Clients of Estonian banks laundered money for Azerbaijan, Russia and Moldova

Full version of the report by Novaya Gazeta 

On 25 May the Financial Intelligence Service of the Estonian police released a report revealing that over 13 billion Euros, mostly from Russia, Moldova and Azerbaijan were laundered through the country’s banks from 2011 to 2016. Most of the transactions went through the accounts of non-residents.

A similar scandal took place in February in neighboring Latvia. The US Financial Intelligence Agency accused one of the largest banks, ABLV, of corruption, money laundering and ties with organizations financing the North Korean missile program.

The Moldovan laundromat

According to a report published last Friday, Estonia has in recent years been actively used for money laundering. Most of the schemes the banks of the country were involved in have previously been tried in neighboring Latvia. For instance, about 1.6 billion dollars was spent through Estonia on the Russian-Moldovan ‘Laundromat’ scheme from 2011 to 2014.

This is how money was withdrawn from Russia: two foreign companies entered into a fictitious loan agreement between guarantors of a Russian company and a Moldovan one; when the time came to pay the fictitious debts, the Moldovan company applied to the court, who then legally obliged the Russian company to fulfill the claims and transfer money to the Moldovan bank. From Moldova, they were transferred to the accounts of foreign companies in European banks.

In addition, Estonian banks were implicated in the Moldovan ‘theft of the century’: the withdrawal of one billion dollars from the accounts of the three largest banks in Moldova.

The Azerbaijani ‘Laundromat’

From 2012 to 2014, representatives of the ruling elite of Azerbaijan transferred funds to the accounts of shell companies in foreign banks. Then this money was used for various purposes, including bribes to European officials in exchange for lobbying the interests of Baku at international platforms where mass arrests of Azerbaijani human rights activists and journalists caused sharp criticism. The bulk of the funds (3.9 billion dollars total) then passed through the Estonian branch of the Danish Danske Bank. In 2017, the bank was fined 1.7 million Euros for non-compliance with the Danish law on combating money-laundering.

In addition, the report reveals numerous questionable transactions of Russian origin totaling 7.3 billion Euros passing through Estonia from 2012 onwards.

New legislature

In Estonia, great expectations are placed on the new law on combating money laundering and the financing of terrorism, which came into force at the end of November 2017.

In accordance with the law, the fine for financial violations for individuals has gone up from 32 to 400 thousand Euros. If money laundering is proven, the bank can be fined 5 million euros, or 10 per cent of its annual turnover.

In addition, the law obliges banks to study their customers better: in particular, to check not only the legitimacy of their origin, but also the validity of transactions.

The Money Laundering Data Bureau (a special police unit that tracks suspicious transactions) insists on the need to reform the legislation further to facilitate the fight against money laundering.

‘Foreigners not welcome’

Unlike Latvia, where up to a third of all deposits were from non-residents prior to the ABLV scandal, the percentage of non-residents in Estonia is, according to the latest data, 11.7 per cent of all banking customers. However, it is the servicing of non-residents that most often causes problems.

Although the regulator does not limit banks to work with non-residents, they are increasingly reluctant to open accounts for foreign clients. This is understandable: firstly, in the light of the new fines, working with potentially riskier clients, whose legitimacy of transactions is more difficult to trace, may be simply unprofitable. Secondly, in Estonia they follow the example of Latvia, where the problems of a bank that served non-residents had affected the financial system of the whole country.

“This is the position of banks,” says Estonian financial analyst Dmitry Kuravkin. “They often decide to refuse services to non-residents to reduce the costs of personnel engaged in combating money laundering, and not to risk heavy fines.”