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ECB revokes licence of one of Austria’s best-known banks

The former Bank Meinl has been dogged by allegations over money laundering.

European regulators moved to shut one of Austria’s best-known financial institutions on Friday, bringing to a close almost a century in banking for the Meinl dynasty. Austria’s financial regulator, the FMA, said that the European Central Bank had decided to terminate a banking licence for Anglo-Austrian Bank, which until a hasty rebranding in June had been Bank Meinl. The decision will take effect immediately, the FMA said, amid ongoing concerns over compliance failures and allegations of money laundering that have dogged the bank in recent months. Bank Meinl is as Viennese as the city’s famous Kaffeehäuser: the Meinl family made their fortune as the great importers of coffee under the Habsburgs, and Meinl blends are still brewed and served on the distinctive silver trays of Vienna’s urban salons. Meinl am Graben, opened in 1950, is Vienna’s best-known luxury food store — a multi-story emporium of tea, coffees, biscuits and chocolates a stone’s throw from St Stephen’s cathedral in the medieval city centre. In a statement posted on its website, the bank said it had already decided to withdraw from the banking business. “Today’s decision by the ECB will not change anything,” the statement read. “Objectively speaking there is no reason to withdraw the licence,” it continued, adding that the bank had almost “completely solved” past problems and that its capital base was solid. “Legal steps are being evaluated,” it said. Anglo Austrian has the option to appeal against the ECB decision.

The bank, owned by Julius Meinl V — an outspoken dealmaker known simply as “the fifth” within the family’s sprawling network of interests — has been run separately from the retail businesses which bear the family’s name since 1998. Originally set up to meet the financial needs of employees in the Meinl food empire in 1923, the bank was an early target of the Nazis after their takeover of Austria in 1938. The Meinls were given sanctuary in Britain, and became a valuable intelligence asset for the British government, through their still strong connections in the European business world. The Meinl’s rapidly rebuilt their business empire after the war. Since Julius Meinl V’s ascension to head the bank in 1983, its fortunes rose swiftly — and fell with equal drama. At its peak, in a boom which Mr Meinl spearheaded in the early 2000s, the bank and its subsidiaries generated hundreds of millions in revenues, with interests and investment projects in operation across central and eastern Europe. The past three years, however, have been more troubled.

Since 2016, Ukrainian authorities and their counterparts in Austria have been investigating the bank for its alleged role in helping to launder tens of millions of euros on behalf of individuals and entities connected with former Ukrainian president Viktor Yanukovich. In an earlier statement, the bank said claims against it were “absurd” and that it was the victim of a politically motivated “media campaign” against it. The bank also became embroiled in Brasil’s giant Odebrecht corruption scandal. In 2017, leaked documents revealed Meinl’s Antigua subsidiary was used by men at the centre of the Odebrecht scheme to process millions in illicit transactions. Meinl said it has “no managerial control or operational insight” of the transactions because it had sold a 51 per cent stake in the entity which bore its name in 2010. This year, Austrian regulators fined Meinl Bank €500,000 for “breaches of due diligence requirements for the prevention of money laundering and terrorist financing.”

A separate action sought to remove influential members of the bank’s board. While it is unclear how Bank Meinl will be able to continue to operate in financial services given the ECB’s decision, Mr Meinl and his bank have proved tenacious in the face of damaging crises in the past. The collapse of a €5bn property fund run by the bank in 2009 led to the arrest of Mr Meinl on suspicion of fraud. He made headlines shortly after by paying a world-record bail bond of €100m — higher even than that set for Bernie Madoff — although he was forced to relinquish his passport. Mr Meinl holds British citizenship, as do others in the family, after the family settled in Britain. The family owns an 800-acre estate near Upton Scudamore in Wiltshire. Mr Meinl told the UK’s Daily Telegraph newspaper at the time of his arrest he was probably “the most hated man in Austria”. The bail was later refunded to Mr Meinl and the allegations against him were dropped. Austrian authorities brought a second case against the financier in 2014, in relation to a €212m dividend the bank paid out to him and other shareholders. Mr Meinl had fraudulently taken the money, they said. The charges were shortly thrown out by a Vienna court.

Source: https://www.ft.com/content/b3ace8be-07c8-11ea-9afa-d9e2401fa7ca

EU’s Tusk taking Brexit request seriously, decision in days

The European Council president said on Tuesday that London’s request for an extension of its deadline for divorce from the EU should be taken seriously, and the bloc’s other members would never take a decision that forces Britain out with no deal.

