Nordea - Nordic banking leader

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A webinar like this coming up in a couple of weeks on May 12th: Talouden pyöreä pöytä: Hypeä vai hyötyjä? Tekoälyn todellinen rooli finanssialalla 12.5. | Finanssiala
Registration: Talouden pyöreä pöytä: Hypeä vai hyötyjä? Tekoälyn todellinen rooli finanssialalla

When Danske Bank released its Q1 results this morning, it also announced an update to its targets for the coming years and stated that regarding AI, it will soon achieve nearly EUR 300 million in annual productivity benefits.

From the Danske Bank press release:

Towards 2028, we will continue to scale agentic AI, fully modernise our technology stack and deliver AI-enabled customer interaction and operational processes across all business segments, all within a robust risk and compliance framework. This allows advisers to spend more time on value-adding customer dialogue, while technology supports preparation, insights and execution.

We invest in AI to create better outcomes for our customers, strengthen advisory services and improve productivity, and we expect AI and other technology initiatives to enable annual productivity benefits of around DKK 2 billion by 2028, supporting our financial targets. Forward '28 is a growth strategy, and the ambition is to grow income while maintaining a stable cost base. This is partly done by leveraging our scalable technology platform to increase productivity – our advisers are able to better and more efficiently support our customers.

To support the execution of Forward '28, we will again increase annual investments in core technology, AI-enabled platforms and advisory capabilities from around DKK 4.0 billion to around DKK 4.5 billion. This strengthens our ability to scale and accelerate AI deployment and deliver simpler, more efficient and more personalised customer journeys, while supporting productivity improvements towards 2028.

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It’s strange how this news is spreading in the international media, yet there’s no mention of it in Finnish outlets? The Danish FSA (Finanstilsynet) has referred Nordea to the police for investigation regarding AML matters. Usually, if it reaches this point, the evidence is already substantial. The news text highlights things like credit card KYC, but that makes it sound like a relatively minor deficiency to warrant a police investigation. However, the FSA emphasizes that this involves a very large group of customers. In practice, minor infractions would be handled with administrative sanctions, but if the regulator moves to a criminal investigation, the regulator’s own inspectors have already seen clear signs that criminal liability is involved. This means the activity could be extensive and intentional or grossly negligent, and criminal liability may also extend to specific individuals in management.

This is, in a way, a continuation of the investigation related to the years 2012–2015, for which charges have already been filed. Those concerned approximately 3.5 billion euros in Russian-linked transactions. It doesn’t look good if lessons haven’t been learned from that. The risk that a record investigation leads to record fines has increased. Nordea still seems to have a 95 million euro provision for AML-related fines, but that might not be enough. In August, Nordea already paid a smaller 35M fine to the United States for similar deficiencies.

Nordea has defended itself by stating that the audit did not find actual “laundered euros,” but rather that it was just a case of missing risk assessments in the paperwork. This claim is likely technically true, at least. The problem is that the financial supervisor generally does not aim to prove actual money laundering through audits, nor does it likely have the resources for it. That is specifically the police’s job. The supervisor can issue reprimands regarding processes and flag suspicious transactions, but if concrete money laundering has occurred, they likely cannot cite it until a police investigation has examined those cases.

Nordea’s reasoning is also a bit of a circular argument. If the bank hasn’t collected information on customers’ use of funds in the first place (as the FSA claims), it is almost impossible to say based on the bank’s internal data—without external investigations—whether money has been laundered or not.

Repeated infractions tend to increase the amount of fines. Especially now, when preventing the laundering of Russian money has become a massive geopolitical interest for all of Europe, Nordea might be made into a cautionary example if the charges hold up.

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The Wall Street Journal reports that Anthropic is offering an AI tool for banking use and thus for crime prevention:

An AI bot may soon be policing millions of bank accounts for financial crimes. Anthropic and Fidelity National Information Services, or FIS, the financial software provider that underpins a swath of the financial system, announced a partnership late Monday to develop new artificial-intelligence tools for banks.

FIS stock is up approximately 5%.

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Oh boy. This is market manipulation targeted at the readers of the Inderes forum. Perhaps the FIN-FSA (Fiva) will have a chat with Mauski later (Though that won’t happen due to FIN-FSA’s inertia. In this case, however, one could investigate Mauski’s interests, as even a few percent can make a lot of money…).

No sensible authority is going to start digging into matters from 2012–2015 anymore. Those are settled. In Denmark, however, there has been a need to punish others besides Danske.

This case of Nordea’s subsidiary, Nordea Finance Danmark, has nothing to do with what happened 14 years ago. Even for this case, Nordea has made a provision of about €100M, which we will likely receive as dividends next year. And it won’t affect them, except perhaps upwards.

Rubbish, Mauski. Total rubbish.

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Nordea is directly under the supervision of the ECB due to its size, not the FSA (Fiva). Nordea’s supervision consists of a multinational group, and there are likely several inspections targeting different areas ongoing at all times.

It is worth checking the FSA Act to see what kind of “bonuses” (administrative fines/penalties) the FSA can impose on those it supervises. I believe the ECB has similar mandates. They could well be a certain percentage of turnover.

Then to the matter itself: the functionality of risk management is essential for financial companies. If a company is lax or even incompetently negligent in that regard, and if they operate with a certain attitude, the distribution of these “bonuses” may be sealed. Laws and regulations are conveniently vague enough that justifications can likely be found. “Operational risks must be managed.” “Processes related to money laundering and terrorist financing must be in order.” Etc.

