Estonia Reopens Money Laundering Probe Linked to Magnitsky Case

The affair is a Russian theft of millions in public funds and a money laundering scheme that was discovered in 2008 by Moscow lawyer Sergei Magnitsky who was arrested right after he reported his findings to the authorities. He died in jail a year later, allegedly due to mistreatment.

Bill Browder, the owner of investment fund Hermitage Capital which was misused to facilitate the theft of $230 million of public funds through fraudulent tax refunds, had hired Magnitsky to investigate where the money went. Since Magnitsky’s controversial death, Browder has worked on bringing the corrupt scheme to light.

The perpetrators had allegedly set up a complex network of fake companies that transferred the stolen millions from one to the other using accounts in different banks until they parked some of it in real estate in the West.  

The failures of those banks to flag such transactions to the authorities as suspicious have been gradually exposed by various media, prompting one bank scandal after the other.

Estonian daily Eesti Päevaleht was the first one to report in 2013 about suspicions that some of the Magnitsky scandal money flew through the local banks Sampo and Hansapank. Sampo was at that time already owned by Danske Bank and Hansapank by Swedbank but at the time of the transactions the banks were still using their original names.

The daily claimed that nearly US$10 million stolen from Hermitage Capital were transferred to the accounts of different non-resident clients of Danske Bank and $1.23 million reached the account of a BVI-registered Phone And Equipment Ltd at Swedbank.

The report prompted Swedbank to launch an internal audit. The bank discussed its findings with authorities the same year Estonia’s prosecutors opened an investigation into the matter. The probe was closed in 2017 after investigators said they could not prove the claims made by Eesti Päevaleht.

Browder’s Hermitage Capital took the prosecutor to court to try to get the investigation reopened again but the judge ruled that the court had no basis to force prosecutors to do that.

“And so, in 2018 Berlingske, a newspaper in Denmark, with our cooperation, broke a huge story about not just 200 million of illicit proceeds going through Danske Bank but nine billion,” Browder told OCCRP and its partners.

The revelation that Danske Bank’s Estonian branch indeed allowed billions of dollars to be laundered over the past decade was at some point labeled as the biggest money laundering scandal in history and caused a domino effect that beginning of this year engulfed Swedbank.

Swedish broadcaster SVT aired findings - again based on leaked documents - that link Swedbank to Danske’s suspect transactions worth $230 billion, some of which are believed to have been funneled into the West from the former Soviet Union.

In those documents, reporters found that some of the key companies in the Magnitsky scheme, such as Unitronic LLP, Jackwell LLP and Everfront Sales LLP, sent more than four million euros (US$4.5 million) to two small companies in the town of Narva. The payments’ purpose was said to be for construction material such as Finnish bricks and its transport to Russia.

Additionally roughly eight million dollars were transferred to the same businesses by other offshores using well known fake owners and directors. When Postimees reporters knocked on the doors at the registered addresses of the two companies - Logowest OÜ and Ronfard OÜ - company representatives declined to speak with them.

These findings could be the subject of the investigation Estonian prosecutors reopened in December but they also question Swedbank’s 2013 internal probe.

Whether auditors were aware of those transactions and whether they shared it with the relevant  authorities is unknown but now reporters found that the head of one of the law enforcement agencies Swedbank discussed the audit with was headed by former Swedbank top employee, Aivar Paul.

Paul had joined the Estonian Financial Intelligence Unit, FIU, just two months earlier, having worked the previous 11 years in Swedbank’s anti-money laundering department as the area manager and later as the head of AML & fraud control department.

The FIU analyses and verifies information about suspicions of money laundering or terrorist financing. If it detects elements of a criminal offense, it forwards the information to the competent authorities. That would be the prosecution office.

This means that the FIU would have had to investigate issues its new boss was responsible of in his previous job.

When approached with the question whether this may have been a conflict of interest, Paul dismissed the suggestion, explaining that he wasn’t the one deciding whether something should have been investigated.

“The FIU consists of a general department, chief advisors and two special departments: supervising and analysis. There was a person working in the analysis department who decided what would be investigated and what not,” he said.

If anything, he would have wished for a more thorough investigation, he said.

“If we talk about reports filed from Swedbank, then it was clearly in my interest for these issues to be dealt with more thoroughness,” he said.

He didn’t clarify whether Swedbank had submitted the reports at the time the transactions were made or if they had slipped through the bank’s filters.

Browder told Swedish public broadcaster SVT that there have been a lot of these situations where the poachers become the gamekeepers and the gamekeepers become the poachers, and everybody is somehow switching between regulating and working in the banks.

“So, it creates a real environment of non-regulation when you have everybody mixed up and having conflicted loyalties and interests, and so that might go some way towards explaining the lack of action in Estonia,” Browder said.

Correction and clarification: The story has been corrected and clarified to reflect the fact that Browder has not lost millions directly from the scheme but that his fund was misused to facilitate the theft. OCCRP regrets the error.