Donald Tusk told the European Parliament that he was discussing Prime Minister Boris Johnson’s request for a Brexit delay beyond Oct. 31 with the leaders of the other 27 member states and would make a decision “in the coming days”. “I have no doubt that we should treat the British request for an extension in all seriousness,” he told lawmakers in the Strasbourg assembly of the European Union parliament. “A no-deal Brexit will never be our decision,” Tusk said, to a round of applause.

Johnson faces two pivotal Brexit votes in parliament on Tuesday that will decide if he can deliver on his pledge to lead Britain out of the EU in just nine days’ time.

As the clock ticks down to the latest Oct. 31 deadline for the United Kingdom’s departure, Brexit is hanging in the balance as a divided parliament debates when, how and even whether it should happen.

After he was forced by opponents into the humiliation of asking the EU for a delay that he had promised he would never ask for, Johnson is battling to ram legislation through the House of Commons that will enact his last-minute Brexit deal.

‘BREXIT A WASTE OF TIME AND ENERGY’

The European Parliament must also approve the Brexit deal struck by Britain at an EU summit last week, but European Commission President Jean-Claude Juncker told the Strasbourg assembly it could only do so once it has been approved by the British parliament.

“We need now to watch events in Westminster very closely. But it is not possible, not imaginable that this Parliament would ratify the agreement before Westminster will have ratified the agreement – first London, then Brussels and Strasbourg,” he said. Juncker said Brexit had been a waste of time, and it irked him that he could not have spent more of his five-year mandate on making the bloc serve its citizens better.

“In truth, it has pained me to spend so much of this mandate dealing with Brexit, when I have thought of nothing less than how this Union could do better for its citizens – a waste of time and a waste of energy,” he said. However, he said the new agreement creates the legal certainty for an orderly withdrawal of Britain from the EU.

“I will always regret the United Kingdom’s decision to leave the Union. But at least we can look ourselves in the eye and say that we have done all in our power to make sure that this departure is orderly,” he said.

In a debate that followed in Strasbourg, British members of the European Parliament bickered with each other over Brexit.One of them, Brexit Party leader Nigel Farage, criticised Johnson for trying to avoid an extension because it would damage his Conservative party in the polls and instead was trying to “bounce us into this new treaty” by Oct. 31.

“It’s the same story every time: it is about the Tory Party, not about the country. What we need to do is to build a Leave alliance of those across the spectrum to fight and win the next general election: the only way we can leave this place is with a clean-break Brexit,” Farage said.

Brexit, flags of the United Kingdom and the European Union on asphalt road with legs

Source: https://www.reuters.com/article/uk-britain-eu-juncker/eus-tusk-taking-brexit-request-seriously-decision-in-days-idUSKBN1X10N3

Russian Finance Ministry Vows To Cut Non-Residents’ Income Tax In Bid To Lure Investments

The Russian Finance Ministry proposed to reduce the personal income tax rate for non-residents to 13 percent from the current 30 percent, at the same time reducing the minimum period of stay in Russia to maintain tax residence to 90 days down from the current 183 days, according to a draft budget, tax and customs tariff policy for 2020-2022 submitted to the parliament’s lower house

The Russian Finance Ministry proposed to reduce the personal income tax rate for non-residents to 13 percent from the current 30 percent, at the same time reducing the minimum period of stay in Russia to maintain tax residence to 90 days down from the current 183 days, according to a draft budget, tax and customs tariff policy for 2020-2022 submitted to the parliament’s lower house.”It is planned to reduce the actual stay of individuals in Russia to acquire the Russian tax resident status to 90 Calendar days from 183 days over 12 consecutive months and to equalize the personal income tax rate for residents and non-residents of Russia at 13 percent,” the document says.

The document’s authors mention this proposal among measures aimed at stimulating investment in Russia.

The proposed changes imply that Russian citizens who spent 90 days a year in the country and have real estate, economic and personal contacts in Russia, will pay taxes.

Earlier, First Deputy Prime Minister and Minister of Finance Anton Siluanov noted that many Russian businessmen intentionally spend less than 183 days a year in the country, thus avoiding the obligation to report on their foreign assets to the Federal Tax Service and may not pay income tax.

Source: https://www.urdupoint.com/en/business/russian-finance-ministry-vows-to-cut-non-resi-725911.html

China, U.S. kick off new round of tariffs in trade war

The United States began imposing 15% tariffs on a variety of Chinese goods on Sunday – including footwear, smart watches and flat-panel televisions – as China began imposing new duties on U.S. crude, the latest escalation in a bruising trade war. U.S. President Donald Trump said the sides would still meet for talks later this month.Trump, writing on Twitter, said his goal was to reduce U.S. reliance on China and he again urged American companies to find alternate suppliers outside China.

