Swedbank admits money laundering flaws, cooperating with US authorities

Swedbank sign is seen on the building of the bank's Lithuanian headquarters in Vilnius, Lithuania, in this file photo. — Reuters

STOCKHOLM — Swedbank admitted to failings in combating money laundering and said on Thursday it was facing investigations in the United States, adding to pressure over its Baltic business.

Sweden's oldest bank, whose CEO and chairman have both left as money laundering allegations snowballed, is already facing a joint probe by financial watchdogs in Sweden and the Baltics and another by Sweden's economic crimes body.

Swedbank has found itself caught up in a regional money laundering scandal originating with Danske Bank, which said last year that 200 billion euros ($223 billion) of suspicious funds moved through its Estonia branch between 2007 and 2015.

Swedish broadcaster SVT has reported that Swedbank processed gross transactions worth up to 20 billion euros a year from high-risk, non-resident clients, mostly Russian, through its Estonian branch from 2010 to 2016.

Since allegations against it first surfaced in February, the lender had repeatedly said it had faith in its anti-money laundering procedures and that suspicious transactions that were identified were reported to authorities.

However, acting CEO Anders Karlsson, who took charge at the end of March, admitted on Thursday that previous internal investigations have indicated shortcomings.

He cited reports of certain customers identified in previous money-laundering cases not being flagged, weaknesses in know-your-customer procedures and a lack of reports to the authorities on some suspicious transactions.

"For Swedbank to deserve the trust of customers, authorities, investors, employees and other stakeholders, continuous improvement in our anti-money laundering work is required," Karlsson told reporters.

Alecta, the lender's third biggest investor which has criticized its handling of the crisis, praised Thursday's disclosures, which its CEO Magnus Billing said answered a call for greater transparency made by investors.

"Swedbank is being transparent, cooperating with the authorities and working to restore trust, which is necessary and positive," he told Reuters.

Swedbank's shares fell 3.4 percent to 149.25 Swedish crowns by 0920 GMT, as the market also looked at worse-than-expected costs performance and lower-than-expected asset quality and common equity tier 1 ratio. The shares have lost around a quarter of their value so far this year.

The company reported first-quarter headline costs of 4.52 billion Swedish crowns, a 2 percent miss versus consensus, due to expenses incurred to deal with the money laundering allegations and the severance paid to its CEO Birgitte Bonnesen.

It forecast additional spending of 1 billion for 2019, about 650 million of which was earmarked for expenses and investment to strengthen anti-money laundering systems, Karlsson said.

The money would be used hire staff to assist with the various investigations, beef up the compliance unit and set up a new unit to combat all areas of financial crime, he said.

Swedbank announced an in-depth internal probe was under way to review its current and historic customer relationships through its Baltic units, its response to previous internal reviews and its anti-money laundering compliance processes.

"The internal investigation has two prime goals," Karlsson told analysts. "One is for us to understand what has happened in the past and if there is anything we can learn from that and the second is to manage the different authorities' questions in the best possible way."

Involvement by U.S. authorities, while expected given the allegations, has been a key concern among investors as sanctions against the bank could dwarf those of local watchdogs and even put Swedbank's ability to transact in the U.S. dollar at risk.

The U.S. authorities had roughly the same questions as the Swedish and Baltic regulators, mainly concerning customers and transactions, Karlsson said. — Reuters