No Danske Skeletons Here, Lithuania Says as Its Neighbors Squirm

(Bloomberg) -- With financial scandals rattling its fellow Baltic states, Lithuania has a message for anyone questioning its banks: there’s nothing to see here.

It’s been a stormy year for the region that was an unwilling part of the Soviet Union until 1991. First, Latvia’s central bank governor was charged with bribery and its No. 3 lender closed amid U.S. allegations of impropriety. Next, a massive money-laundering scandal was unearthed that centered on the Estonian unit of Denmark’s Danske Bank A/S.

Lithuania, the most-populous of the three Baltic countries, has always insisted its financial industry is different. Home to a much smaller ethnic-Russian minority, its banks haven’t welcomed the ex-Soviet clients implicated in its neighbors’ woes. A Danske whistle-blower claims otherwise, however, alleging suspicious transactions also flowed through the lender’s subsidiary in Vilnius.

Vytautas Valvonis, head of banking supervision at Lithuania’s central bank, rejects that accusation.

“We ran planned inspections of Danske’s anti-money-laundering operations back in 2012 and 2016 and didn’t find any substantial deficiencies,” he said in an interview. “Danish and Estonian supervisors are conducting serious investigations and, should they have reason, they’d approach us for information. There hasn’t been a single inquiry.”

No Danske Skeletons Here, Lithuania Says as Its Neighbors Squirm

Denmark’s biggest bank has said that a large part of about 200 billion euros ($227 billion) that flowed through its Tallinn unit between 2007 and 2015 may need to be treated as suspicious. Since acknowledging illicit trades, Danske has removed its chief executive officer and chairman, and reported several employees in Estonia to the police. The bank is also building a reserve, now at $2.7 billion, to absorb potential fines from supervising authorities, including the U.S. Justice Department.

Money laundering at banks in Estonia, not just Danske, was helped by the greater prominence of Russian speakers, Aivar Orukask, head of the analytical department at the Estonian police’s Financial Intelligence Unit from 2004 to 2013, told lawmakers in Tallinn last month.

Non-residents account for 2.7 percent of deposits in Lithuania, while those from countries deemed risky are 1 percent, according to the central bank. In Estonia, non-resident holdings excluding financial-sector companies shrank to 8.5 percent last year. In Latvia, they were down to 21 percent in the third quarter from the peak of over 50 percent in 2015.

But while Lithuania has maintained better access to U.S.-dollar correspondent accounts as jittery American lenders severed ties with lenders in Latvia and Estonia, it’s also suffered its fair share of financial strife in the past. Two banks focusing more on non-resident customers had their licenses revoked in 2011 and 2013.

For Valvonis, shunning that business area keeps Lithuania out of any potential trouble.

“We’ve never had a significant base of non-residents at our banks, including Danske,” he said. “When there are no non-resident clients, there are no transfers to make.”

©2018 Bloomberg L.P.