A new round of tariffs took effect from 0401 GMT (12:01 a.m. EDT), with Beijing’s levy of 5% on U.S. crude marking the first time the fuel had been targeted since the world’s two largest economies started their trade war more than a year ago.The Trump administration on Sunday began collecting 15% tariffs on more than $125 billion in Chinese imports, including smart speakers, Bluetooth headphones and clothing.

A variety of studies suggest the tariffs will cost U.S. households up to $1,000 a year and the latest round will hit a significant number of U.S. consumer goods.In retaliation, China started to impose additional tariffs on some of the U.S. goods on a $75 billion target list. Beijing did not specify the value of the goods that face higher tariffs from Sunday.The extra tariffs of 5% and 10% were levied on 1,717 items of a total of 5,078 products originating from the United States. Beijing will start collecting additional tariffs on the rest from Dec. 15.

AFL-CIO President Richard Trumka told “Fox News Sunday” that Trump was right to confront China, but “unfortunately, he’s done it the wrong way. To take on China, there has to be a multilateral approach. One country can’t take on China to try to dry up its overcapacity because they just send it through to you in other ways.”

CHINA REACTS

Chinese state media struck a defiant note. “The United States should learn how to behave like a responsible global power and stop acting as a ‘school bully,’” the official Xinhua news agency said.“As the world’s only superpower, it needs to shoulder its due responsibility, and join other countries in making this world a better and more prosperous place. Only then can America become great again.” Tariffs could not impede China’s development, said the official People’s Daily of the ruling Communist Party.

“China’s booming economy has made China a fertile ground for investment that foreign companies cannot ignore,” it said, in a commentary under the name ‘Zhong Sheng,’ or ‘Voice of China,’ which is often used to state its view on foreign policy issues. Last month, Trump said he was increasing existing and planned tariffs by 5% on about $550 billion worth of Chinese imports after Beijing announced its own retaliatory tariffs on U.S. goods. Tariffs of 15% on cellphones, laptop computers, toys and clothing are to take effect on Dec. 15.

The U.S. Trade Representative’s Office said on Thursday it would collect public comments through Sept. 20 on a planned tariff increase to 30% on a $250 billion list of goods already hit with a 25% tariff set for Oct. 1.Trade teams from China and the United States continue to talk and will meet in September.

For two years, the Trump administration has sought to pressure China to make sweeping changes to its policies on intellectual property protection, forced transfers of technology to Chinese firms, industrial subsidies and market accessTrump has also linked the trade talks and the protests in Hong Kong, saying he believes the negotiations with the United States had led Beijing to be more restrained in its response to the demonstrations in Hong Kong.

Source: https://www.reuters.com/article/us-usa-trade-china/china-u-s-kick-off-new-round-of-tariffs-in-trade-war-idUSKCN1VM0V9?il=0

ECB to shut down Latvian bank PNB

The European Central Bank has closed down another Latvian bank after ruling it had become insolvent, pulling the plug on a lender that was a vocal critic of the Baltic country’s financial authorities. The decision by the ECB to shut down PNB Banka, which was previously called Norvik Banka and is Latvia’s sixth-largest lender with a €550m balance sheet, dealt another blow to the country’s scandal-hit banking system. Last year, the US accused ABLV, Latvia’s then third-largest bank, of “institutionalised money laundering”, effectively leading to it being wound up by the ECB. ]

The Latvian regulator requested in April that the ECB take over supervision of PNB after the bank launched a legal challenge against the Baltic country’s financial watchdog in an international arbitration court — making domestic supervision of it difficult. PNB also accused Latvia’s central bank governor, Ilmars Rimsevics, of soliciting bribes — putting it at odds with the ECB. Mr Rimsevics, who denies the charges, was suspended by the government but was later reinstated after an EU court ruled his dismissal was unfair.

The ECB said on Thursday: “The need for additional impairments of its assets led to a significant deterioration in its capital situation to the point that the bank’s assets were less than its liabilities.” “The bank was unable to satisfy requirements for continuing authorisation and unable to provide assurances that it could comply with capital requirements in the near future,” it said, adding that PNB had been in breach of its capital requirements since the end of 2017. After the ECB ruled that PNB was “failing or likely to fail” it informed the Single Resolution Board, which decided that the bank was not systemically important enough to require it to intervene and oversee an orderly resolution.

The bank had €472m of deposits at the end of March and any individual’s deposits of up to €100,000 will be guaranteed by Latvia’s deposit guarantee fund. This is the fifth time that the ECB has used its power to shut down or force the fire sale of an ailing bank, after doing so with Spain’s Banco Popular and two lenders in Italy’s Veneto region. PNB is privately owned and its Anglo-Russian chairman Grigory Guselnikov recently said on Twitter that he was selling his majority stake to a group of US and European investors.

