Depending on who you ask, Estonia ranks as either the very lowest or very highest in the world for money laundering risks.
Credible and independent international experts on anti-money laundering rank Estonia as among the very best in the world at combating the problem, while Kremlin propaganda seeks to portray Estonia and other neighbouring countries it is hostile to as being directly involved in money laundering. One RT news article from 2018 even described Estonia as ‘the money laundering capital of the world’.
The topic of money laundering is back in the news and pro-Kremlin voices are continuing to push their own narratives around the subject so it’s worth exploring why there is such a large contrast between what the experts say and what the Russian media says.
At the heart of this conflict in perceptions is a scandal involving Danske Bank that occurred between 2007 and 2015, which is first worth understanding.
The Danske scandal
Danske Bank, Denmark’s largest bank, last week pleaded guilty in the US to banking fraud centered around a branch it once had located in Estonia. As part of the settlement, the company agreed to a criminal forfeiture of more than $2 billion.
The scandal came to light in 2017, after which Estonia launched an investigation, arrested 10 ex-employees, ordered the branch to close, enacted reforms to enhance anti-money laundering measures, and worked in very close co-operation with other international investigators, including in the US, which led to this latest settlement. Such is the robustness of Estonia’s response that the original whistle blower who exposed the scandal has highly praised Estonia for its handling of the case.
The scandal is occasionally referred to as ‘the Estonian money laundering scandal’, a term preferred by Kremlin-aligned commentators, but that doesn’t reflect the very international nature of the crimes and where the failures to prevent it occurred.
The story is complicated, but it essentially contains three core elements. There’s the bank branch that facilitated the money laundering with what prosecutors said was its awareness that it was failing in its responsibilities to prevent money laundering. There are the shell companies that it opened bank accounts for and that were used to launder the money. And there’s the laundered money itself by criminal groups.
Despite the location of the branch, there was relatively little that could be described as Estonian about these three elements.
The bank branch was acquired by Danske in 2007 shortly before the scandal began. At that point, the branch came under the supervision of the Danish Financial Supervisory Authority, which was responsible for supervising the governance of the entire bank, including its branches. Estonia’s own financial authority, Finantsinspektsioon, was only handed responsibility in the wake of the scandal coming to light at which point it took the firmest possible action.
The shell companies, which concealed the identity of the owners, were mostly registered in western European companies. In fact, the very concept of a shell company doesn’t exist in Estonia as Estonia has one of the world’s highest standards for transparency in business. All key company details, including ownership, are verified through the use of Estonia’s secure, government-backed digital ID system, which even non-residents use as ‘e-residents’. This information for every Estonian company is then publicly displayed, allowing anyone – from potential customers and partners to journalists – to openly explore. So every company can be traced back to a real person who is accountable and authorities take seriously any accusations of someone acting as a shadow owner or board member on behalf of a real beneficial owner.
Finally, there is the money itself. The incoming funds came from more than 150 countries with Russian and Azerbaijani Laundromats identified in reports as central to the fraud.
Weaponising the narrative
Describing this as an ‘Estonian money laundering scandal’ negatively impacts Estonia’s reputation internationally and yet Estonia’s most crucial role in the scandal was to close it down.
Russian state media, however, decided to build on its own narrative further – instead of exploring Russia’s own significant involvement in the scandal. That’s what led to the RT article describing Estonia as ‘the money laundering capital of the world’ beneath a headline that claimed Estonia ‘may have laundered a staggering $1 trillion in dirty money’.
To generate that figure, they took a sum from a report into the scandal that mentioned for context that €1.1 trillion was the total sum of all cross-border transactions in Estonia between 2008 and 2017. That figure clearly did not refer to the total amount of laundered money. It’s logically absurd because that would need to assume that Estonia’s economy is totally isolated from the world and has zero legitimate cross-border transactions. In fact, at 3.1 times its GDP, this figure is the normal amount expected for Estonia’s economy. It is substantially below the European average based on a GDP multiplier and about the same ratio as Belgium, France & Finland, while lower than Germany.
Yet, in addition to the renewed attention to the scandal as a result of Danske’s guilty plea, the wider narrative that Estonia and Eastern Europe in general, particularly Ukraine, is prone to money laundering has been growing within Kremlin propaganda and those supportive of Russia in its brutal war against Ukraine.
The narrative has been used, for example, to dissuade the international community from supplying Ukraine by arguing that anything delivered would be wasted. It is, of course, more than a little suspicious that pro-Kremlin voices would suddenly care about the West not wasting its resources, particularly military supplies. It also directly contradicts domestic Russian propaganda, which tells Russian audiences that their military is only struggling in Ukraine precisely because of Western support to Ukraine. In reality, western donor groups generally keep close contact with those in Ukraine they are supplying and understand how their supplies are being used. The final absurdity with this Kremlin narrative is that it claims that Ukraine’s undeniable progress in reclaiming territory has been achieved without significant amount of international supplies. Ukraine’s successes on the battlefield are the most convincing audit of how well Ukraine is using international donations.
In addition, there has even been voices within Russia’s own opposition using this same Kremlin narrative to argue that countries like Estonia or the West in general bear greater responsibility for sustaining Putin’s regime. While more needs to be done around the world to shut down money laundering that benefits the Putin regime, the main effect of this narrative used in that way is to deflect and generate domestic apathy against taking responsibility inside Russia for Putin and his actions.
What the experts say
This narrative is in sharp contrast to what the international experts on money laundering say about Estonia.
The Basel Institute on Governance has the most in-depth assessments of how countries combat money laundering through factors such as transparency, accountability, legal frameworks, and political risks. It’s known as the Basel AML Index.
While Estonia was dealing with the aftermath of the Danske scandal coming to light, that index ranked Estonia as 2nd best in the world for combating money laundering in 2018.
This year, Estonia doesn’t feature in the condensed list of 128 jurisdictions assessed most fully (which is the one that makes the headlines), but the full report on all 203 jurisdictions assessed (which is available to researchers and journalists for free, as well as paid subscribers) currently ranks Estonia as number one in the world for having the very lowest money laundering risks.
Despite this, there is certainly no room for complacency, as highlighted by the Danske scandal. Money laundering is a persistent and constantly evolving threat. These are crimes that don’t just enable members of authoritarian regimes to increase their own personal wealth, but also export corruption that rots societies elsewhere. Risks will never be zero and all countries must continuously remain vigilant while improving their methods at combating it.