Blow by blow, a wave of claims has hit an increasing number of European banks who are alleged to have handled suspicious transactions involving Russian money. European banks such as Raiffeisen Bank, Sweden’s Swedbank AB and Finnish financial services group Nordea are some of the latest firms that have been drawn into Europe’s expanding money-laundering activities. The scandal first came to light when US authorities led an investigation into Latvia’s ABLV bank, accusing it of institutionalised money laundering, but the first major bank who was questioned over illegal activities back in 2017 was Danske Bank A/S after a whistleblower raised suspicions over the origins of billions of euros that had flowed through the Danish bank.
Investigations are currently underway after the most recent claims and the constantly increasing number of revelations suggests that the surprises won’t stop here. And although it may take months for regulators and enforcers to determine if any of the allegations from the past few months are substantiated by fact, the question on everyone’s lips is: if the claims are true, why do European banks continuously fail to detect the movement of illicit funds? What is wrong with the European banking system?
The how and the why
As Gregory White explains for Bloomberg, the transition to capitalism in Russia and its neighbouring countries set off a wave of hundreds of billions of dollars flooding out of the ex-Soviet Union. In most cases, the money was routed through offshore zones with restricted controls which predisposes for difficulties in telling the difference between legitimate business and illicit flows from criminal activity. This, in turn, led to some of this cash being moved to prominent international banks. What is interesting is that most of the banks accused of laundering Russia’s dirty money are either Baltic banks or Nordic banks that have Baltic units; in the case of Danske Bank, for example, $230 billion of suspicious transactions were allegedly handled by the bank’s branch in Tallinn, Estonia. On the one hand, financial institutions that operate across border tend to find themselves linked to suspicious activity oftentimes due to the difficulties they face when creating platforms and handling funds in foreign countries where a number of issues such as language differences could result in various complications. However, why is the wrongdoing so heavily focused on the Baltics?
A team of researchers estimated in 2017 that Russians’ offshore wealth is about $1 trillion, or the equivalent to three-quarters of the country’s GDP in 2015.
After the dissolution of the Soviet Union in 1991, the banking industries in all Baltic nations were thriving, partially because they began servicing flows of Russia and the rest of the former Soviet Union nations. According to regulators, a lot of banks started opening accounts for individuals and companies based in other countries (called ‘non-residential portfolios’), not questioning who the individuals were or where the cash came from. Due to tighter regulations, over the past decade banks have ceased doing business with clients who are believed to be dodgy, but past practices have left their mark on the Baltics’ banking industry.
Estimating the scale of the criminal activity is a difficult task due to launderers’ hard work to disguise the origin of their money and the fact that not every transaction that looks questionable is actually illegal. A team of researchers estimated in 2017 that Russians’ offshore wealth is about $1 trillion, or the equivalent to three-quarters of the country’s GDP in 2015.
Where are the regulators?
The key paradox in all of this is the lack of a centralised European authority tasked with investigating and prosecuting money laundering cases. To this day, the authorities that have been expected to investigate financial crime allegations have been local police and national regulators, which naturally leads to a mishmash of different laws and practices.
The key paradox in all of this is the lack of a centralised European authority tasked with investigating and prosecuting money laundering cases.
In September last year, in an attempt to tackle money laundering, the European Commission proposed tightening regulations and changing banking supervision, however, the introduction of a centralised agency is not on the agenda. For a long time, the European Banking Authority (EBA) has mentioned its physical inabilities to combat financial crime in the EU’s 28 states, due to being understaffed and not having enough power. At present, only two out of EBA’s 170 staff members work on money laundering cases.
The one thing that is perfectly clear is that the existing gaps need to be filled – exploiting the European banking system shouldn't be as easy as it seems to be. Relying on two people to monitor and investigate financial crime across all EU member states and all of their banks is unacceptable. Harmonising existing rules in the EU to investigate and punish money laundering would be a good place to start, but ultimately, the European Commission needs to increase its efforts in the fight against money laundering and introduce a centralised authority to crack down on flows of dirty money.