Our company’s employees are ready to assist you to return guaranteed under EU rule deposits of up to €100,000 from PNB Bank (former Norvik Banka). Please contact us: +357 22222 066 or info@tigerpartners.eu for more information!

Source: https://www.ft.com/content/54b50b34-bf9d-11e9-b350-db00d509634e

German fintech N26 appeases regulators as it eyes future IPO

On the first day of every month, a queue begins to form outside the Berlin headquarters of online bank N26 — new recruits, waiting to join the fast-growing ranks at one of Europe’s most valuable fintech companies. Valued at $3.5bn in its latest funding round, and with investors including China’s Tencent, N26 has drawn customers and staff at breakneck speed. Since its launch in 2015, the company has signed up 3.5m clients in 24 countries to its app-based suite of bank accounts, and is adding 10,000 more every day. Valentin Stalf, the co-founder and chief executive of N26, makes no secret of the company’s ambitions. “Our goal is to build a global brand. We want to provide the app that you turn to every day to deal with your financial issues. Our goal is ultimately to do for finance what Spotify did for music and Uber did for mobility,” he told the Financial Times in an interview.  A 33-year-old from Vienna who wears his hair several inches longer than your typical bank chief executive, Mr Stalf co-founded N26 with a friend from the University of St Gallen, Maximilian Tayenthal.

The online bank has become particularly popular with younger customers, who are drawn by a number of factors including the ease of signing up, which includes verification by video chat, and an intuitive app that allows users to establish subaccounts to share with friends and family. “We would like to list on the stock exchange in three to five years,” Mr Stalf said. N26 is turning the screws on a banking industry that is already reeling from low interest rates, rising regulatory burdens and lacklustre growth. In recent months, however, the start-up’s dash for growth has hit a series of obstacles. In May, the German banking regulator BaFin took the unusual step of publishing a list of shortcomings at the company, together with a formal order to “take appropriate internal safety measures and to comply with general customer due diligence obligations”.

BaFin told the Berliners to remove backlogs in the monitoring of suspicious transactions, produce more written records of internal procedures, step up the verification of its customers and review a number of current clients who qualify as “high-risk”.  N26 has also come under attack from consumer protection offices in Germany, over complaints that clients in distress were unable to reach customer service. Another criticism has focused on a string of well-publicised phishing attacks, which saw N26 accounts hijacked by fraudsters.  Mr Stalf insisted that the problems at N26 were never as grave as suggested in the media, and have in any case now been largely fixed. “We have a full banking licence and we comply with every law there is,” he said. “There were some things that BaFin criticised that we tackled immediately, and others that we had been working on already.”  He added: “We already resolved some of the issues that were mentioned by BaFin in the public statement. The rest will be dealt with in the coming weeks.” A person familiar with the internal regulatory discussions told the Financial Times that the lender, which has to file monthly updates on its progress in tackling the issues, has indeed made significant improvements since May. “N26 is addressing its anti-money laundering shortcomings and is working on overcoming them,” they said. The run of negative headlines has in any case done little to dent investor appetite. N26 has raised $470m this year alone, from backers including the Singapore sovereign wealth fund GIC, Peter Thiel’s Valar Ventures and Allianz X, an offshoot of the German insurance group.  Nor has it stopped the bank from making one of its boldest bets to date, launching in the US last month. The US business is still in the “beta” or testing phase. According to Mr Stalf, it has 110,000 clients on the waiting list, of whom “several thousand” are invited to open an account every day. Unlike in Europe, where it has a full banking licence, in the US the banking services that underpin the N26 account for now will be provided by San Diego-based lender Axos.

Mr Stalf pointed out that the usage of a white-label product does not mean “we will never get a banking licence in the US”, adding that N26 will decide about applying for a licenceonce it has 1m-2m customers in the country.  The US launch, he said, forms part of an intensifying global race for market share that pits the spin-offs of traditional retail banks against fintech competitors like N26, which also plans to open services in Brazil next year: “There is a certain time window. I do believe we see the demand for this now.” The main advantage that start-ups like N26 have over traditional retail banks is cost. With no bricks-and-mortar bank branches to fund and a comparatively small staff, new players like N26 or Britain’s Revolut operate at a fraction of the cost per customer of established banks.  “Our cost base is about one-fifth or one-sixth of the cost base of a traditional retail bank. Our revenues are also lower but overall we have better margins,” said Mr Stalf, adding that his long-term goal is to get between 30m and 70m customers.  Europe’s largest lender HSBC worldwide has 38m retail and wealth management customers. N26’s basic bank account comes free of charge, but customers are asked to pay a monthly fee if they upgrade to a premium service, which comes with an insurance package and a sleek coloured or metal bank card. The bank’s other sources of revenue are card fees from retailers and charges for overdrafts. Profitability, saidMrStalf, isa“long-term” goal.