Somehow, OmaSP is the first that comes to mind regarding attitude, but this is probably an illusion and more of a colored image formed from media coverage. Since a police investigation has been launched, I consider a supervisor “bonus” possible. Taavetti believes that Nordea has neglected its AML (Anti-Money Laundering) obligations. If those risk assessments are not on paper, they don’t exist anywhere, and Nordea clearly has something rotten in its prevention of terrorist financing. Unfortunately, as Taavetti is also a shareholder.

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When considering potential fines, it is worth noting that Nordea Finance Denmark is a relatively small part of the group, and the card business is only a fraction of that.

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A very valid point. Looking at the figures, it is a completely different story to pay a potential turnover-based fine when dealing with a subsidiary with €130 million in revenue versus the entire group with €12 billion in revenue. These figures are from 2024.

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Sigh. They are not done and dusted. Charges for the 2012-2015 case were only brought in July 2024, and the legal process is ongoing.

In this case, one could actually investigate Mauski’s interests, as even a couple of percent can make a lot of money…

  1. It remains unclear what in the post was wrong/incorrect/misleading?
  2. Do you really think a zero-level Inderes post (which doesn’t even contain claims deviating from public information) moves a company with a market cap of over 55 billion?

This case of Nordea’s subsidiary, Nordea Finance Danmark, has nothing to do with what happened 14 years ago.

It is a completely different case, but it is related in the sense that AML/KYC controls were found to be so blatantly deficient even in a 2023 audit that criminal liability is deemed appropriate. I believe this again increases the likelihood of fines for the earlier case as well. And the probabilities that the new case will also result in fines are high. Again, because it has proceeded to investigation and prosecution.

Nordea has, however, made a provision of about €100M for this case, which we will probably receive as dividends next year.

A fine in the earlier case is practically a certainty; the amount is not. Nordea itself has repeatedly stated since 2019 that it specifically expects to receive a fine, not just that it is preparing for it with a risk management provision. And it makes sense now especially, because even though the police and prosecutor do the final work, if the regulator refers the matter to the police, practically the best experts among the civil servants have already determined—prior to the request for investigation—that the violations are gross, as the threshold for taking a matter to investigation is very high. Since 2019, the matter has progressed to formal charges. No intent or actual money laundering even needs to be proven for fines, as deficiencies in processes and procedures alone are sufficient.

Nordea has also repeatedly stated that it has sought an out-of-court settlement (“Nordea has continuously sought a resolution”), but apparently the prosecutor has not agreed to this.

I am also not the only one who considers it possible that the provision will not be enough. However, I don’t believe in a fine quite that large.
Nordea Risks Money Laundering Fine Near $1 Billion, Experts Say

That 95 million was Nordea’s 2019 estimate for the maximum fine amount, and it was based on the legal practice of that time and comparison to previous fines. Practice and law regarding fines have changed drastically since then. Under the new practice, fines of up to 25% of the transaction volume are sought, which would result in the billion-dollar maximum mentioned in the previous link. Additionally, if the definition of systemic deficiencies is met, there can be a significant surcharge, as well as based on the size of the company.

Based on gut feeling (mutu), the biggest legal dispute here will be whether the old law can be reinterpreted to issue fines according to the new law, or whether a fine proportionate to transactions would require new statutory provisions (prohibition of retroactive interpretation). If yes, will all detected 26 billion DKR transactions be interpreted as the basis for the fine? The old law provides leverage to increase fines if the criteria for particularly gross deficiency are met, and if the prosecutor succeeds in proving that the bank saved significantly on costs and investments by omitting necessary processes. After all, following that first case, Nordea says it has invested €700M in improving processes.

This new case, in turn, partly undermines the defense. Processes are still deficient across a broad customer base, and it will be handled entirely under the new Anti-Money Laundering Act and its stricter fine regulations. Therefore, its fines could rise to be more significant relative to the earlier case. On the other hand, the argument for systemic deficiency in the old case is strengthened, as is the argument that economic benefit was gained by failing to make investments and hire staff for years. Therefore, it increases the probability of massive fines for the earlier case.

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@Sampo1 @Keketin I suppose these days they want to apply the group’s turnover rather than the turnover of an individual outfit. Otherwise, banks could totally isolate their fine risk by bundling shady operations into their own subsidiary. As I understand it, however, that turnover is only used for additional surcharges on the fine. The fine amount under the new Anti-Money Laundering Act is primarily proportional to the volume of questionable transactions. The old one was more obscure. In addition, it is interpreted whether economic benefit was gained by neglecting processes, etc.

Also, since there is likely a dispute over legal interpretation involved, it’s quite certain that the whole thing will drag on for years. Even if the first decision comes this year, the losing party will most likely appeal.

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This is also completely true.

What makes these cases tricky is the legislation to be applied. The starting point in all legal judgments is that the legislation in force at the time of the event is used—in these cases, 2012-2015 and 2019—at which time the legislation was certainly very different from now, as were the administrative fines/supervisory fees, or whatever one wishes to call them.

If I remember correctly, in that older case, the legislation in force did not utilize administrative fines linked to the size or volume of the business. Laws were reformed, partly due to the major Danske Bank scandal in the late 2010s, at which point those administrative fines enabling scales based on volume and company size were introduced.

If we wait quietly, we might catch some fish.

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