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@ 2020-04-02 17:10:00

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minority shareholder in HRC-5 was controlled by three Latvian PEPs; who were those PEPs?
"Swedbank Estonia and Swedbank Latvia actively pursued these high risk customers as a business strategy.

[..] Swedbank Latvia customers used an online banking platform to initiate 522 outgoing Subject Transactions, totaling approximately $4.43 million, of which 507 such outgoing Subject Transactions between 30 December 2014 and 30 December 2016, amounting to approximately $4.26 million, involved three shipping customers domiciled in offshore jurisdictions that had accounts at Swedbank Latvia but whose owner appeared to operate these companies from Crimea. The remaining 15 outgoing Subject Transactions from accounts at Swedbank Latvia appeared to involve non-sanctioned customers who were temporarily located in Crimea or Iran or payments by non-sanctioned customers to counterparties in Crimea. We also identified one incoming Subject Transaction for $5,970 to an individual customer of Swedbank Latvia who had a residency address in Crimea.

Apparent OFAC-Sanctioned Customers of Swedbank Latvia:

One non-SDN company wholly-owned by an SDN under the Russia/Ukraine-related sanctions

Five individuals who appeared to reside in Crimea during a relevant time period

One individual who appeared to reside in Iran during a relevant time period

Two individuals who appeared to reside in Syria during a relevant time period

This report further explained that the majority of the beneficial owners for the corporate non-resident customers in Estonia and Latvia were of Russian and Commonwealth of Independent States (“CIS”) origin; these Russian and CIS customers favored Hansabank since the 1990s “[d]ue to geographical proximity, political situation and volatile economic situation in Russia[,] and high standards of banking services in [the] Baltics. According to this report, these Russian and CIS companies associated with a proxy network, and payments between 2010 and 2013 to offshore companies allegedly linked to payments to associates of a former Ukrainian President.

A manager within Swedbank Latvia’s GSI unit reported that Swedbank Latvia maintained relationships with these customers despite inadequate KYC information. Swedbank Latvia also attributed the growth of its HRNR business to a Latvian “residence permit program” that, until 2016, gave foreigners temporary residency permits if they invested in Latvian real estate.

Contemporaneous exchanges between an AML officer and employees from Swedbank Latvia’s Non-Resident Banking Unit—at that time, a unit comprised of about ten full-time employees (including RMs) housed within Private Banking—reflect an effort to build a “short list” of existing customers to present for authorization under the Decree’s exception provision. The latest identified version of the “short list,” dated 25 September 2007, identified 36 customers for review. The Investigation has identified that of these 36 customers, five were closed in 2007, an additional three were closed in 2008 and Swedbank Latvia continued its relationships with the remaining 28 customers until their accounts were closed by the end of 2016.

During 2011 through 2012, Swedbank Latvia developed relationships with high risk customer groups linked to offshore jurisdictions. In March 2011, Swedbank Latvia on-boarded a Latvian joint venture (High Risk Customer 5 or “HRC-5”). Swedbank Latvia assessed that the minority shareholder in HRC-5 was controlled by three Latvian PEPs; however, its ownership structure was obscured because the PEPs’ family members, “or other related persons,” were listed as beneficial owners.

A Credit Memo prepared by Swedbank Latvia two months after HRC-5’s on-boarding acknowledged that the company’s operations included “high political risk” and that the “Russian business specifics . . . cannot be fully assessed,” however, the memorandum nevertheless recommended that Swedbank approve a €30 million investment loan for a local development project because it was “economically reasoned[,] and planned cash flow from realized project suggests sufficient debt servicing ability.” The Credit Memo acknowledged that the 49% shareholder in HRC-5 was “[i]ndirectly . . . related to local political heavy weights.” The memorandum also noted that another Russian oligarch was the UBO of the Cypriot company that was the majority shareholder of HRC-5. The Credit Memo mentioned that Swedbank Latvia was “one of [the] main cash management banks” for the group of companies associated with the 49% shareholder, and that growing the business relationship would position Swedbank Latvia to become “the home bank (including the financing)” for this customer group, as well as potentially attracting more business from HRC-5’s 51% shareholder.

In November 2012, as a result of business contacts made in connection with on-boarding HRC-5, Swedbank Latvia on-boarded High Risk Customer 6 (“HRC-6”), a Latvian company that was in the same corporate group as HRC-5.

HRC-6’s UBO was a Russian oligarch and numerous offshore entities existed within the larger corporate group. Other entities affiliated with HRC-6 were also indirectly linked to: an OFAC-sanctioned Russian oligarch connected to Russian government officials and to several money laundering scandals; various state-owned Russian enterprises, including some sanctioned by OFAC; and, through payment activity, to a company connected to a former Ukrainian President and to various public criminal prosecutions.

