Baltic Banks to Shun `Existential' Risks From Ex-Soviet Cash

(Bloomberg) -- A spate of Baltic money-laundering scandals has put an end to some banks’ focus on attracting foreign cash, according to the region’s third-largest lender.

The non-resident business will all but disappear because banks in Estonia, Latvia and Lithuania can’t afford the “unmanageable” and “existential” risks it poses, said Erkki Raasuke, chief executive officer of Luminor Group, a joint venture between Nordea Bank AB and DNB Bank ASA that focuses on traditional banking. He called the lenders’ withdrawal mainly a “self-regulation mechanism.”

“This business doesn’t look sustainable and hasn’t been sustainable for a while already,” Raasuke said this week in an interview in his office in Tallinn, Estonia’s capital. “The topic will be off the table once the share of the non-resident business reaches 5 percent or even less, making it insignificant.”

The Baltic region has long been a magnet for cash from clients in the former Soviet Union. But some has been of questionable origin, and national reputations have suffered.

Latvia’s third-biggest bank was closed amid U.S. allegations it handled illicit transactions, and its central bank governor was briefly detained in a bribery probe. Finance Minister Dana Reizniece-Ozola wants non-resident business cut to 5 percent of the total from about 40 percent now. Rietumu Banka AS, Latvia’s biggest locally owned bank, plans to end relationships with about two thirds of its foreign corporate clients within two months.

Danske Scandal

Estonia hasn’t escaped controversy. One of its smallest lenders had its license revoked by the European Central Bank last week. That followed separate money-laundering investigations into the local unit of Danske Bank A/S, which said Thursday that an executive in charge of international and Baltic operations will leave. Local regulators say they haven’t set targets to curb the share of non-resident deposits from 12 percent.

Raasuke, who’s previously worked as chief financial officer at the Baltic region’s biggest lender, Swedbank AB, said any changes won’t unduly upset the banking landscape or cause major economic pain. Banks will shun non-resident clients to preserve ties with global counterparts offering dollar-payment services and avoid high compliance costs, he said.

“Financial dealings of third-country residents in this market will always pose the question about what’s behind it: do we represent a safe haven, or is it tax optimization?” Raasuke said. “It certainly doesn’t make all these clients bad by definition but it’s likely that there are those among them that are hiding their assets or directly violating laws.”

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