Below Nicola Sharp of Rahman Ravelli, considers the Danske Bank scandal and wonders why so many banks are weak on money laundering prevention.
Thomas Borgen’s reign as CEO of Danske Bank has ended after the board recently ousted him as CEO with immediate effect. The announcement came after revelations about the huge scale of money laundering that Denmark’s biggest bank had allowed to happen at its Estonian branch.
The bank’s decision to part ways with Borgen came after Danske finally admitted that most of the €200 billion (£178 billion) that had passed through its Estonian branch between 2007 and 2015 was money that was being laundered. The money in question was being moved illegally out of Russia, the UK and the British Virgin Islands.
Danske stated that its investigation had discovered “a series of major deficiencies” in its money laundering controls, with more than half of its 15,000 customers in Estonia now being treated as suspicious. It found that several dozen Danske staff may have colluded with customers to evade background and security checks. The bank has reported some past and present employees to the Estonian police.
Amid the resignation and admissions of wrongdoing, the bank’s chairman Ole Andersen talked of deplorable, unacceptable and unpleasant activity and inadequate controls
But Danske only admitted the scale of the problem after increasing political pressure and an announcement by US law enforcement agencies that they would be beginning their own investigation. And Borgen, who was in charge of Danske’s international operations - including Estonia - before becoming CEO in 2013, had previously dismissed other executives’ concerns about Estonia. In a 2010 investigation, he had stated that he had found nothing “that could give rise to concern”.
An independent report by a Danish law firm found that, under Borgen, the Estonian branch had not disclosed the full situation to Danske’s board. Borgen has stated that the law firm’s investigation found that he did not break the law but that he believes his resignation is “best for all parties’’.
His departure may well be best for all parties. But it does little to remove concerns about what could be called at best large-scale failings – and at worst, out-and-out criminal behaviour. Danske’s admissions come just weeks after Dutch bank ING paid €775M to settle an investigation that it had failed to detect money laundering. And 2017 saw Germany’s Deutsche Bank fined almost $700M for helping wealthy Russians move $10 billion out of the country.
Those with longer memories may wonder why such scandals are still occurring, 27 years after the catastrophic $20 billion collapse of the Bank of Credit and Commerce International amid criminality on a huge scale. The post mortem on BCCI uncovered global corruption, with it being involved – among other things - in worldwide money laundering and bribery of officials, support for terrorism, tax evasion and arms trafficking.
Danske’s problems seem to indicate how little we have progressed. Surely anyone who remembers BBCI will experience an unpleasant sense of déjà vu when reading about Danske or ING or Deutsche Bank – or whoever the next bank is that is caught failing spectacularly to meet its legal obligations.
Have the banks learnt absolutely nothing since BBCI fell apart in July 1991? And if not, is there any other profession that has made such little progress in crime prevention in almost three decades?
As yet, we cannot be 100 per cent sure whether Thomas Borgen has gone because he is responsible for what went on or because he feels that someone should be accountable and, as CEO, that person should be him. No doubt the criminal investigations that are being set in motion will produce a list of current or ex-Danske staff who will – at the very least – face some very difficult questions. It would beggar belief if a number of them are not prosecuted.
But it is important that Danske - and any other bank for that matter – does not fall into the trap of believing that one scandal ending with an investigation and, possibly, a number of prosecutions means that the problems have somehow magically disappeared. The potential for money laundering will never disappear unless each and every bank assesses thoroughly its vulnerability to it and devises and implements proper preventative procedures.
Without such an informed approach to tackling the problem of money laundering there will always be the likelihood of it happening. That is not scaremongering, it is a simple fact. There are enough people looking to move the proceeds of crime around the world and many, if not all, of them will look to induce banks to do that work for them.
It is up to the banks, therefore, to ensure they are protected from such a possibility. If they are not, they have no one to blame but themselves. Each and every bank may not have the necessary expertise under its roof to ensure it can always function in a corruption-free, legal way. But every bank can seek that expertise from outside experts.
