Jonas Karlsson: Interesting decisions for Finansinspektionen in relation to Swedbank sanction case

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Tomorrow, on the 19th of March, Finansinspektionen (the Swedish FSA) is expected to release its decision on whether Swedbank shall be sanctioned for AML shortcomings and, if so, what sanction is deemed proportionate and appropriate.

The decision presents Finansinspektionen with several challenges, not least in relation to public expectations built up through the media coverage of the issue.

One such challenge, and an issue that in my mind has gotten to little attention, is the fact that the preventive AML/CFT regulations applicable in the sanctions case don’t implore a zero tolerance against money laundering through Banks and other regulated entities. On the contrary, the regulatory expectations thus far (at least in Sweden) have not extended to real time monitoring of transactions, meaning that Banks have only been required to detect suspicious money laundering after the fact and take necessary actions at such times. Therefore, it is only transactions that have occurred after the point where Banks “should” have noticed the irregularities and taken mitigating action that are relevant when deciding on sanctions. This means that the number or size of suspected transactions is not relevant in itself. To me, this point has been lost in the media coverage so far, and the reporting has not really given the public a clear view on whether Swedbank should have taken notice and stopped the transactions when they occurred.

Another challenging issue is the extent to which Banks (at the time of the transactions in question, i.e. mostly between 2007 and 2015) were expected to know their customers and ultimate beneficial owners, including their reputation according to media reports or known ties to corrupt regimes. When reporting on the issue, the media have done a very thorough and at times analytically advanced analysis of corporate structures and beneficial owners with ties to high risk countries, corrupt governments etc. In the public discussions, it has been taken for granted that Swedbank (and other Swedish banks) should have done similar analysis at the time.

However, the requirements and regulatory expectations for Banks during the relevant years were far from clear. The importance of investigating and documenting the beneficial owners of corporate customers was not evident to Swedish banks until the FSA sanctioned Nordea in 2015 for failures relating to beneficial ownership (although it had been a regulatory requirement since 2009). Furthermore, it was not until 2015 when it became mandatory, through a legislative amendment, to determine whether the beneficial owner of a company was a politically exposed person or a close associate of such persons. This means that up until 2015, it is difficult to argue that Swedbank was legally obliged to investigate and understand if beneficial owners of companies had ties to corrupt regimes. Furthermore, it is still unclear if, when and to what extent Swedish Banks are required to (and able to for data protection reasons) use adverse media screening to determine the reputation of a customer or beneficial owner of a company.

Interestingly, the newly proposed amendments on risk factor guidelines from EBA, Esma and Eiopa (still under consultation), include proposals to clarify expectations on both real time monitoring of transactions as well as measures to determine the reputation of customers and beneficial owners. This gives an indication that regulatory expectations on these issues are unclear in most of Europe.

As follows from the above, the medias’ and therefore the public’s view on the regulatory landscape that Swedbank operated under during the critical years is to me quite far from the actual situation. At the same time, I sense an expectation from the media and public that Finansinspektionen will hand down a sizeable fine to state an example in the Swedbank case. In short, it will be very interesting to see how Finansinspektionen handles these expectations. We at FCG will of course analyze the decision thoroughly, so check back in a few days to find out how Finansinspektionen handled the delicate issues at hand.