Osuuspankki suddenly started to fire its phantom customers when the supervisor started an inspection

Banks The Financial Supervisory Authority (Fiva), which oversees the operation, criticizes the OP group’s anti-money laundering activities in exceptionally harsh terms.

Head of Fiva’s office responsible for anti-money laundering supervision Pekka Vasara says that the fight against money laundering in co-operative banks receives a school grade of “avoidable”.

On a traditional school scale, that would mean number five.

“Quite a four, or critically alarming, did not come up, but there is a lot to develop.”

The OP group is Finland’s largest banking group.

Fever examine the adequacy of the bank’s prevention systems in 2021–2022. This is the first anti-money laundering audit conducted on the OP group. The completed inspection report is dated December 2022.

Vasara says that he assumed before the inspection that the OP group had invested in the fight against money laundering. According to him, the end result was a “negative surprise”.

“The OP central community and the banks have work to do, which they have assured that they have started. And it has already been half a year since the inspection was completed.”

According to Vasara, the OP group has “quite a lot to develop” in very basic matters, such as risk assessment.

The bank must itself identify the risks of money laundering and terrorist financing in its customer base, products and services.

Fiva has given the OP group an exception for this risk assessment: Assessments can be prepared centrally in Helsinki on behalf of each of the 106 member banks.

However, according to the supervisor, the OP group had prepared the estimates at too general a level, and they had not taken into account the special characteristics of the member banks. According to Fiva, they should be considered “comprehensively and in detail”.

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The bank has “seriously and repeatedly neglected” its obligation to know its customers.

Fivan the report reveals major flaws, especially in the cooperative bank of South Karelia. The bank quickly started terminating its customers after Fiva had started an anti-money laundering audit at the bank.

Fiva asked the bank for additional information on 200 high-risk customer relationships. Of these customers, the bank dismissed at least 73 customers during the investigation.

The supervisor writes about one customer like this:

“The Financial Supervisory Authority considers the findings of this customer to be very serious, because the Bank has not observed the required care and caution in its operations from the point of view of preventing money laundering and terrorist financing, by allowing the customer’s operations to continue unchanged.”

According to Fiva, the bank has “seriously and repeatedly neglected” its legal obligation to know its customers and to comply with OP Group’s internal instructions.

South Karelia the cooperative bank had a good reason to end customer relations, because many of them were phantom customers, i.e. they did not exist at all.

Knowing the customer is fundamental to combating money laundering. When a bank knows its customers, it is more difficult to use the financial institution for financing terrorism or money laundering.

The supervisor’s report tells about a sample that included a hundred business and community customers. Of these, 49 turned out to be ghosts, that is, their operations had ceased even before the inspection began, some even more than 10 years ago.

The customers had ceased to exist between January 2010 and August 2021.

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“Here are some good questions to ask after the inspections.”

Also The OP group’s internal control seems to have started working on the matter only after the information about the inspection came.

The supervisor notified the inspection in a letter to the Etelä-Karjala co-operative bank at the end of October 2021. The OP team immediately began to find out the contact information of the bank’s business customers.

Internal control found that 28 percent of Etelä-Karjala Osuuspanki’s business customers had incorrect identification information. About four percent of personal customers had the same situation.

The Finnish Financial Supervisory Authority’s Vasara considers it exceptional that the bank started dismissing a large number of its customers during the Fiva inspection. According to him, there have not been such clear cases in previous bank inspections.

Attention was also drawn to the fact that the OP group’s internal control was activated only after the Financial Supervisory Authority had informed the Etelä-Karjala co-operative bank about the inspection.

“Here are some good questions to ask after inspections. Necessary follow-up actions are still being reviewed with the banks,” says Vasara.

The supervisor can impose administrative sanctions for neglect of obligations under the Money Laundering Act and for illegal conduct. These sanctions include a public warning, a failure fee and a penalty fee.

Vasara does not comment on whether the findings concerning the OP group are being considered for sanctions.

Fever also checked the Turku region’s Osuuspanki and OP company bank. The latter’s customers are large companies, medium-sized companies and institutions in Finland.

