Money laundering doesn’t pay (for banks)

Swedish tv station SVT has investigated suspected money laundering by Russian and Ukranian customers of Swedbank. Oligarchs used accounts at Swedbank’s Estonian branch to move money offshore. The documentary is available online in English: part 1 and part 2.

At the end of part 2, Daria Kaleniuk, executive director of the Anti-Corruption Action Center in Kiev is asked “why do you think they [i.e., the bank] let this happen?”. Ms. Kaleniuk replies “because it’s profitable!”.

However, I’m not convinced that is true. Payments are a low-margin activity that expose banks to a lot of downside risk. Violating anti-money laundering (AML) rules have cost banks hundreds of millions of dollars in recent years.

In my opinion, criminals succeed in money laundering because compliance with AML regulation was (is?) not a priority for top executives.1 A lack of funding and management attention for compliance leads to a mentality of “just check the boxes, so it looks like we did what we had to do”.

Stronger enforcement, including higher fines and other sanctions, might change that situation.

Birgitte from Lehman Sisters

[A] higher share of women on the boards of banks […] is associated with greater stability. As I have said many times, if it had been Lehman Sisters rather than Lehman Brothers, the world might well look a lot different today. – Christine Lagarde, Managing Director of the International Monetary Fund

In today’s finance & crime news:

“Swedbank AB has fired its chief executive officer, Birgitte Bonnesen, amid allegations the bank was used to launder billions of dollars in Russian money on her watch.” – Bloomberg

For your information, five of the eleven members of Swedbank’s Board of Directors are women.

Ten years after Lehman Brothers

The ten year anniversary of Lehman Brothers’ bankruptcy is fast approaching. Some quick thoughts on what has changed and what we’ve learned over the past decade, with a focus on Europe.

  1. Banks are much safer now than they were in the summer of 2008.
  2. There’s a remarkable lack of entrepreneurship in banking. A few fintechs offer payment services, but payments are only a small part of banking. Where are the new banks?
  3. Related to point 2, and something I’ve changed my mind about over the years: bailing out the banks was the right thing to do. I highly doubt that we would have experienced much creative destruction by letting the financial system collapse. That being said, the way the bailouts were done was horrible.
  4. The way the European establishment handled the euro crisis was an abomination. Fiscal and monetary coordination across Europe would have resulted in lower unemployment, lower debt, lower taxes.
  5. Notwithstanding the importance of money in people’s daily lives, financial literacy is still limited.

If this was financial assistance, I’d hate to see the opposite

The European support program for Greece ends today. Some called the program a bailout, others assistance or solidarity. Whatever you call it, the outcome has been abysmal.

Greece fared worse than the US during the Great Depression. Emerging markets recovered faster from financial crises than Greece did. The only countries that have shrunk more than Greece in the past ten years are failed states like Libya, Yemen, and Venezuela.

“Congratulations” to all who were responsible for this “success”.

Three news stories

I wrote Bankers are people, too to help non-economists put the financial news into perspective.

Three recent news stories were no surprise to readers of my book.

  • Articles about the Paradise Papers showed how global elites hide their wealth in tax havens.

I covered previous leaks in the chapter ‘Tax evasion and offshore services’ (p. 100).

Continue reading “Three news stories”

WannaCry about cybersecurity? Consider this first

In an event that has been called the WannaCry ransomware attack, hackers encrypted data on computers all around the world. The victims – which included hospitals and car factories – had to pay ransom in Bitcoin to get their files back.

Computers without up to date operating systems were particularly vulnerable to the attack.

People who have never come into contact with the internal IT operations of a large company find this hard to understand. Why don’t companies just install the latest patches, like private persons do on their home computers?

Software engineer Jürgen ‘tante’ Geuter has a nice blog post that explains why things are not so simple in the real world: “Why don’t they just update?” Continue reading “WannaCry about cybersecurity? Consider this first”