Source: https://www.ft.com/content/aa5cea62-b9ac-11e9-8a88-aa6628ac896c

MONEYVAL welcomes Serbia´s removal from FATF’s “grey list”

Strasbourg 24.06.2019 – The Council of Europe´s anti money laundering and counter terrorist financing body MONEYVAL today welcomed that the Financial Action Task Force (FATF) decided at its plenary meeting held in Orlando (USA) from 16 to 21 June that Serbia will no longer be subject to the FATF’s monitoring under its ongoing global anti-money laundering and counter-terrorist financing (AML/CFT) compliance process (the so called “grey list”).

Serbia will work with MONEYVAL as it continues to further improve and effectively implement its AML/CFT regime. The FATF was satisfied that all strategic AML/CFT deficiencies earlier identified by the FATF and included in an action plan were addressed, implementation has begun and is being sustained, and there is both the high-level political commitment and institutional capacity to continue implementation of the AML/CFT reforms in the future.

MONEYVAL’s Chair, Daniel Thelesklaf, said: “On behalf of MONEYVAL, I would like to warmly congratulate Serbia for its tremendous progress in a very short time period to improve the effectiveness of its AML/CFT regime. MONEYVAL will continue working with Serbia through its follow-up process to successfully continue to further strengthen this regime.”

Our company’s specialists are ready to assist you in registering a company in Serbia, as well as help with opening an account for a new established company.

Source: https://www.coe.int/en/web/moneyval/home/newsroom/-/asset_publisher/zTE3FjHi4YJ7/content/moneyval-congratulates-serbia-for-removal-from-fatf-s-grey-list-?inheritRedirect=false&redirect=https%3A%2F%2Fwww.coe.int%2Fen%2Fweb%2Fmoneyval%2Fhome%2Fnewsroom%3Fp_p_id%3D101_INSTANCE_zTE3FjHi4YJ7%26p_p_lifecycle%3D0%26p_p_state%3Dnormal%26p_p_mode%3Dview%26p_p_col_id%3Dcolumn-4%26p_p_col_count%3D1

Russia’s Federation Council passes package of laws on extension of capital amnesty

Earlier, President Vladimir Putin proposed extending capital amnesty for at least a year, but only for those who transfer funds to Russia and register business in special administrative zones.

Russia’s Federation Council (upper house of parliament) passed the package of laws on the third stage of capital amnesty submitted by the government at a meeting on Wednesday. The laws contain amendments to Russia’s Tax Code and the Code of Administrative Offences.

“The law has been drafted to implement Russian President’s instruction dated February 23, 2019 on extension of ‘capital amnesty’. It is aimed at creating favorable environment for the transfer of assets to the Russian jurisdiction,” according to an explanatory note.

As part of the third stage of the amnesty, individuals will be able to declare their assets and bank accounts from June 1, 2019 to February 29, 2020 retaining all their guarantees in exchange for repatriation of funds and state registration of foreign companies they control in special zones in Russia’s Kaliningrad Region and Primorsky Region.

The amendments to the Code on Administrative Offenses and the Criminal Code provide that capital amnesty participants will not be prosecuted in Russia for violations, if those violations were committed before January 1, 2019 (earlier – before January 1, 2018).

The amendments to the Tax Code imply that a capital amnesty participant will be freed from personal income tax, which is imposed on the profit of a foreign company under his or her control, provided that the taxpayer was not recognized as a tax resident of the Russian Federation for the tax period 2018 year.

The adoption of laws is aimed at creating favorable conditions for the transfer of assets to the Russian jurisdiction.

Earlier, Russian President Vladimir Putin proposed extending capital amnesty for at least a year, but only for those who transfer funds to the Russian Federation and register a business in special administrative zones.

Capital amnesty implies legalization of Russians’ foreign assets. The first stage of the amnesty took place from July 1, 2015 to June 30, 2016, when tax authorities collected about 7,200 declarations of foreign property and assets of Russians. The second stage started on March 1, 2018 and ended on February 28, 2019. During the second stage, assets worth more than 10 bln euro were declared.

Source: https://tass.com/society/1059489

G20 agrees to wrap up Big Tech tax rules by 2020

Group of 20 finance ministers agreed on Sunday to compile common rules to close loopholes used by global tech giants such as Facebook to reduce their corporate taxes, a final communique issued by the bloc showed on Sunday, June 09, 2019.

