailed on the big and small screens – efforts that, if done right, can create greater awareness of complex criminals patterns for the everyperson. 

Generally speaking, “money laundering” is not at the top of anyone’s agenda as they go about their daily lives.  

The average person might occasionally read a news article about a drug dealer convicted of drug trafficking and money laundering or hear a passing mention on a television show, but for most, that’s as far as it goes.

Dirty money and its associated crimes are, however, becoming a hot topic in mass media and entertainment, and this has the potential benefit of increasing general awareness of their harm to society. Greater media attention on money laundering can even drive changes in behavior in everyone from the common citizen to the compliance officer tasked with flagging illicit funds.

Take for example The Laundromat. The October 2019 release of the Netflix movie created some controversy when Jurgen Mossack and Ramon Fonseca, the attorneys at the center of the ‘Panama Papers’ scandal, filed a lawsuit in a Connecticut court to try and stop the film from being released on grounds of defamation.  

The effort failed and the film was released on 18th October 2019 with the case transferred to a California court.

The 2016 Panama Papers scandal involved the leak of a staggering 11.5 million documents (2.6 terabytes-worth) from the Panamanian law firm Mossack Fonseca–data that exposed the hidden ownership and financial affairs of innocent investors, money launderers, tax cheats and national leaders who had parked their wealth offshore. In the UK, the leak raised questions for former Prime Minister David Cameron on holdings he had in his late father’s offshore company Blairmore Holdings Inc.

The significant media attention on the Panama Papers scandal in 2016 saw to it that tax transparency, beneficial ownership and “shell” companies became the topics of discussion amongst the general public and policymakers alike.  

Whilst The Laundromat movie may deliver entertainment with a cast of some of Hollywood’s top A-List actors, it also squeezes into a digestible 96 minutes some key concepts and issues surrounding the scandal that may intrigue and surprise general audiences. 

These cinematic efforts may also create greater awareness of criminal money laundering techniques, current global fincrime vulnerabilities and the compliance defenses created to stop them, (via KYC 360). To read more of Dev’s stories, follow his fincrime compliance news postings or connect with him directly, click here

Monroe’s Musings: Absolutely loved this story by Dev, who continues to produce thought-provoking work in our field. This piece should be read by bank staff at all levels in and out of compliance. 

Movies, as we all know, can be more than just entertainment. They can be incredible teaching moments for the issues of our time, including money laundering, the scourge that allows violent narco cartels, zealot extremists and corrupt regimes to fuel their illicit enterprises.