The advice is there. The banks have to obtain it, act on it and ensure they are not vulnerable to the money launderers. If they fail to do this, they will be joining Danske and Mr Borgen on an ever-lengthening list of banks that paid the price for having poor precautions in place.
England might not have made it to the final, which saw France and Croatia square up and France victorious, but the real winner of the 2018 FIFA World Cup has been Russia. The nation has seen a major boost in tourism interest, from the UK in particular, during the monumental tournament, reports CheapOair.co.uk.
During the first week of the football tournament, CheapOair.co.uk saw a major uplift in its flight searches to the host nation as figures came in 232% higher than the average weekly search volume. This momentum continued the following week, 17-23 June 2018, as the average weekly number of searches Brits made had peaked at 227%.
Similarly, throughout the pre-event build-up the flight search windows between 11-17 March and 18-24 March 2018 saw a significant increase, as potential bookers were searching 182% and 160% higher than the average weekly search volume.
This goes to show that the football fixtures were not only a cause for celebration amongst football fans but also for the Russian economy, as businesses in its numerous host cities for the games have benefited from an influx in British tourists.
(Source: CheapOair)
So if you clicked this article because you want to know how much the literal world cup trophy costs, it’s currently estimated at a total $10 million, or in fact more than two human figures cast in 18 carat gold, but that’s not what this is about.
For the consumers, the ticket prices alone are eye-watering. Standard category tickets for the knockout stage matches set fans back around £2,458 ($3,249), while the group stages will have cost £2,631 ($3,477) combined. All in all, that’s around 22% of the UK’s average annual salary. Plus, flights at anywhere between £600 ($793) and £1,500 ($1,983) depending on where you are in the world, insurance at £41 ($54), and hotels at around £987 ($1,305) and counting, the cost of the world cup is a small fortune for any individual fans attending the competition.
However, the true cost of the world cup extends far beyond what most can imagine. If you take into account the cost on the host nations, the funds handled by FIFA and national football associations, the money lost in advertising, operations, infrastructure and accommodating resources for businesses worldwide, from an economic perspective the overall break-even after losses and profits is highly questionable.
This year companies in the UK witnessed a blackout the morning after some of the England games; employees just didn’t turn up to work. The estimated loss figure for employees ‘pulling sickies’ reaches £500 million ($661 million) nationwide. After the England Vs Columbia game, millions of football fans were expected to call in sick, and they did. While each individual case may seem like nothing much, all together, a £500 million loss in a day is a big hit for the economy. Realistically, other football fanatic nations may have suffered a similar fate the day after their respective teams played.
But the real cost of the world cup extends much further still, and its biggest catalyst, hosting the 32-nation tournament, touches a sensitive socioeconomic nerve. While the surge of a national team in the tournament can bring a much-needed economic boost, £2.6 billion is expected to flood into the UK economy should England reach the final on July 15th, the true cost of the World Cup is always counted in billions and can cause significant issues for the host country.
The 2014 world cup in Brazil was forecast to positively impact economies anywhere between $3 billion to $14 billion. The positive economic impact of the 2010 world cup in South Africa was estimated at $5 billion; the 2006 world cup in Germany at $12 billion and the 2002 world cup in Japan & South Korea at $9 billion. The 2014 brazil world cup was due to add an estimated $30 billion to Brazil’s GDP between 2010 and 2014.
From TV rights fees to sponsorships and ticket sales, FIFA made $4.8 billion in revenue from the tournament in Brazil, with an expense of $2.2 billion, most of which comprised funding to teams and TV production costs. $100 million of the expense was the legacy payment given to Brazil. This did not however cover the costs of building and renovating 12 stadiums and developing the appropriate transport infrastructure needed to host the world cup. The overall cost of this has been estimated at around $15 billion, most of which was public funded.