Facebook, Google, Amazon and other large technology companies face criticism for reducing their tax bills by booking profits in low-tax countries regardless of the location of the end customer. Such practices are seen by many as unfair.

The new rules would mean higher tax burdens for large multinational companies but would also make it harder for countries such as Ireland to attract foreign direct investment with the promise of ultra-low corporate tax rates.

“At the moment we have two pillars and I feel we need both pillars at the same time for this to work,” Japanese Finance Minister Taro Aso, who chaired the G20 meetings, told reporters.

“The proposals are still a little vague, but they are gradually taking shape.”

Britain and France have been among the most vocal proponents of proposals to make it more difficult to shift profits to low-tax jurisdictions, with a minimum corporate tax also in the mix.

This has put the two countries at loggerheads with the United States, which has expressed concern that U.S. internet companies are being unfairly targeted in a broad push to update the global corporate tax code.

Big internet companies say they follow tax rules, but they pay little tax in Europe, typically by channeling sales via countries such as Ireland and Luxembourg, which have light-touch tax regimes.

“We welcome the recent progress on addressing the tax challenges arising from digitization and endorse the ambitious program that consists of a two-pillar approach,” Sunday’s G20 communique said.

“We will redouble our efforts for a consensus-based solution with a final report by 2020.”

The G20’s “two pillars” could deliver a double whammy to some companies.

The first pillar is a plan to divide up the rights to tax a company where its goods or services are sold, even if it does not have a physical presence in that country.

If companies are still able to find a way to book profits in low-tax havens, countries could then apply a global minimum tax rate to be agreed under the second pillar.

“I see a high degree of willingness to work together on this issue that few could have anticipated a year ago,” said Pierre Moscovici, the European Union Commissioner for Economic Affairs.

“We truly believe that the tech giants, which are not only the GAFA, must pay their fair share of tax where they create value and profits.”

GAFA is an acronym commonly used to refer to Google, Amazon, Facebook and Apple when talking about the influence of large technology companies.

Source: https://www.reuters.com/article/us-g20-japan-tax/g20-agrees-to-wrap-up-big-tech-tax-rules-by-2020-idUSKCN1TA05F

What is the Europe’s Worst-Kept Banking Secret?

The dirty money scandals pouring out of Europe may seem like déjà vu. A crackdown on illicit cash made a big splash in the first half of this decade: HSBC Holdings Plc was fined $1.9 billion in 2012 for handling funds from drug traffickers, terror groups, and Washington-sanctioned nations such as Iran; in 2014, BNP Paribas SA had to pay almost $9 billion for dealing with Iran and other countries deemed pariahs by the U.S., such as Cuba and Sudan; and in 2015, Commerzbank AG had to hand over $1.45 billion in fines to U.S. regulators for processing transactions with some of those same countries. It’s practically taken for granted that there’s always someone somewhere trying to make ill-gotten wealth look innocent by sneaking it through legitimate companies and banks. So why should it be such a shock that a bunch of Nordic banks appear to have been caught handling suspicious Russian money?

Russians hold about $1 trillion outside their home country, according to both Bloomberg Economics and a 2017 study by economists Filip Novokmet, Thomas Piketty, and Gabriel Zucman that cited the U.K., Switzerland, and Cyprus among centers of funds. It’s such an open secret that until the current revelations, relatively few Europeans seemed perturbed by that money coursing through their financial systems and real estate markets. Certainly not enough to push for real reform—although its impact was obvious in rental costs and restaurant prices in London neighborhoods such as Knightsbridge and Mayfair.

For most of Russia’s post-communist history, that salting away of the country’s treasure, ill-gotten or not, has been considered a problem for Moscow and a boon for the West, which received cash that revived also-ran soccer teams such as Chelsea Football Club and boosted real estate demand in London, New York, and Monte Carlo. The U.K. showed its indifference to the effects of Russian money as recently as November 2017, when it allowed Oleg Deripaska—since sanctioned by the U.S. for having acted on behalf of a senior Russian government official—to raise $1.5 billion by listing an energy and aluminum company he controlled on the London Stock Exchange.

Then, on March 4, 2018, former Russian spy Sergei Skripal and his daughter, Yulia, were rushed to a hospital after collapsing on a park bench near a shopping mall in the sleepy English cathedral city of Salisbury. That attack, using a military-grade nerve agent carried into the U.K. in a counterfeit perfume bottle, failed to kill the two targets. It did, however, kill Dawn Sturgess, whose boyfriend had found the bottle and presented it to her as a gift. The incident led to more than 100 Russian diplomats being expelled from Europe and the U.S., charges against the two alleged Russian intelligence operatives who attempted the assassination, and a surreal interview on Russian television in which the two claimed they were simply tourists.

