(Bloomberg Opinion) -- Last year, Latvia’s central bank governor Ilmars Rimsevics was suspended from his job over corruption charges, one of a number of recent banking scandals in the Baltic and Nordic countries. On Tuesday, Europe’s top court ruled the suspension was illegal. It’s an important reminder that for all the presumption of guilt in the court of public opinion, actual courts haven’t had their say in any of these cases.
Rimsevics is accused of extorting hundreds of thousands of euros (dollars) in bribes from a small bank, Trasta Kommercbanka, that was closed down in 2016 after being implicated in a money-laundering scheme known as the “Russian Laundromat.” The central banker, who is also a member of the European Central Bank’s governing council, maintains the accusations stem from his efforts to root out improper transactions and that they were instigated by the owners of a bigger lender, ABLV, closed last year after the U.S. accused it of money laundering.
Corruption and laundering accusations are pretty familiar for a post-Soviet country. The Latvian banking system was built for years on moving money quietly for Russian, Ukrainian and other ex-Soviet oligarchs and businesses. In the current political climate, that’s a recipe for trouble with U.S. regulators, and given their extraterritorial influence, with European ones, too. It may not be entirely clear whether you facilitated alleged laundering or tried to discourage it, but today, proximity can mean guilt by association.
A case like that of Rimsevics, however, goes beyond this moral muddle because central bank independence and the ECB’s reputation are involved. The ECB fought on the Latvian central banker’s side in the European Court of Justice, pointing out that, for a government to interfere with an official of the European System of Central Banks, a court conviction or at least compelling evidence of wrongdoing is necessary. The ECJ concurred that Rimsevics should have his day in court (charges against him haven’t even been submitted to one) and that “the Republic of Latvia did not provide any prima facie evidence of the accusations of bribery which were the basis for the opening of the investigation.”
The central bank governor may not last long in his job, to which he now intends to return despite the government’s open mistrust. But the ECJ judgment is also relevant to the ongoing scandals involving the activities of Danske Bank, Nordea Bank and now also Swedbank, in Latvia’s Baltic neighbor Estonia.
Danske has sustained considerable damage since being accused last year, following revelations from an internal whistleblower, of serving as a channel for Russian money laundering. Its stock tanked, its employees were arrested in Estonia, its chief executive and board chairman were ousted and the bank was forced by the Estonian regulator to wind down its operations in the country. Investigations are under way in Estonia, Denmark and in the U.S. – but it’s too early to say conclusively whether crimes were committed.
Now, Swedbank is becoming embroiled in the Danske scandal. Its stock crashed after Sweden’s main broadcaster, SVT, reported that the bank’s Estonian unit handled suspicious flows.
If there’s a steady supply of bad news, statements by regulators and leaks from police investigations, events could follow the Danske pattern. But it’s not the only path possible.
Last October, Bill Browder, a U.K.-based critic of Russian President Vladimir Putin who initiated complaints against Danske, filed complaints with Nordic prosecutors alleging that Helsinki-based Nordea, Scandinavia’s biggest bank, was involved in money laundering. The Finnish Financial Supervisory Authority moved quickly and quietly to investigate. Earlier this month, it submitted the results of its Nordea probe to the police without disclosing them to the public. The police, too, have been tight-lipped. Nordea’s stock is lower now than right before the Browder coverage, but there has been no spectacular crash.
Browder has threatened to take the data he has on suspicious transactions to the U.S. if Nordic prosecutors don’t take up the case. He might have more traction there, given the toxicity of Russian money and the growing political rift between the U.S. and Europe. And yet ultimately it’s important that these cases are thoroughly investigated and tried in the courts.
Many banks’ safeguards against dirty money have been inadequate, and they should be tightened. When suspicious cases come to light and investigations start, banks are often forced to clean house and tighten rules. That seems to be happening at the Nordic banks, and supervisory authorities in Europe are demonstrably more vigilant as a result of the scandals. But the industry, regulatory authorities and consumers will all benefit more from legal clarity about what actually happened; only then can rules be properly evaluated, fines issued and management held accountable -- or taken off the hook.
Sure, laundering and corruption cases are hard to prosecute and the wheels of justice move slowly. Confidence is part of the financial system and nobody wants to be seen doing business with a bank that has waved through dirty money. But ditching the presumption of innocence is dangerous too.
The Rimsevics situation is a case in point. Was he corrupt or did he suffer for fighting corruption? That’s something for the courts to establish before his career in bank regulation can be judged, or cut short.
To contact the editor responsible for this story: Therese Raphael at traphael4@bloomberg.net
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Leonid Bershidsky is Bloomberg Opinion's Europe columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.
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