New York DFS Fines SEB $33 Million Over Anti-Money Laundering Failures Following Panama Papers Investigation

Key Takeaways

• $33 Million Settlement: The New York State Department of Financial Services (DFS) has secured a $33 million penalty against Skandinaviska Enskilda Banken AB (SEB) and its New York branch for anti-money laundering compliance failures.
• Panama Papers Investigation: The settlement concludes an investigation stemming from the 2016 Panama Papers leak, which prompted DFS to examine regulated financial institutions' connections to the law firm Mossack Fonseca.
• Customer Due Diligence Failures: DFS identified inadequate oversight of high-risk customers and correspondent banking partners, deficient customer files, inaccurate money laundering risk assessments, and outdated procedures.
• Baltic Transaction Monitoring Deficiencies: SEB's subsidiaries in Estonia, Latvia, and Lithuania experienced transaction monitoring backlogs that delayed reviews for potential money laundering and sanctions risks.
• Exposure to Financial Crime Risks: DFS found that the deficiencies exposed the bank and the New York financial market to heightened risks, although the announcement did not establish that specific transactions involved confirmed money laundering.

Deep Dive

A New York investigation that began with the Panama Papers disclosures a decade ago has resulted in a $33 million penalty against Swedish banking group Skandinaviska Enskilda Banken AB (SEB) for failures in its anti-money laundering controls and transaction monitoring operations.

The New York State Department of Financial Services (DFS) announced the settlement on October 15, finding that SEB and its New York branch had failed to maintain adequate safeguards against financial crime risks. The deficiencies included shortcomings in customer due diligence, oversight of high-risk correspondent banking relationships, and transaction monitoring at the bank's subsidiaries in Estonia, Latvia, and Lithuania.

SEB agreed to pay the penalty under a consent order resolving the Department's investigation into its compliance with New York Banking Law.

The inquiry followed the 2016 Panama Papers leak, which exposed millions of records from the Panamanian law firm Mossack Fonseca and raised questions about the role of financial institutions in offshore financial arrangements. DFS subsequently began examining its licensees' connections to the firm, including SEB.

The investigation uncovered deficiencies in the bank's Bank Secrecy Act/Anti-Money Laundering (BSA/AML) program, particularly its handling of customers and banking relationships presenting heightened money laundering risks.

According to DFS, SEB failed to conduct adequate customer due diligence and had not implemented sufficient measures to mitigate risks associated with high-risk clients. The Department concluded that those weaknesses exposed the New York financial market to potential money laundering activity.

Investigators also identified shortcomings in the bank's correspondent banking operations, through which financial institutions provide services to other banks, including those operating in foreign jurisdictions.

DFS found that SEB had failed to conduct adequate due diligence on high-risk correspondent banking partners, including foreign financial institutions. Customer files were deficient, anti-money laundering risks had been miscalculated, and procedures governing correspondent banking relationships had not been properly updated.

The findings raised concerns about the information available to SEB when assessing the risks associated with its banking partners and whether its compliance procedures were adequate for the relationships it maintained.

Transaction Monitoring Failures in the Baltics

The investigation also examined SEB's subsidiaries in Estonia, Latvia, and Lithuania, where DFS found deficiencies in systems responsible for identifying suspicious financial activity.

According to the Department, transaction monitoring backlogs prevented the bank from reviewing certain transactions promptly for potential money laundering and sanctions risks. The delays increased the possibility that suspicious transactions could proceed without timely examination.

The findings concerned the bank's ability to detect and respond to potentially illicit activity. The DFS announcement did not identify specific transactions as criminal or establish that the monitoring failures had resulted in confirmed money laundering.

The problems identified in the Baltic subsidiaries formed part of the Department's broader examination of SEB's compliance arrangements, despite the operations being located outside New York.

The investigation found deficiencies across several essential components of the bank's financial crime controls, including the assessment of customer risk, the oversight of correspondent banking relationships, and the timely review of potentially suspicious transactions.

“Financial institutions must adhere to New York's rigorous laws and regulations to safeguard the integrity of the financial system,” said DFS Acting Superintendent Kaitlin Asrow. “The Department will hold entities accountable that fail to meet those standards.”

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