The botched effort to kill Skripal and his daughter turned out to be more effective in souring Europeans on Russian money and stoking anger against the banks that enable its flow. “With Russia’s strategy regarding the West, this has gone beyond banking supervision and has become a security issue,” says Nicolas Véron, a senior fellow at Bruegel, an economic think tank in Brussels. The brazenness with which the act was carried out and the indifference to the lives of bystanders convinced many in Britain and elsewhere in Europe that Russia’s actions were potentially dangerous to them.

That was the subtext in September 2018, when across the North Sea another bombshell revealed the scope of suspicious money flowing through Denmark’s Danske Bank AS—much of it linked to Russia. In late February 2019, Sweden’s Swedbank AB was implicated in the flow as well. The underlying fears raised by the Skripal assault and the scale of funds moving through European banks have pushed the issue beyond the narrow world of financial compliance and regulation. The way the Russians favored the Baltics, whose financial system is dominated by Scandinavian banks, linked those funds to a region known as among the least corrupt.

Danske Bank minimized the problem at first, but reported in September it had moved about $230 billion, much of it suspicious, through its Estonia unit. Since then a picture has emerged of a string of Nordic banks, including Swedbank and Finland’s Nordea Bank Abp, whose Baltic units were used as channels by Russians eager to move their money into the West. Some of those transfers have been connected to funds tracked by Sergei Magnitsky, who died in a Russian prison in 2009 after exposing massive tax fraud by officials; other funds to Igor Putin, a cousin of Russian President Vladimir Putin who’s been a board member at Russian banks later found to have siphoned off investors’ assets or to have moved funds illegally out of the country.

(Swedbank acknowledged in February it had handled questionable transactions and has hired an outside firm to investigate; Nordea Chief Risk Officer Julie Galbo said this month that many of the allegations against the bank were already known and it is trying to establish if any were new. If so, they would be reported to the authorities.)

Magnitsky’s former employer, the U.S.-born British financier Bill Browder, has worked for a decade to hunt down the funds from the $230 million tax scheme, persuading the U.S. to pass a law going after the officials involved in the fraud and in Magnitsky’s death. He’s also been pushing banks, regulators, and courts in Europe to crack down on what he sees as questionable funds. “Our investigation continues to lead to new evidence and new information and new suspicious transactions,” Browder said in a March 7 interview on Bloomberg Television.

While some of the funds that moved through the Nordic banks have been linked to money transferred from Russia, Moldova, and Azerbaijan, it remains unknown where much of the cash originated or who’s behind most of the transactions. But it’s clear the money didn’t remain in the Baltic states. “Those moneys didn’t go from Danske into the Baltic Sea, but they went from Danske into some other European bank,” says Krisjanis Karins, Latvia’s prime minister.

Germany’s Deutsche Bank AG said in January it had started a broad internal probe into its own actions as the main bank that handled dollar transactions on behalf of Danske’s Estonia unit, a role known as correspondent banking. Deutsche Bank has repeatedly said it’s yet to find evidence of wrongdoing on its part. The U.S. Federal Reserve is also examining Deutsche Bank’s role in the affair, as is German financial supervisor BaFin. “There’s a new sense of awareness among banks, supervisors, and the general public following the cases of money laundering that we’ve seen in Europe,” says Thorsten Poetzsch, who oversees money laundering prevention at BaFin. He declined to discuss any specific institutions. “The banks realize that money laundering isn’t just a question of cost, but that it can threaten their very existence.”

European authorities have generally been slower to act on allegations of Russian money laundering than their U.S. counterparts. The U.S. Treasury blindsided Latvia and the European Central Bank in February 2018 when it named ABLV Bank as a primary money laundering concern over allegedly corrupt funds flowing through it from Russia and Ukraine, as well as for links to North Korea’s weapons program.

Even before the Skripal attack and the extent of the Danske scandal was known, the U.S. had been pushing Europe to do more. Forcing ABLV, Latvia’s third-biggest bank, out of business was an overt example of that, according to a U.S. official who focuses on money laundering. He says Latvia has since changed its policies. Karins, who became Latvia’s prime minister in January, has pledged to tighten regulation and demand proof of the origin of cash in the financial system. He’s less confident that the rest of Europe would follow suit.

Lithuania has been trying to drum up U.S. support. Last June a team of Lithuanian central bank officials visited counterparts at the Federal Reserve and the Treasury Department to explain how the country’s banking business was different from those of the other two Baltic states. “We are not naive,” Lithuanian Central Bank Governor Vitas Vasiliauskas told reporters on March 8. “Large amounts of money [entered] the Baltic banking market—and some really large amounts were identified in the Danske case.” He added that it would be unrealistic to believe that no suspicious funds transited through accounts in his country.