On top of this further costs incurred due to overruns, legacy concerns and missed constructions deadlines. Some of the stadiums remained unfinished or untested prior to the launch of the 2014 event. In addition, many protests erupted throughout the country calling out the troublesome impact of the world cup on day to day living in Brazil, from the way public transport was handled to the way policing was affected.
The harsh truth is that many of those stadiums remain unfulfilled and unused now. Sure, they were put to good use during the world cup in 2014, but in 2018 these stand desolate, while basic social services are underfunded and lack the capital for development. Billions in capital that could have not been spent on the world cup. One of the 12 stadiums built is the Arena da Amazônia in Manaus. Situated in the middle of the jungle, without a proper top-flight football team, a 45,000-seat stadium is unnecessary. In order to build this stadium, some parts had to be transported by boat through the Amazonian jungle.
To add to the frustration of Brazilians that year, their world cup team suffered a crushing 7-1 defeat against the Germans in the semi-finals.
After being selected to host the 2018 world Cup back in 2010, Moscow has aimed for Russia to stand out as a global superpower and host the world cup in order to benefit from a big economic boost in the long term. The results of the latter are still to be seen, though in terms of media coverage and PR, Russia has been doing pretty well, with many global fans claiming that from a social and economic stand point, Russia is a far better nation than most believe it to be.
We’re currently just past the half way line in the 2018 Russia world cup and the cost is already mounting. The overall cost of Russia hosting the world cup is reported at $14.2 billion, making it the most expensive in history thus far. Russian media channels report that most of this cost consist of repairs and renovation to existing airports and transport systems as well as building 12 new stadiums, 11 new airport terminals, 12 new roads and three new metro stations in the run up to the competition. To support these, further infrastructure such as hospitals, power stations, and hotels were also injected with cash. Clearly, Russia thought it had better odds than Brazil when it came to the long-term economic advantages of hosting the world cup.
In terms of sponsorships, of 34 potential slots offered by FIFA for the 2018 world cup in Russia, 19 were filled, mostly by Russia themselves, and China (despite not even having a team in the tournament) and Qatar. KPMG currently estimates sponsorships have made FIFA over $1.6 billion. Statista has estimated around 1,000,000 foreign fans to attend the games from the first kick off to the final whistle, with a further 2 million domestic fans in the mix. FIFA says around 98% of tickets were sold, but this hasn’t always appeared to be the case in some matches.
Once the world cup is over, it’s difficult to say whether Russia’s massive investment, the biggest yet, will reap long lasting benefits from hosting the competition. But if Brazil is to be an example, probably the worst of many, then Russia is arguably set to lose from the deal, at least financially. Although the injection of cash means they will have a few more hospitals and better airports in the long term, from a future football perspective the stadiums that were purposely built for the world cup will likely not bring much revenue back for Russia in years to come, leaving the expenditure as a substantial one-off outlay, albeit it for a very rich country.
At least high hopes still remain for the Russian football team in the 2018 world cup, as they face Croatia this Saturday in the quarter finals. If they win, maybe things will look a little brighter.
Sources: https://www.vanquis.co.uk/the-cost-of-the-world-cup-2018 http://www.cityam.com/288622/cost-football-coming-home-england-fans http://theconversation.com/hard-evidence-what-is-the-world-cup-worth-27401 http://uk.businessinsider.com/fifa-brazil-world-cup-revenue-2015-3 http://www.businessinsider.com/brazil-world-cup-stadiums-2014-6?IR=T https://www.theguardian.com/world/2013/jun/18/brazil-protests-erupt-huge-scale https://www.bbc.co.uk/sport/football/30642071 https://www.cambridge-news.co.uk/news/uk-world-news/people-sickies-work-world-cup-14864331 https://www.fool.com/slideshow/games-cost-russia-14-billion-9-wild-world-cup-money-stats https://www.forbes.com/sites/jamesrodgerseurope/2018/07/02/world-cup-2018-wins-for-russia-on-and-off-the-field/2/#7cab1dfb1e3b https://uk.reuters.com/article/uk-soccer-worldcup-col-eng-penalty/this-time-england-left-nothing-to-chance-in-shoot-out-idUKKBN1JU1T6 https://www.bbc.co.uk/news/business-44711254
Russia’s plan to launch its own cryptocurrency, dubbed the ‘CryptoRuble’, is currently unfolding as President Vladimir Putin has given the green light for its go ahead.
