January 18, 2021

ESTONIA: Prime Minister Resigns After Investigation Concluded Massive Corruption Pay For Play Scandal. Estonia President Working On Forming A New Government.

The New York Times
written by Andrew Higgins
Wednesday January 13, 2021

MOSCOW — The prime minister of Estonia resigned on Wednesday, his coalition government of centrists and far-right populists engulfed by a corruption scandal over misuse of state loans intended for coronavirus pandemic relief.
I want to point out that the New York Times is referring to PM Juri Ratas party as "Centrists and far-right populists". Whereas in the AP article below, the AP referrs to PM Ratas political party as left-leaning. And they both report the scandal is about to separate issues. The AP article below doesn't mention the tie-in with pandemic relief for companies suffering from government shutdown. (emphasis mine)
The departure of the prime minister, Juri Ratas, signaled an unusual bout of political turbulence in a country that joined the European Union and also NATO in 2004, establishing itself as a bastion of pro-Western stability on Russia’s western border.

This orientation is highly unlikely to change as Mr. Ratas’s most likely successor, the leader of the opposition center-right Reform Party, Kaja Kallas, is a firm supporter of the American-led military alliance. Estonia’s president asked Ms. Kallas on Wednesday to form a new government, but it was unclear whether she could muster the necessary votes in Parliament.

The outgoing prime minister, Mr. Ratas, had headed the tiny Baltic nation’s government since 2016 as leader of the Center Party, whose strongest base of support has been a large ethnic Russian population that liked its sometimes left-leaning policies.

He resigned after reports that his party was among those under criminal investigation over loans by a state agency, KredEx, to a private property project in the port area in Tallinn, Estonia’s Baltic Sea capital. The money was supposed to go to companies hard hit by the pandemic.

Mr. Ratas denied knowingly doing anything wrong but said that, as party leader, he would need to take “political responsibility” for any wrongdoing.

One of the suspects in the case is an adviser to the finance minister, Martin Helme, a far-right politician who leads another party in the coalition and once described his immigration policy as: “If you’re Black, go back.”

The inclusion of Mr. Helme’s EKRE party in the government, which severely damaged Estonia’s liberal image, followed an election in 2019 in which Mr. Ratas’s Center Party fared poorly but managed to stay in power by forming a coalition with the far right and a rival mainstream conservative party.

Since the collapse in 1991 of the Soviet Union, of which Estonia and two other Baltic states had been part, the country has built a strong economy, becoming one of the most wired and technologically advanced nations in the world.

Unlike neighboring Latvia, which has been hit by a long series of scandals related to its large financial sector, Estonia has enjoyed a reputation for clean government and finances, though this was badly damaged in 2018 when the Estonian branch of Denmark’s Danske Bank was caught up in an international investigation into the laundering of billions of dollars.
The Associated Press
written by Jari Tanner
Wednesday January 13, 2021

HELSINKI — Estonia’s prime minister resigned Wednesday over a corruption scandal involving a key official of his Center Party suspected of accepting a private donation for the party in exchange for a political favor on a real estate deal, prompting new talks on forming a new ruling coalition.

The resignation of Prime Minister Juri Ratas, who is also the Center Party’s leader, automatically triggers the resignation of Estonia’s three-party coalition government, but doesn’t automatically mean a new election.

After Ratas’ announcement, parties immediately started talks on cobbling together a new government. Estonian President Kersti Kaljulaid said she would propose that Kaja Kallas, chairwoman of the main opposition, center-right Reform Party, which emerged as the winner of the 2019 general election, to form the new Cabinet.

Ratas has led a majority coalition of his left-leaning Center Party, the nationalist EKRE party and the conservative Fatherland party since April 2019. He has held the post of prime minister of the Baltic country of 1.3 million since November 2016.

There are currently five political parties represented at Estonia’s 101-seat Riigikogu legislature, or Parliament.

Only a limited number of combinations exist for a majority coalition, particularly as the Reform Party has ruled out cooperation with the populist EKRE, Estonia’s third-largest party, which runs largely on an anti-immigration and anti-European Union agenda.

On Tuesday, Estonia’s security police said it was investigating the offices of state credit agency KredEx over suspicions of corruption regarding a 39 million-euro ($48 million) loan granted to the Porto Franco real estate complex in the harbor district of the capital, Tallinn.

The Public Prosecutor’s Office said separately it suspected the Center Party and five people of criminal involvement in the Porto Franco real estate case including party secretary Mihhail Korb, real estate businessman Hillar Teder and Kersti Kraht, an advisor to the country’s finance minister. Korb announced his resignation late Tuesday.

As the largest political party in Tallinn, the Center Party controls the office of mayor and has final say over how to develop public infrastructure projects such as roads and transport in the capital. Estonian media reported that Tallinn Mayor Mihhail Kolvart has been questioned in the case but isn’t suspected of any wrongdoing.

