Money laundering is the concealment of the origins of illegally obtained money, typically by means of transfers involving foreign bank or legitimate businesses. Anyone who makes money from illegal activities (such as drug trafficking, illegal gambling, organized crime, extortion, or even insider trading) runs a risk when they spend that money or deposit it into a bank because this can raise the suspicion of law enforcement and other government agencies. How could someone who told the IRS that they only earned $30,000 a year have enough money to afford two fancy new cars? To avoid raising those suspicions, someone with money from illegal sources “washes” the money so that it appears to be earned from a legitimate source and can be used without raising suspicion.
Banks and financial institutions play an important role in helping law enforcement prevent illegal money laundering, and have instituted Anti-Money Laundering (“AML”) compliance teams and policies. If banks do not take appropriate steps to prevent money laundering or fail to comply with AML laws or internal policies, they can receive hefty fines. For example, HSBC was fined $1.9 billion in 2012 for failure to prevent laundering by Latin American drug cartels. JP Morgan was fined $2.6 billion in 2014 for failing to see the red flags in Bernie Madoff’s Ponzi scheme. Citibank was fined $200 million in 2015 for failing to prevent laundering of money from Mexican drug cartels.
Money laundering can also damage investors in the company that let the laundering occur. Take for example the recent news about Swedbank AB, Sweden’s oldest bank, and which is caught up in a 200 billion euro, or $223 billion, money laundering scheme run through Estonian branches of Danske Bank. On February 20, 2019, Swedish broadcaster SVT reported that at least 40 billion crowns (£3.3 billion) had been transferred between accounts at Swedbank’s Estonia branches and Danske Bank between 2007 and 2015. SVT also reported that these transactions, by 50 clients, should have raised red flags as they were companies with no visible operations, had unknown beneficial owners, or were represented by so-called “goalkeepers” – people who only provide a front for an organization. SVT later reported that between 2010 and 2016, Swedbank’s Estonia branches processed gross transitions worth up to 20 billion euros a year from high-risk, non-resident, mostly Russian clients. While these transactions were going on, Swedbank had mandatory AML training for all employees, and had even received a warning from the Bank of Lithuania concerning deficiencies in its AML processes. Swedbank also had an obligation to report suspicions of money laundering to the Financial Intelligence Unit of the Swedish Police.
Subsequently, on March 22, 2019, it was reported that Swedbank’s anti-money laundering compliance head had resigned. On March 27, 2019, the Swedish Economic Crime Authority raided Swedbank’s headquarters. On March 28, 2019, Swedbank’s President and CEO was fired. On April 25, 2019, Swedbank admitted to “shortcomings in [its] anti-money laundering compliance” and announced it was cooperating with investigating authorities, including those in Sweden and the U.S. On June 18, 2019, Swedbank suspended the CEO and CFO of its Estonian business.
Swedbank stock trades on the Swedish stock exchange, but it also has American Depository Receipts (ADRs) that trade over-the-counter in the U.S. under the symbols SWDBY and SWDBF. On February 19, 2019, SWDBY closed at $22.66 per share. On June 18, 2019, the stock closed at $14.58 per share, a decline of $8.08, or almost 36%, since the money laundering scandal was revealed. Swedbank shares that trade on the Stockholm exchange (SWED.A-SE) also declined 34%, or 71.95 Swedish Krona, during that same period. Swedbank shares that trade on exchanges in Frankfurt (FRYA-FF) and Dusseldorf (FRYA-DU) also suffered similar declines.
Even though Swedbank is a Swedish company, the U.S. securities laws protect investors that purchased SWDBY and SWDBF. Investors who purchased Swedbank securities and that have questions concerning their rights should speak with their lawyer or financial advisor.