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Quick action on Baltic money laundering limits SEB share price hit

Skandinaviska Enskilda Banken AB shares received a 3.4% boost Nov. 27 despite new money laundering allegations against the bank.

The Swedish lender appears to have been quicker than Nordic peers to strengthen anti-money laundering, or AML, controls in the Baltics, one group of analysts said.

An investigative program by Swedish public broadcaster SVT, posted online on the morning of Nov. 27 and broadcast in Sweden later that day, linked SEB to the Russian tax fraud uncovered by the accountant Sergei Magnitsky, who was beaten and died in a Russian prison in 2009.

It said a list of 194 of SEB's corporate clients included names associated with well-known proxies for Russian nonresident companies suspected of money laundering, and that roughly 2,000 transactions, totaling approximately 475 million Swedish kronor, moved through their accounts at SEB.

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The news of the SVT program, Uppdrag granskning, had already hit SEB's shares ahead of its broadcast. On Nov. 15, shares plunged by more than 12%, to 81.35 kronor from 92.78 kronor at its previous close, when the bank disclosed it had received questions from the broadcaster about the case.

SEB's Swedish peer Swedbank AB (publ) saw its share price drop by 40% in just nine months amid a range of allegations reported by Uppdrag granskning.

Suspicious flows peaked early

Since SEB's share price plunge, the bank has released a number of statements to reassure the market. On Nov. 19, it said it had received the 194 corporate names from SVT and that about 95% of the customer relationships had been terminated.

On Nov. 26, the evening before the SVT broadcast, SEB further published historical transactional data for the Baltics, saying that since 2006, after the bank was criticized by the Estonian financial supervisory authority for its handling of nonresident clients and received information from an external whistleblower, SEB has taken "considerable measures" in order to minimize the risk of being exploited for money laundering in the region. This includes ending a large number of customer relations and reporting suspicious activities to relevant financial police. According to SEB, approximately 95% of historical "low-transparency" flows stem from Estonia, totaling €25.8 billion over the past 14 years.

This information could likely go some way to explain the beginning recovery of the SEB share price. On Nov. 27, it rose to 82.66 kronor from 79.92 kronor. As of 1:30 p.m. Stockholm time Nov. 28, the share price was 82.00 kronor.

"The [SEB transactional] data suggest that SEB is likely to have been used for money laundering in Estonia but on a lower scale than some of its Nordic peers, in particular over the past 10 years," analysts from DNB Markets said in a research paper Nov. 26. The note highlighted the fact that annual flows by the low-transparency customer group fell by 90% from the peak in 2006 to 2010, after which they continued to trend down towards zero by 2017.

According to DNB Markets, the total suspicious flows appear to have been "consistently lower" and peaked some seven to 10 years earlier than those of Danske Bank A/S and Swedbank. This supports SEB's claim that it strengthened its AML routines in Estonia after 2006, it said.

This view was echoed by other analysts quoted in the Swedish media.

"We believe the relatively distant timing of the bulk of the flows is a mitigating factor for sanctions risk since AML regulations have been tightened over the years e.g. by the EU's third money laundering directive, implemented into Swedish law in 2009," the research note said.

As of Nov. 27, US$1 was equivalent to 9.59 Swedish kronor.