Teder, whose son Rauno Teder is the main shareholder in Porto Franco, is suspected of cutting a deal with Korb on facilitating access routes to the Porto Franco estate in the harbor district in return for a one million-euro donation to Center. In 2015, Hillar Teder was a suspect in a corruption case case involving former Tallinn Mayor and Center Party leader Edgar Savisaar.

Ratas insisted the real estate project has had no influence in government decision making.

Estonia is a member of the European Union and NATO since 2004.


Bloomberg News
written by Ott Ummelas
September 25, 2019

The former head of Danske Bank in Estonia, the unit at the center of a $220 billion money-laundering scandal, was found dead after disappearing from his home on Monday.

written by Frances Coppola
September 30, 2018

Money laundering is a multi-bank phenomenon. Danske Bank Estonia has been revealed as the hub of a $234bn money laundering scheme involving Russian and Eastern European customers. But Danske Bank Estonia couldn’t do this by itself. Much of the money was paid in U.S. dollars, and for that, it needed help from other banks. Banks that had access to Fedwire, the Federal Reserve's electronic settlement system. Big banks, in other words.

It appears that four big banks helped Danske Bank Estonia make its dodgy transactions. J.P. Morgan, Bank of America and Deutsche Bank AG all made dollar transfers on behalf of the Estonian branch’s non-resident customers. And according to the Wall Street Journal, Citigroup’s Moscow branch may have been involved in some financial transfers in and out of Danske Bank Estonia. But how much responsibility do these banks bear for these transfers? Could they reasonably have been expected to know – or suspect - that the money was dirty?

Banks that make transactions on behalf of other banks are known as “correspondent banks”. In the past, correspondent banks often had little information about the originator or final recipient of the money they were transmitting. They simply trusted that their customer bank was acting legally and that its customers were above board. Old habits die very hard: in 2016, the correspondent banks involved in the FIFA corruption case, which include Citigroup, HSBC, Wells Fargo and Barclays, all claimed that they could not have known that the transfers were corrupt.

But these days, banks are expected to “know their customers’ customers”. They are supposed to conduct their own checks to make sure that they are not unwittingly being used to launder dirty money.

In the case of Danske Bank Estonia, one of the correspondent banks did suspect something was wrong. In 2013, J.P. Morgan terminated its correspondent banking relationship with Danske Bank Estonia because it was concerned that it was being used as a conduit for dodgy funds. Deutsche Bank, however, blithely continued to make U.S. dollar wire transfers on behalf of the Estonia branch’s non-resident customers after J.P. Morgan's departure. So did Bank of America, which replaced J.P. Morgan.

From 2014 onward, according to Bloomberg, Deutsche Bank started refusing to make transfers that looked particularly dodgy. But the transaction flow did not fall off dramatically until 2015, when Bank of America and Deutsche Bank both terminated their correspondent bank relationships with Danske Bank Estonia - Bank of America in May, and Deutsche Bank in September. A report from the Danish Financial Supervisory Authority (FSA) – Danske Bank’s regulator – says that an employee at one of these banks warned about the Estonian branch’s suspicious customers:
In that connection, a senior employee from the correspondent bank in question assessed that out of ten non-resident customers from the Estonian branch, the correspondent bank would be comfortable only with servicing one given the customers’ characteristics. The employee also warned Danske Bank against Moldovan customers and customers transferring money to Moldova.
According to the Financial Times, this was a Deutsche Bank employee. But if Deutsche Bank employees were so aware of the suspicious nature of Danske Bank Estonia’s customers and the dodgy nature of some of the money flows, why didn't Deutsche Bank follow J.P. Morgan's example in 2013? Why was it the last to terminate its correspondent bank relationship?

At that time, Deutsche Bank was happily doing a spot of Russian money laundering itself – the “mirror trades” through its Moscow branch for which it last year paid fines totaling $630m to U.S. and U.K. regulators. I suppose it is entirely understandable that a bank that was actively laundering money for its own customers might be little concerned about money laundering by one of its customer banks. But this raises serious concerns about the adequacy of Deutsche Bank's AML processes - concerns that, as we shall see, refuse to go away.

The U.S. regulators are already sniffing round Danske Bank. If the FIFA investigation is anything to go by, their interest will not be limited to the Danish bank. They will also want to know what the correspondent banks thought they were doing. Deutsche Bank was the only correspondent bank to stay with Danske Bank Estonia throughout the period of its known money laundering, and it apparently continued the relationship despite knowing that the Estonian branch’s customers and transactions were suspicious. U.S. regulators might take a dim view of Deutsche’s behavior, especially given the $41m fine it was handed by the Federal Reserve in May 2017 for inadequate AML controls, and the “Problem Bank” designation awarded to its American subsidiary by FDIC.

