Bank suspected of money laundering was closed down overnight

Many readers probably have never heard of Versobank.  It only has some 5,600 clients, 2,000 of them Estonia’s residents. It is one of the smallest credit institutions in the local market.  The bank has become more widely known only due to money laundering scandals. That is what proved fatal to it.

The Financial Supervision Authority announced March 26 that it has discovered a number of drawbacks in the bank’s activities in 2015-2017 concerning measures against money laundering the financing of terrorism. Versobank’s inadequacies were long-term and systemic and the bank failed to liquidate them even after the regulator’s intervention. Moreover, they were involved in illegal banking operations in Latvia and submitted misleading information to the supervisor, the regulator listed the bank’s mistakes. Kilvar Kessler, head of the Financial Supervision Authority, did not agree to specify the bank’s role in the international money laundering scandals, which have hit Estonia recently.

However, he did let it slip out at the news conference that due to the violations of the Versobank management, the bank’s clients had been involved in the infamous Russian “Laundromat” and Azerbaijan money laundering schemes, which resulted in the moving of billions of euros worth of dirty money through Estonia. Both Postimees and Äripäev earned the Bonnier award for making the schemes public. 

Although the main actor of the money laundering scandals was the local subsidiary of the Danske Bank, the investigating journalists’ effort showed that more than 205 million euros were transferred via the Versobank accounts. Yet the police assured on March 26 that they have no ongoing investigations regarding money laundering suspicions in Versobank.

Kessler said that since the financial intermediaries are one of the first and most important lines of defense in combating money laundering and the financing of terrorism, such inadequacies cannot be tolerated. He emphasized that the closing down of Versobank sends a clear message that Estonia does not tolerate breaches of anti-money laundering and combating of terrorism law.

Since Versobank is a small actor even in the Estonian market, its disappearance has no major effect on Estonia’s financial system. Neither does it affect Estonia’s other banks. The Financial Supervision Authority and the Bank of Estonia stressed that repeatedly.

Aivo Adamson, CEO of Versobank, said that they are devastated by the decision. “We were prepared for any other punishment but closing down was too harsh. We did not deserve that harsh a punishment,” the bank manager expressed his initial emotions. Adamson said that they had expected more lenient sanctions, for example a fine or ban on operating in certain business segments.

Versobank received a new four-member management board last November. “Would I have invited new people if I had known that such a fiasco is coming up?” Adamson asked. “Never. This is why we struggled so hard to get rid of the money laundering reputation and help the bank get a new lease of life.  I am sorry for the people I invited here. I did not promise them paradise, but what happened now is too much,” the bank manager said.

Adamson’s main objection is that the main harm had already been done by July 2017 when he took over heading the bank. “The boat was already full of water. I started to pump it our but then someone cut the hose and punched some more holes through the bottom,” he said. “We cannot change history. The facts are what they are.”

The bank manger added that they had reformed the bank’s structure during the past six months and reduced money laundering risks. Last year they closed 1,370 suspicious non-resident accounts.

Besides that, bank offices in Baku and St. Petersburg were closed. The dispute with the Latvian financial regulator was settled. “We closed a number of contracts with agent banks. We changed 40 officials. We formed a new board. We built it all up as require within a brief time, but still it was not enough,” he complained.