When a colleague asked whether CPB-2’s expiring foreign exchange limits would be extended or terminated, the RM [Relationship Manager] replied that they believed the limits would be extended “[i]ndefinitely it seems,” and observed: “I am no longer interested . . . Swedbank has decided that Money Laundering is ok and the rest of us will just have to live with that.”

On 21 March 2016, the CCO emailed the memorandum titled “Management of AML Risks in BA Baltic Banking” to several managers in LC&I, explaining: “We have done an overall gap analysis of [Baltic Banking] with respect to AML and determined that they need to initiate an AML program equivalent to what we have in Sweden. . .[t]he report covers the entire business area [of] BA [Baltic Banking], not just Latvia, but of the three countries, the situation in Latvia is the worst from an AML perspective.”

The Group Compliance employee conducted additional research and developed a chart demonstrating risk-relevant links for HRC-6, including that the Chairman of the ultimate Russian parent entity of HRC-6 was a PEP.

On 2 March 2017, representatives of the CB contacted Swedbank to request a meeting regarding changes to that bank’s“handling of non-financial risk,” and its “future strategy for the Baltics.”At the meeting on 16 March 2017, the CB informed Swedbank that it would be discontinuing USD clearing services for Swedbank Estonia and Swedbank Latvia.Following the meeting, a Swedbank employee noted that the decision was not specific to Swedbank or its Estonian or Latvian operations, writing in an email that “it’s not about us, it’s about them.”On 20 March 2017, Swedbank’s CEO reported to the GEC on the CB’s exit from those countries. According to the minutes from that meeting, the CEO stated that the CB “has announced they consider Estonia and Latvia [to be] high risk countries” and would soon exit those jurisdictions entirely.

By 15 June 2017, all of HRC-6’s accounts at Swedbank Latvia were closed. On that date, a Group Compliance employee examined some of HRC-6’s transactions and recommended conducting further checks going back several years on transactions involving certain counterparties going back several years. In particular, one HRC-6 counterparty had previously been connected to a UK company linked to proxy networks and a former Ukrainian politician.

In August 2017, the Group Compliance employee followed up with the senior Swedbank Latvia Compliance manager, asking if the manager had done anything else to reach a conclusion on whether or not to report the transactions to the FIU. Another Swedbank Latvia Compliance employee responded that, because HRC-6 had been off-boarded and HRC-6’s RM had previously left the Bank, it would be difficult to obtain documents concerning HRC-6’s historical transactions.

A member of the AML task force prepared a draft memorandum that summarized this review and identified HRC-5 as among Swedbank Latvia’s customers that “pose the highest legal and reputational risk.” According to the draft memorandum, its recipients were the Swedbank CCO and two other senior executives. The Investigation has not found any evidence that this draft memorandum was ever finalized, or circulated to the Swedbank Board or its Committees.

In August 2015, a KYC analyst at LC&I noted that HRC-4 and its subsidiaries in Estonia and Latvia (which were also customers of Swedbank Estonia and Swedbank Latvia) had connections to the Russian government and indirect links to high-level Russian officials. In light of this, the LC&I analyst applied a risk rating of “unacceptable,” and recommended that Swedbank end its relationship with these customers.

Swedbank Latvia also found that 98 unique customers (78 active) performed 433 transactions with entities or individuals identified by the Baltic Banking AFCIS as related to the Azerbaijani Laundromat scheme amounting to €4.2 million, $6.8 million, £29,000, and ₽3.1 million.

In addition, one customer from Swedbank Estonia (related to the HRC-1 Group) and two from Swedbank Latvia had transacted with companies connected to the alleged perpetrator of the Magnitsky fraud—an individual also reportedly linked to the Syrian chemical weapons program.

[A]t least 176 customers transacted with 79 CPB-1 counterparties associated with a well-known Latvian proxy network with alleged criminal ties. The turnover of these transactions amounted to €45 million and $72 million.

The resubmission analysis determined that a non-sanctioned corporate customer of Swedbank Latvia resubmitted one such payment, for $1,260.83, through an online banking platform from an IP address in Estonia, that the Transaction Review classified as a Subject Transaction because (as noted above) it involved the wages of a crew member who appeared to be located in Crimea. Swedbank Latvia’s customer removed a reference to “Sevastopol” in the original payment message before resubmitting the wage payment through an online banking platform.

Apart from the 507 above-referenced payments, another five of the 522 outgoing Subject Transactions, totaling approximately $137,000, were sent by four individual customers of Swedbank Latvia from IP addresses in Crimea or Iran. These customers had residency addresses in Latvia, Russia and Uzbekistan, respectively.

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