It seems that BaFIN, the German regulator, thinks so too. Two days after Danske Bank released a report revealing the mammoth scale of its Estonian branch’s money laundering activities, BaFIN reprimanded Deutsche Bank for inadequate AML processes, and imposed an external supervisor to ensure it improved them. The notice on BaFIN’s website is short and to the point:
On 21 September 2018, in order to prevent money laundering and terrorist financing, BaFin ordered that Deutsche Bank AG take appropriate internal safeguards and comply with general due diligence obligations. The issued order is based on section 51 (2) sentence 1 of the German Money Laundering Act (Geldwรคschegesetz – GwG). 
To monitor the implementation of the ordered measures, BaFin has appointed a special representative in accordance with section 45c (1) in conjunction with section 45c (2) no. 6 of the German Banking Act(Kreditwesengesetz – KWG). The special representative is to report on and assess the progress of the implementation.
Ostensibly, this follows on from Deutsche Bank’s admission in August 2018 that its AML processes were patchy to say the least. But the timing is exquisite. Could BaFIN be warning off the U.S. regulators? “This baby is ours. We will deal with it.”

Whether or not BaFIN’s reprimand is directly connected with the money laundering revelations, the fact remains that Deutsche Bank has some serious questions to answer regarding its conduct during the period of its correspondent relationship with Danske Bank Estonia.

And so too do the other banks involved. Although their correspondent relationships were of shorter duration, both J.P. Morgan and Bank of America helped to facilitate the enormous dollar flows in and out of Danske Bank Estonia. And although the exact role of Citigroup’s Moscow branch is as yet unclear, the little we know about it sounds suspiciously like Deutsche Bank’s “mirror trades”.

Investigations into the Estonian money laundering scandal are only just beginning. There is much, much more still to be uncovered. But already, an all-too-familiar familiar name has emerged. Funny, isn’t it, how whenever there is some shady activity going on, Deutsche Bank is never far away?

written by Frances Coppola
September 26, 2018

The Estonian branch of Danske Bank, Denmark’s largest bank, has been revealed as the center of a massive money laundering operation. Between 2007 and 2015, 9.5 million payments were made through this tiny branch by about 15,000 non-resident customers, many of them Russian. The total value of these payments amounted to some 200bn Euros ($236bn), about 10 times Estonia’s GDP. The bank admitted in a press release that it expects “a significant part” of these payments to be “suspicious”.

A report by the Danish law firm Bruun & Hjejle reveals a catalogue of errors, management failures, process deficiencies and negligence. There are even suggestions that some staff colluded and assisted with the illegal activities identified in the report.

Depressingly, however, the report concludes that the CEO, chairman and Board of Danske Bank were not to blame – though the CEO, Thomas Borgen, has nevertheless resigned. Many have taken this to mean that the report was not conducted independently, and indeed as Bruun & Hjejle admits that it does other work for Danske Bank, this could be the case. But the real issue is the narrowness of the report’s scope. It makes little mention of Danske's financial situation. As we shall see, this is a critical omission which badly undermines the report's conclusion.

But first, how did this tiny Baltic branch of a Danish bank become the center of possibly the largest money laundering scandal in the world?

The origins of the problem lie in Estonia’s troubled history. Estonia was incorporated into the U.S.S.R. during the Second World War, and its banking system was integrated with Russia's. But after the dissolution of the U.S.S.R. in 1992, Estonia found itself cut off from Russia's banking system. It had to create a new system in a hurry, and like its neighbor Latvia it did so by means of a free-for-all in private bank licensing. One of the new banks created at this time was Eesti Forekspank.

Forekspank grew by expanding into Russia. By 1997 it had established branches in Moscow and St. Petersburg, and was accepting deposits from Russian customers as well as doing cross-border lending and foreign exchange.

Over the next few years, the Estonian branch’s non-resident portfolio grew, both in activity and in market share. By the end of 2013, it held 44% of total deposits from non-resident customers in Estonian banks (up from 27 per cent in 2007) and 9% of total deposits from non-resident customers in Baltic banks (up from five per cent in 2007). Most of these non-resident customers were companies, many of them shell companies registered in the United Kingdom.

This diagram leaves little doubt as to the principal purpose of the money flows through the non-resident portfolio:

This is what money laundering looks like. Note that sizable deposits came from Latvia and Cyprus, both of which are known to have been involved in laundering Russian money at this time. There is much more Russian money involved than just the 23% from Russia.

The Estonia branch management seem to have been negligent to the point of criminality. For example, this was their record on AML checks:

CLICK HERE to continue reading the long article...

The British philosopher John Stuart Mill once observed:
Let not any one pacify his conscience by the delusion that he can do no harm if he takes no part, and forms no opinion. Bad men need nothing more to compass their ends, than that good men should look on and do nothing.

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