Entrapment – The Russian shadow over banking’s Nordic noir and money-laundering scandals – FT

When Nordic banks started to flood into the Baltic countries at the turn of the century, it seemed a golden opportunity to establish a lucrative new business in a hyper-competitive industry.

“This was seen as the great new frontier,” says one Nordic banker involved in the expansion. Soon, various lenders including Danske Bank, Swedbank, SEB, Nordea and DNB controlled almost all domestic banking in Estonia, Latvia and Lithuania. At the same time, the Baltic countries were positioning themselves as financial bridges between Russia and the EU. “It was a market where we would be able to provide some order and help the Russian middle class,” says the banker. “That was the business everybody started building up.”

The very same business, however, has now become a career-ending embarrassment as an extraordinary money laundering scandal involving Russian and other ex-Soviet oligarchs and criminals slowly spills its secrets. Not only are the revelations damaging Nordic banks and their regulators but also hurting the reputations of entire countries.

For the Nordic countries, whose way of life is built on high levels of trust, the impact could be disastrous. “It [the loss of trust] is the most unfortunate outcome of this,” says Louise Brown, chair of Transparency International in Sweden.

“People in general don’t feel that banks are functioning properly or that regulators are credible. It will impact how people behave — if at elections or in everyday behaviour.” The money laundering scandal is not the first time that the Nordic banks have faced problems in the Baltic region. The financial crisis hit Estonia, Latvia, and Lithuania particularly hard with their economies declining by up to a quarter. Swedbank needed government support to survive the impact.

Read more on the Financial Times