Fever discovered that the Turku region cooperative bank had a large number of customers established with so-called artificial IDs. This means that, as required by the Money Laundering Act, the customer relationship has not been established in the name of a person or entity.

Without a social security number or social security number, it can be very difficult to identify a customer with certainty, and he can establish several accounts with the same bank. In addition to money laundering, fake IDs also increase the risk of fraud.

According to the supervisor’s view, the bank’s actions to remedy the situation have not been sufficient.

In addition, Fiva also found 146 personal customers in the Turku region cooperative bank whose possible political influence the bank had not investigated.

OP corporate bank on the other hand, it was criticized for not having obtained passport copies of the foreign company’s actual beneficiaries, because “it has been difficult to obtain them”.

According to the Financial Supervisory Authority, obtaining documents is especially justified when the beneficiary is a foreigner.

Fiva also pointed out that in the corporate bank “in practice, almost all customers are classified in the same risk category”.

OP company bank terminated two customers during the audit, one of which had its contact information last updated in 2011 and the other never.

Supervisor also drew attention to the fact that the investigation of suspicious or alarm-causing account transactions has taken too long in banks.

The automated anti-money laundering system identifies, for example, money transfers to or from risky countries, after which the bank should find out whether money laundering may be involved in the account transfer.

“The delay from the generation of the alarm to the initial processing has been long, usually several months and at worst more than a year,” the supervisor writes about the operation of OP corporate bank.

“Despite management’s awareness, the situation has been allowed to continue for a long time,” Fiva writes.

According to Fiva, the responsibility for the situation lies solely with OP corporate bank, i.e. in practice with its executive management and board of directors. The chairman of Yrityspanki’s board is the CEO of OP Group Timo Ritakallio and the board also includes the CEO of Turku Region Cooperative Bank Petteri Rinne.

Inspection the affected cooperative banks disagreed with the supervisor on several points.

Etelä-Karjalan Osuuspankki informed Fiva that it had acted responsibly in terms of updating contact information.

Turku region’s Cooperative Bank, on the other hand, appealed in the surveys of the political influence of the customers that the customer relations and business operations of the 146 personal customers in question do not involve a greater than usual risk.

As for the fake customers, according to the bank, it was not an “anonymous or fake name”. The bank notes that all necessary participants are identified and verified in accordance with the law.

According to OP company bank, the problems brought up by Fiva had mostly already been identified and corrective measures were underway.

Fever has also found problems with Nordea, the largest bank in the Nordic countries. According to the official, Nordea prevented money laundering so poorly that the bank may have acted as an intermediary in the billion-euro Russian Laundromat scam.

Now the focus was on cooperative banks.

“Etelä-Karjalan Osuuspankki was selected because of its geographical location, i.e. its proximity to the Russian border. In addition, banks from different parts of Finland have been included, not just the smallest banks,” says Fivan’s Pekka Vasara.

Helsingin sanomat newspaper asked the CEO of Etelä-Karjala Osuuspanki for an interview From Petri Krohns. HS wanted to know why the bank only started investigating its customer base after the investigation launched by Fiva.

Krohns directed the questions to the OP group’s communications. In the reply received from there, the OP group’s manager responsible for regulatory compliance is quoted Rami Kinnalaa.

According to him, the vast majority of the customers dismissed by the bank have been customers whose operations had ceased, but the customerships had been mistakenly retained in the bank’s systems.

“At the time of the inspection, the number of terminated customers was also increased by Russia’s war of aggression against Ukraine,” the answer states.

The OP group says that it has “carefully analyzed” Fiva’s findings and ensured that the necessary corrections are made.

Kinnala emphasizes that the inspection did not make any observations that would indicate money laundering or terrorist financing.

One the bank has so far been punished for violations of money laundering controls. S-bank received from the supervisor in 2019, a penalty payment of almost one million euros. A public warning was given to FIM asset management, which is part of the same group.

Considerable negligence was found in Nordea and Danske Bank in preventing Russian money laundering, but the investigations expired before the sentencing hearing.