News

Leaked Records and Compliance Memos Raise New Cloud Over Swedbank

By Koos Couvée

After Swedbank’s affiliate in Estonia decided to eventually offboard one of its largest clients, Carbo One, over money-laundering concerns in late 2016, the company still managed to transfer millions of euros to a similarly named Scottish entity that appears to have existed only on paper.

From October to December 2016, according to internal Swedbank records obtained by ACAMS moneylaundering.com, Carbo One, a coal trader registered in Cyprus and directed from Russia, wired €11.5 million in four installments from Swedbank Estonia to the Scottish legal entity, Carbotrade LP, which held an account with Latvia’s now-defunct ABLV Bank.

Each transfer was described in paperwork as “payment under contract,” according to the records, which shine new light on compliance processes used by Swedbank as recently as two years ago. The records do not indicate whether or when the bank ultimately closed Carbo One’s accounts.

Swedbank, Sweden’s oldest and largest lender, became the latest Nordic institution pulled into a growing money-laundering scandal last month after Swedish broadcaster SVT and other news outlets reported that its Estonian affiliate handled almost $6 billion in suspicious funds for legal entities controlled by parties in Russia and other former Soviet states.

SVT and Estonian daily Postimees reported that accounts at Swedbank controlled by Carbo One were used to transfer millions of euros out of Russia, including via transactions involving Danske Bank Estonia.

According to the records obtained by moneylaundering.com, Carbo One’s beneficial owners around the time of the transfers to Carbotrade were Gennady Ayvazyan, a Russian businessman, and Ibragimov Dovronbek, an Uzbek engineer. Carbo One held accounts at Swedbank at least as early as 2004, the records show.

Swedbank is now under investigation in Sweden and Estonia and the target of a criminal complaint filed by Bill Browder, the U.K. financier and anti-corruption activist, to Swedish authorities on Mar. 4.

According to the records, the lender waited until autumn 2016 to re-examine its relationship with Carbo One despite having already fielded questions from three separate correspondent banks about the purpose of several of the firm’s payments in prior years.

In June 2012, according to the records, U.K. lender Standard Chartered asked Swedbank to explain the nature of $16 million in transfers made two months earlier from offshore entities to Krutrade Holdings, a company connected to Carbo One.

Russian lender Alfa Bank asked Swedbank Estonia later that year to explain a $31 million transfer from Carbo One to a Russian firm, Transgroup AS LLC, and separately questioned a $7 million payment to Steel Rail Industry Limited, a legal entity formed in Hong Kong.

Swedbank responded in an August 2014 email to Alfa Bank that certain payments queried by the Russian lender aligned with Carbo One’s “common business activity” and did not appear suspicious.

Finally, in July 2016, Deutsche Bank in London asked Swedbank Estonia for more information on the unidentified counterparty to a payment made in U.S. dollars to Carbo One, according to the documents.

It is first and foremost the task of the respondent bank [Swedbank Estonia] to check its customers in accordance with the applicable KYC [know-your-customer] regulations,” a Deutsche Bank spokesperson told moneylaundering.com in an email. “In our role as a correspondent bank, we have only limited access to information about the customers of the respondent bank.”

Alfa Bank and Standard Chartered did not respond to inquiries from moneylaundering.com by press time.

A U.K.-based compliance officer interviewed by moneylaundering.com said that such queries from correspondent banks often trigger a thorough due-diligence review by the institution that receives them, and may result in the filing of a suspicious activity report or a recommendation to exit the relationship with the client in question.

“It’s not uncommon for correspondent banks to request such information,” the compliance officer said on condition of anonymity. “But when a name keeps popping up, it should be a red flag.”

A significant portion of Carbo One’s payments involved real firms and “actual business activity,” Postimees reported Feb. 28.

Its payments to Carbotrade could have been “legitimate transfers to a holding company for the purpose of a capital injection or financing of operations,” the U.K.-based compliance officer said. “But because they’re going to a Scottish LP and there doesn’t seem to be a clear economic rationale for the transaction, you would expect them to be very closely scrutinized.”

The review

A source familiar with the matter said that Swedbank Estonia questioned its relationship with Carbo One in 2016 as part of a broader internal review of the lender’s portfolio of high-risk, nonresident clients.

According to the source, who asked not to be named, Swedbank decided to offboard Carbo One in response to its use of offshore firms in high-risk jurisdictions, transfers involving Russia and other high-risk nations, and negative media coverage.

In November 2016, Swedbank Estonia counted almost 2,000 nonresident firms as clients and classified more than a quarter of those firms as high risk, according to internal records seen by moneylaundering.com.

According to Companies House, the U.K. database of corporate entities and owners, Carbotrade was formed in 2015 as a Scottish limited partnership, a type of legal entity under no requirement to publish annual financial statements.

