Analysis: Nordic trust tarnished by money laundering scandal

Danske Andelskassers Bank A/S

03/04/2019 13:05

* Denmark and Sweden hit by money laundering scandal  
    * Denmark tightens rules ahead of elections
    * Sweden considers break with liberal, trusting stance

    By Johan Ahlander, Esha Vaish and John O'Donnell
    STOCKHOLM/FRANKFURT, April 3 (Reuters) - Money laundering
allegations involving Sweden and Denmark have shattered faith in
the open Nordic business culture, prompting demands for tighter
controls on the banks held responsible.
    Ranked among the least corrupt countries by anti-graft
campaign group Transparency International, Sweden and Denmark
have been rocked by investigations into Danske Bank  DANSKE.CO 
and Swedbank  SWEDa.ST , knocking billions off their value.
    Politicians, regulators and investors now want closer
policing and more stringent penalties, unwinding a system where
the state largely trusted banks to keep themselves in check.
    "Openness is key in our society. This is a system built on
trust and that trust has decreased quite substantially," Swedish
financial markets minister Per Bolund told Reuters.
    "It's not enough to fire one person," Bolund said of
Swedbank's dismissal last week of Birgitte Bonnesen as chief
executive, adding that an overhaul of its controls was needed,
in a clear signal of future government action. 
    "That has to go all the way from the top to the bottom."
    Sweden has yet to announce substantial reforms following the
emergence of money laundering allegations against Swedbank which
originated in Europe's Baltic states of Latvia and Estonia.
    Latvia, a former Soviet state with a large Russian-speaking
minority, had modelled itself as a financial bridge for Russians
moving money to Europe. Similar profitable activity took place
in Estonia, but has now become a reputational liability. 
    Danske Bank has been ejected from Estonia after admitting
200 billion euros ($225 billion) of suspicious money movements
flowed through its branch there between 2007 and 2015. And it is
also pulling out of neighbouring Baltic states.
    Danish academic Gert Svendsen, author of 'Trust', says the
scandals risk undermining a central tenet of Nordic culture. 
    "People become happier if you can do things based on trust.
That explains why Swedes and Danes are quite happy," he said.
        
    WIDER WAVES 
    The money laundering scandals, which have been growing week
by week, are shaking politics as well as the boardroom.
    In Denmark, which was first to be hit by Danske Bank, the
scandal bolstered support for a left-wing opposition bloc that
some polls suggest could oust the right-wing coalition in
elections expected by June.
    In response, the Danish government plans to create what one
minister dubbed a "more aggressive financial regulator",
doubling the officials fighting money laundering to 24, allowing
it to fine banks for breaches or insert an observer on a board.
    "In the case of Danske Bank, we've seen how authorities send
letters back and forth for seven or eight years before it was
stopped," Danish business minister Rasmus Jarlov said,
announcing the shift towards U.S.-style controls.
    Sweden may follow suit, with prime minister Stefan Lofven
last week saying he could "strengthen legislation" following
criticism that regulators have been too lax.
    Last year the management of Sweden's financial watchdog 
went against its own experts' recommendations that it should
sanction several of the major bank for insufficient
money-laundering controls, opting instead to send warning
letters.
    The FSA also had to tighten rules requiring banks to set
aside more funds for home loan losses after the central bank
said it was being too generous.
    And Joacim Olsson, head of the Swedish Shareholders'
Association has criticised it for being tough on smaller banks
but softer on large ones. 
    "We in Sweden as a whole, and other regulators, have done
too little. That is the conclusion from Danske Bank," Swedish
FSA head Erik Thedeen told reporters last month. 
    Louise Brown of Transparency International said Sweden
needed to reform, adding: "We need to upgrade both regulatory
execution and corporate governance".
    
    REGULATORY RELATIONS
    The Danske Bank and Swedbank scandals have also raised
questions about often close relationships between regulators and
the banks the oversee.
    Former Danish FSA chairman Henrik Ramlau-Hansen, who had
served as finance chief at Danske Bank for five years before
joining the FSA in 2016, stepped down in May last year.
    Denmark now prohibits the chairman and deputy chairman to
have worked at financial institutions for five years prior.
    Sweden's FSA boss Thedeen had in previous roles worked with
Swedbank's board member Peter Norman, although there is no
suggestion of wrongdoing by either. 
    The FSA has said that Thedeen earlier recused himself from
the Swedbank investigation due to the conflict of interest, and
that money laundering supervision, including the probe, were
being handled by his deputy.
    For some, such closeness is inevitable. "Sweden is quite a
small country," said Torbjorn Hallo, an economist at the Swedish
Trade Union Confederation. "Most people know each other."
    And some investors say it is time for change. 
    "We have had some concerns about the Nordic model ... for
some time. Often boards lack industry experience, and are
instead pulled from a local pool," the head of corporate
governance at one London fund manager said, adding that the
management often goes unchallenged as a result.
($1 = 0.8892 euros)

 (Additional reporting by Teis Jensen in Copenhagen and Simon
Jessop in London; Writing by John O'Donnell; Editing by
Alexander Smith)
 ((john.odonnell@thomsonreuters.com; +49 69 7565 1366; Reuters
Messaging: john.odonnell.thomsonreuters.com@reuters.net))