This move will put Russia on the digital currency market and consequently allow Russian currency to rival the current cryptocurrency leaders such as Bitcoin, Bitcoin Cash and Ethereum.
Minister Nikolay Nikiforov, the Russian government’s Top Communications Official, says the authorities plan to completely regulate the ‘CryptoRuble’.
“I am so confident to declare that we will run CryptoRuble just for one simple reason: if we don’t, our neighbours in the Eurasian Economic Community will do it in a couple of months,” He told Russia Today.
“When buying and selling a CryptoRuble, the rate will be 13 percent from the earned difference. If the owner cannot explain the reason for the appearance of his CryptoRubles, when converting them into Russian rubles, the tax for him will be 13 percent of the total,” he continued.
However, Andrei Barysevich, Director of Advanced Collection at Recorded Future, seems to think Russia has missed the mark on this matter:
"With the widespread introduction of supporting infrastructure only available to the government-backed cryptocurrency and swift oppressive regulations aimed at bitcoin and other blockchain currencies, the Russian government is frantically attempting to regain the control of the “runaway train" by introducing a legitimate alternative.However, Russian lawmakers seem to be missing the main point.
“Aside from criminals, the majority of the people purchase bitcoins, not because of convenience or anonymity, but rather the staggering profit levels it provides. The Russian Government is unlikely to see a widespread adoption of the CryptoRubles unless Moscow is able to convince people that the value of it will surge."
Do you think governments introducing cryptocurrencies is a strong move in opposition of digital currencies, or that it may actually function via central regulation and oversight?
The IMF has cut its global growth forecast for 2015 to 3.5%, down 0.3% from its October prediction. It expects a lower oil price to be positive for the global economy, but to be offset by negative factors.
The IMF believes a lower oil price will stimulate more growth in advanced economies that import oil rather than in emerging economies, as the benefit feeds more directly through to consumers. In many developing nations, like India, the government subsidises energy consumption, therefore the government tends to benefit from price drops.
However, the IMF believes the US will see strong growth in 2015, helping push the global economy upwards. The US is forecast to see 3.6% growth in 2015, up 0.5% from the IMF’s October forecast.
Meanwhile the IMF sounds notes of concern over Russia, and China. The Russian economy is expected to contract by 3% in 2015, while China is expected to grow by 6.8%, a 0.3% reduction from October's forecast. This follows on official data just released showing Chinese growth slowed to 7.4% in 2014, an enviable level of growth for advanced economies, but its lowest level in 24 years.
European growth has been downgraded and is now expected to come in at 1.2%, down 0.2% from October. However, Spain provides a European bright spot, with 2% growth expected this year, up 0.3% on October's forecast. The UK is expected to grow by 2.7% in 2015, unchanged from October.
“Economic forecasts of this nature are more like a dowsing rod than a GPS tracking system, but they do confirm what market behaviour suggests- that uncertainty has increased in recent months,” said Laith Khalaf, Senior Analyst for UK-based financial service company Hargreaves Lansdown.
“The falling oil price is of course a major source of instability, though as the IMF notes this should be a boost to global economic activity, albeit with winners and losers.
“The US remains teacher's pet, with the growth forecast for the world's most influential economy revised sharply upwards. At the other end of the spectrum Russia is expected to suffer a 3% contracting in its economy over 2015, as a result of its high exposure to oil and gas production.
“While the IMF strikes a largely negative tone, stock markets have already absorbed much, if not all of the information referred to in these forecasts. For instance Russian and Chinese stocks are already looking relatively inexpensive by historical standards, while US companies are more fully valued, reflecting the respective conditions and confidence in these economies.”