Estonia kicked out Danske in February. The bank responded by announcing its withdrawal from the entire Baltic region as well as from Russia. Kilvar Kessler, chairman of Estonia’s Financial Supervision Authority (FSA), said this month that authorities in his country are doing everything in their power to clean up and have been doing so for half a decade. “We need a collective response, because it’s an issue of reputation for the jurisdictions,” Vasiliauskas added.

Traditionally, Scandinavia’s reputation for being clean has been one of its calling cards. Transparency International’s corruption perceptions index lists Denmark, Finland, Norway, and Sweden among its top seven least corrupt countries. However, the index doesn’t measure money laundering. The Financial Action Task Force, an intergovernmental body set up to fight money laundering and terror financing, gave the countries only middling ratings. (The U.S. received top marks in multiple areas.) And in 2017 the task force published a scathing analysis of Denmark’s anti-money-laundering framework, harshly criticizing its ability to prevent such crimes. Jesper Berg, director general of Denmark’s FSA, said last September that he’d made it his goal never to get such a bad report again.

So why does money slip through the cracks in Europe? That’s because while funds are allowed to flow freely among banks and across borders, European rules against dirty money are implemented unevenly across the bloc and efforts to clamp down on illicit cash have largely been national affairs. Europe’s banking rules were designed to protect taxpayers from having to bail out banks, not to prevent illegal flows.

That will be difficult to change. The European Commission, which functions as the executive branch of the EU, has proposed giving more authority to the European Banking Authority, allowing it to request national investigations. But extra staffing at this point is budgeted at just 12 people, a very limited number compared with the size of the task, according to José Manuel Campa, who’s slated to take over the agency this year. Furthermore, some government officials have resisted efforts to create a centralized European enforcement authority. Given the surge in populist parties, it would be difficult to win approval for an EU-level enforcement agency that could order raids on banks or seize people’s accounts. “This is about criminal activity, their own jurisdictions, their own police forces, and that is not a joint EU undertaking today,” says Erik Thedeen, head of Sweden’s FSA. “I’m a little bit skeptical about saying that everything should go central.” On March 8 at a Stockholm conference on Europe’s banking union, Berg, the Danish regulator, said coordinating financial intelligence units, police, and prosecutors with a European agency would be a challenge.

The attack on Skripal and his daughter has had the most significant impact in the U.K. While several efforts to clamp down on London’s role as a hub of dirty funds were already under way, the impact of the assassination attempt, with its use of a chemical weapon, was palpable. “The Salisbury attack has made it clear that there are grave national security risks coming from Russia, and money laundering is intimately tied up with that,” Browder says.

Just before the incident, the U.K. had imposed its first so-called unexplained wealth order, which, with other tools, allows the government to seize property when the owner can’t identify a legitimate source of the funds used for buying it. The British mood toward Russia darkened dramatically after the attack, and the U.K. took a series of actions against the country, including expelling 23 diplomats. It also chose not to renew the visa of Russian billionaire Roman Abramovich, who owns Chelsea Football Club, prompting him to move to Israel.

Europe has been embarrassed by the policing so many of its banks have gotten at the hands of the U.S. and has started to change rules and the size of fines for misconduct. A French court last month imposed a $5.1 billion penalty, the biggest ever levied in the country, on Switzerland’s UBS Group for helping clients launder hidden assets. UBS has appealed the ruling. In Germany, BaFin took the unprecedented step in September of appointing a monitor to oversee Deutsche Bank’s efforts to improve money laundering and terrorism financing controls. In November, 170 law enforcement officials raided the bank’s headquarters in Frankfurt looking for information on suspected money laundering and the Panama Papers, a series of articles in 2016 based on leaked emails from a law firm detailing shell companies it set up for clients. According to the U.S. official involved in money laundering enforcement, Germany and France are committed to fighting the practice. As long as that’s the case, he says, the rest of Europe will follow.

But even in the U.K., change has been patchy. In early December the Home Office announced that it would suspend investor visas for the rich, closing a route to permanent residency and British citizenship that was popular with Russian oligarchs and wealthy Chinese. Less than a week later, it put that decision on hold. On March 7, the U.K. said it was tightening rules on the visas, requiring applicants to prove that they have had control of the required funds for at least two years or provide evidence of their source. It’s easy for bankers, regulators, and politicians to talk about cracking down on illicit funds. Keeping that resolve is much harder.

Source: https://www.bloomberg.com/news/features/2019-03-14/huge-pools-of-dirty-money-are-europe-s-worst-kept-banking-secret

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