Swedish Bank Exit Is Estonia’s ‘Ultimate Concern’ After Scandals

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Estonia’s financial supervisor is making a plea to Swedish banks: don’t leave.

With money-laundering allegations ripping through Europe, some banks are reconsidering which markets they want to be exposed to. Nordea Bank Abp and Danske Bank A/S are among lenders retreating from the Baltics, where a number of dirty money scandals started.

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But Kilvar Kessler, the chairman of Estonia’s Financial Supervisory Authority, says the time when criminals could use his country’s financial system as a viaduct to the global markets is over.

Swedish Bank Exit Is Estonia’s ‘Ultimate Concern’ After Scandals

Now, the risk of an exit by Swedish banks, which dominate financial markets in the Baltic region, “is our ultimate concern,” Kessler said in an interview in Stockholm on Friday.

The comments show how differently Estonia views the banks that have been associated with Baltic money laundering allegations. Danske, which is at the center of a $230 billion scandal that started in Tallinn, has been kicked out by Estonian authorities. But Swedbank AB, the biggest lender in the Baltics, remains welcome in Estonia, even after claims that it handled billions of dollars in suspicious funds.

Swedbank and Swedish peer SEB AB, the two largest banks in the Baltics, have a combined lending market share of 66 percent in Estonia, 45 percent in Latvia and 57 percent in Lithuania. Neither bank has indicated it’s considering leaving the region. SEB spokesman Frank Hojem said the bank’s “long-term strategy of balanced growth in the Baltics remains.” Swedbank spokesman Gabriel Francke Rodau said the lender is “committed” to the region, which it considers one of its “home markets.”

Swedish Bank Exit Is Estonia’s ‘Ultimate Concern’ After Scandals

Kessler says authorities in his country are doing everything in their power to clean up. That comes amid allegations that Estonia and the other Baltic countries have provided a first port of call to Russian money launderers eager to get their funds into the European Union.

For five years “we’ve been working like madmen” to improve anti-money laundering defenses, Kessler said, after meeting with his Nordic counterparts to discuss the European banking union. “Currently, today we are talking about the past.”

“We are talking about legacy problems,” he said. Estonia can’t “exclude that, from time to time, occasional things may pop up.” But it would not be “on that scale as it was in the past,” he said.

Kessler says that he regards Swedish banks as among Europe’s strongest, with “top tier” capital levels and the ability to provide “stable financing.”

“If nowadays, due to circumstances, Swedish banks see the Baltics as a liability, not as an asset, of course it’s a problem for the Baltics,” Kessler said.

Bill Browder, the investor best known for chasing Russian money launderers, last week filed a criminal complaint against Swedbank, tying it to the death of Sergei Magnitsky. That came on top of allegations in a report by Swedish broadcaster SVT, claiming Swedbank handled almost $6 billion in suspicious funds tied to the Danske scandal.

Denmark’s biggest lender has said that much of around $230 billion that flowed from the former Soviet Union through its Estonian unit between 2007 and 2015 was suspicious in origin. Danske is now under criminal investigation in several countries including the U.S.

Since regulators began cracking down on laundering, Nordic banks have plowed vast sums of money into compliance, including investing heavily in technology like artificial intelligence to to help them identify and report suspicious transactions to the authorities.

Kessler says he wants to see closer ties between Estonia and Sweden. And as a euro member inside the European banking union, Estonia would also like to see Sweden join, he said.

“We don’t have that many close connections with Denmark anymore when it comes to the financial market, so I don’t know about Denmark. But Sweden, definitely,” he said. “It’s about 60, 70 percent of our banking market and of course we would like to see Sweden in.”

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