The lion's share of the $1.6 billion of Russian money laundered through Estonian banks came straight from a suspicious Moldovan bank, information uncovered by an international group of investigative journalists reveals.
“If your information regarding direct transfers from Moldova is correct, it really is bad news,” an official with knowledge of the scandalous case admitted in a private conversation yesterday. The person had until then been under the impression money laundering using the Estonian branch of reputable Danske Bank had taken place hidden behind transactions in Latvia.
The truth is more painful. A detailed overview of transfers at Postimees' disposal suggests something entirely different. It turns out that three-quarters of the money laundered through Estonian banks – $1.2 billion – came directly from a former bank in Moldova, the now defunct Moldindconbank. While sums differed greatly, transfers were made to seven Estonian banks.
The remaining $400 million reached Estonia through Latvia; however, it only made up a quarter of the dirty Russian money that traveled through Estonia. One of the initiators of the fight against money laundering, former head of the police's money laundering information bureau Aivar Paul said yesterday that while he is up to speed on the matter, he is surprised by the level of detail of the information journalists possess.
The direct link between Moldindconbank and transfers to Estonian banks is bad news because Moldova is in the risk group when it comes to international money laundering. A surge of transfers from the country should have made bankers watchful.
More so as the money was transferred from the accounts of offshore companies to the accounts of other offshore companies of the owners and intentions of which the Estonian branch of Danske did not have a good overview. Head of the financial supervision authority Kilvar Kessler says that a large number of non-resident clients is always a sign of danger when it comes to money laundering. Offshore companies count as non-residents.
Today, we are publishing a list of companies that transferred money to Estonian banks as well as those whose accounts it landed on. International databases have precious little information on the companies as it is the aim of money launderers to hide their identity.
The tracks of companies that made transfers to Estonian banks disappear in offshore paradises: British Virgin Islands, Panama, Marshall Islands, Niue etc. These companies were often created just before the money laundering episode began and abandoned once it ended.
It is the same story for companies tied to the case that had accounts in Estonian banks. In several cases, they have been run by people from Ukraine and Russia who each own dozens of businesses. They, too, are straw men.
Investigative work done by Ukrainian and Moldovan journalists reveals that the “Laundromat” scheme made use of random straw men who were promised $100 and a job. While they were paid, the people used never heard anything about jobs again.
Only one of the companies on the receiving end of transfers has had a person with a direct link to Estonia on its board. It is Cypriot Georgios Bountakidis whose company CS Proxy Solutions Ltd. has owned the most prominent recipient of the “Laundromat” transfers – Progate Solutions LP.
Bountakidis is also on the board of Estonian company PRX Services OÜ. The company belongs to Consulting Group Corporation registered in Belize. When Postimees tried to get Bountakidis on the phone using the company's contact information, we were told it is impossible to reach the Cypriot.
The Estonian branch of Danske Bank allowed more than a billion dollars of criminal money from Russia to flow through its accounts in what was nearly a year. The sum is too great to go unnoticed by the bank. This is at the core of the financial authority's criticism in hindsight. Anti-money laundering rules obligate banks to report suspicious transfers to the police. The latter have the right to keep assets frozen for a period of 90 days.
Danske failed in this obligation, which cost Estonian CEO Aivar Rehe his job. That much was confirmed by the bank's Danish headquarters yesterday. The sheer extent of Danske's blunder in Estonia is reflected in the financial watchdog's allegedly 300-page report on the incident.
The report was put to the bank's executives in July of 2015. Because the report constitutes an in-house matter of the company, Postimees has no access. However, the watchdog's criticism caused the bank to thoroughly change its work organization. Danske's headquarters received a similar telling off by the local financial watchdog in March of 2016.
The $1.6 billion dollars laundered through accounts in Estonian banks is an extraordinary sum even in global context. Yesterday, the United Kingdom pondered how its banking sector, sums handled by which exceed those in Estonia by hundreds of times, could have missed $800 million that was laundered using the country's banks, while the sum is a mere half of what was moved through Estonia.
While this might sound cynical, laundering of Russian money through Latvian banks ceased being news a long time ago. The Latvian banking system is largely oriented toward offering services to foreign clients whose background might not be clear. Even though the latter is required by banking regulations.
It is said that non-residents make up more than half of all clients of Latvian banks. The policy of major Scandinavian banks active in Latvia is to keep their relative importance below 20 percent.
The golden age of non-resident clients in Estonian banks was the middle of the 2000s. However, things were still sweet three years ago after the start of the busiest period of the “Laundromat” scheme. Statistics from the financial supervision authority shows that nearly 20 percent of the clients of Estonian banks were non-residents in 2014.
Banks set about lowering that importance once the money laundering incident came to light, following pressure from the financial watchdog.
The weight of non-residents had dropped to 16.2 percent by late 2015 and 12.7 percent by the end of 2016.
The great pace at which this has taken place is understandable. Banks are looking at tougher punishments for violation of regulations in Estonia. Current penalties are laughable – it is virtually impossible to effectively discipline banks at present. A bank can be fined up to €32,000 for violation of anti-money laundering rules, which in that sector constitutes pocket change. Fines for similar violations stretch into hundreds of millions in Germany and the UK.
Head of the financial supervision authority Kilvar Kessler said that the agency is not a penal institution but simply a watchdog of financial mediators the task of which is to point out deviations. “At worst, we can revoke a financial operator's license,” Kessler said.
He added that the authority has been saying punishments for money laundering are too lenient in Estonia since 2004. “Right now the biggest fine is €32,000. Amendments currently in proceedings aim to hike that to €400,000,” Kessler said.
June will mark the entry into force of a European anti-money laundering directive that can punish financial institutions with a fine of €5 million or 10 percent of annual turnover. That is a dozen times higher than what Estonia is planning in its amendment.