Swedbank AS in Latvia, a subsidiary of Sweden’s oldest bank Swedbank AB, will pay $3,430,900 to the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) to settle its potential Crimea sanctions.

Allegedly, throughout 2015 and 2016, OFAC found 386 violations of its Crimea sanctions, where a Swedbank Latvia customer used the e-banking services from an IP address in Crimea to make transactions to persons in Crimea through US correspondent banks totalling up to $3,312,120.

“This case illustrates the importance of undertaking reasonable efforts to investigate red flags. Ignoring or failing to heed such warnings can cause apparent violations to multiply quickly.”

OFAC

“This case demonstrates the importance of implementing and maintaining effective, risk-based sanctions compliance controls, especially for sophisticated financial institutions operating in proximity to high-risk regions,” said OFAC. “This case illustrates the importance of undertaking reasonable efforts to investigate red flags. Ignoring or failing to heed such warnings can cause apparent violations to multiply quickly.”

The US Department of Justice, the SEC, and the Department of Financial Services in New York are also looking in to Swedbank’s activities, and have launched separate investigations.

Internal governance and controls

Even if the findings were not voluntarily self-disclosed, OFAC is calling the violations non-egregious. The bank did however self-report the findings to OFAC in 2020. Jens Henriksson, President and CEO of Swedbank, said then that “this shows that the bank’s process for Know Your Customer, transaction monitoring and internal governance and control have had shortcomings. At the same time, it is some relief that it regards a relatively low amount and transactions such as salary payments”.

After the findings, Swedbank AB and Swedbank Latvia have reportedly taken “significant remedial action in response” to the allege violations, by:

• exiting client relationships in relations to the sanction’s violations;
• implementing geofencing that prevents customers from making transactions from IP addresses in comprehensively sanctioned jurisdictions;
• creating an automated system control to screen and identify potential resubmissions of payments after rejection;
• performing enhanced due diligence and screening measures for high-risk customers undertaking payments in US dollars;
• implementing enhanced diligence and transparency protocols for responses to correspondent banks;
• having compliance staff implement the new protocols;
• taking measures to improve its KYC, AML and financial sanctions controls.

“Swedbank takes the historical shortcomings seriously, and has learned from them in the comprehensive work that has been performed to strengthen internal governance and control” said Tomas Hedberg, Head of Special Task Force and Deputy President and CEO, Swedbank.

Money-laundering allegations

Back in 2019, the bank came under scrutiny when the Swedish TV news show Uppdrag Granskning revealed extensive suspected money laundering within Swedbank. Journalists found that at least 40bn SKr ($3.9bn) had been channelled between accounts in Swedbank and Danske Bank in the Baltics. The suspected crimes were linked to a former minister in the Russian government, Mikhail Abyzov.

In 2020, Finansinspektionen, Sweden’s financial supervisory authority, hit Swedbank with a record $400m fine due to ”major deficiencies in its work to combat money laundering in its Baltic operations”. Finansinspektionen said that the findings were serious, and found deficiencies in the bank’s risk assessment of customers, and that the bank did not have a validated model for customer risk classification. The investigation also found deficiencies in how the bank monitored ongoing business relationships.

In March 2022, the bank was served with another suspicion of money-laundering notice at its Estonian branch for events in the period 2014-2016. Later in October, Swedbank’s former CEO Birgitte Bonnesen went on trial for allegedly covering up massive money laundering in the bank’s Baltic branches – allegations which she was all cleared from.