Estonia’s financial watchdog claims ‘unacceptable’ clients remain in banking system

Estonia’s financial watchdog has said that “unacceptable” clients remain in the country’s banking system, despite tougher regulations put in place following the Danske Bank money laundering scandal.

In a statement, the Estonian Financial Supervisory Authority (Finantsinspektsioon; FI) explained that they had carried out extraordinary anti-money laundering inspections at all banks – including the branches of foreign banks – operating in Estonia in late 2018 and early 2019. The FI inspections examined the diligence measures of all 16 banks and their resilience to risks of money laundering and terrorist financing. New rules to combat both were introduced last year after 200 billion euros of suspicious payments were found to have moved through Danske Bank’s Estonian branch.

According to the FI, while the risks to Estonian banking from non-residents have been substantially reduced, and the majority of the banking sector is not at high risk of money laundering, the FI are continuing its work with individual sources of higher risk.

“The banks in Estonia have substantially improved their risk controls in recent years and have especially reduced risks in the very high-risk client segments,” said Andre Nõmm, a member of the FI management board. “We cannot ignore what happened in the past, but the efforts of Finantsinspektsioon over the past five years and the changes in the business strategies of the banks have led to a sharp reduction in the risks of money laundering and terrorist financing in the Estonian financial system, and the resilience of the banks to existing risks has also improved considerably.”

However, he added that “despite the implementation of know-your-customer measures there are clients who are not acceptable for the Estonian financial system.”

Earlier in 2019, the Swedish lender Swedbank was linked to the Danske Bank scandal. Swedbank is the subject of a joint investigation by the Swedish and Baltic financial watchdogs after reports in February said the bank knew about transactions worth up to 20 billion euros a year from high-risk, non-resident clients through its Estonian branch between 2010 and 2016.

“We are sending a single and consistent message to the managers of the banks that Estonia is no place for dodgy banking,” concluded Mr Nõmm.