The firm lists Kellee Monique France and Jillian Teresia James, two residents of St. Kitts and Nevis, as directors, but claims a three-story Georgian townhouse in Edinburgh, Scotland as its headquarters alongside almost 150,000 other companies. It does not appear to have a website.

At the time of Carbo One’s transfers to Carbotrade’s accounts at ABLV Bank, other leaked records, including the Panama Papers, had already identified the women as directors and shareholders of offshore entities formed in the British Virgin Islands and other jurisdictions known for corporate and bank secrecy.

Swedbank’s consultant claimed in a heavily redacted “update” Friday that the lender’s Baltic branches had closed the last account held by any of the 50 legal-entity clients purportedly involved in suspicious transfers with Danske Bank Estonia by May 2017, nearly two years before SVT reported on the transactions.

The bank separately claimed to have terminated relationships with almost 700 nonresident customers in the Baltics in 2017 and another 200 last year.

According to an internal audit cited by SVT on Tuesday, Swedbank Estonia processed €135 billion in gross transactions for “high-risk” nonresident clients from 2008 to 2018. The audit, compiled on Swedbank’s behalf by a former Norwegian prosecutor, found that “major breaches of anti-money laundering obligations had been identified,” SVT reported.

By comparison, Danske Bank Estonia, now the subject of criminal investigations in Denmark, Estonia and the United States, handled €200 billion of transactions from 2007 to 2015. Estonia ordered Danske Bank to close shop last month after concluding that the lender “seriously damaged” the Baltic country by engaging in “profound and material” violations of anti-money laundering requirements.

ABLV, where Carbotrade received the payments from Carbo One, collapsed in February 2018 after American officials disclosed their intention to blacklist it as a conduit for illicit finance for serving organized crime syndicates, corrupt officials and companies tied to North Korea.

Browder, the U.K. financier, has now filed criminal complaints against Danske Bank, Swedbank, Raiffeisen Bank and Nordea in Denmark, Sweden, Austria, and Finland respectively, as well as other countries, alleging that those lenders handled varying portions of the estimated $230 million derived from a tax fraud against his company in Russia more than 10 years ago.

Banking oligarchs

On Feb. 27, Postimees, the Estonian daily, reported that hundreds of millions of euros moved through Carbo One accounts at Swedbank to accounts linked to Iskandar Makhmudov, an Uzbek-born Russian oligarch who has no apparent formal connection to the coal trading firm.

Some of the transactions involved other accounts at Swedbank, many involved transfers of funds to accounts at Danske Bank, Postimees reported.

Carbo One rejected allegations of impropriety.

In an April 2016 memo to Swedbank Estonia’s board, a compliance officer for the lender identified 28 legal-entity clients that had incorporated in the British Virgin Islands with the assistance of Mossack Fonseca, the global law firm at the center of the Panama Papers scandal.

The beneficial owners of those entities hailed from Belarus, Russia and Ukraine, and included Makhmudov and Andrei Bokarev, a Russian rail magnate. Swedbank classified both men as high-risk, politically exposed persons.

“From the point of view of a western bank, the ownership of entities that are based in offshore jurisdictions would be a red flag, clearly,” said George Voloshin, head of global consultancy Aperio Intelligence’s branch in Paris.

Prosecutors and civil complainants have accused Makhmudov of corruption and building his business empire with the help of Russian crime syndicates. Spanish authorities investigated him on suspicion of money laundering but in 2011 passed the case to Russia, where it was dropped.

Bokarev, who runs Transmashholding, Russia’s largest producer of rolling stock for railways and subway systems, is the subject of similar allegations from advocacy groups, including the EU-Russia Civil Society Forum and OpenDemocracy Russia. Makhmudov owns shares in Transmashholding through other companies, according to the firm’s website.

In the April 2016 memo seen by moneylaundering.com, an employee reiterated that Swedbank only agreed to serve offshore companies after it had been made “evident and clear” that their owners “do not have any shady business.”

“These customers have declared that the main reason to use offshore companies is to protect their assets and business from potential raids by criminals and/or hostile and corrupt state authorities because the rule of law in these countries is rather weak,” the employee wrote in the memo.

Swedbank declined to answer emailed questions from moneylaundering.com, but a spokesperson described preventing money laundering as “one of the toughest challenges faced by our industry today” and “one of our top priorities.”

Carbo One also declined to answer a list of questions, but rejected allegations made by other news outlets that its accounts had been used to launder money.

“Carbo One is a company with an international name and impeccable business reputation,” the firm wrote in an emailed statement. “We comply with the law and will defend our business reputation by all available legal means.”

Contact Koos Couvée at kcouvee@acams.org

Topics : Anti-money laundering , International Banking , Know Your Customer
Source: Estonia , European Union
Document Date: March 27, 2019