Nordea’s investigation into Mossack Fonseca links ‘a PR exercise’

Find all background material for this hearing on the event page.

Representatives from Swedish bank Nordea were questioned by MEPs over their role in directing clients to Panamanian law firm Mossack Fonseca to establish shell companies during a hearing of the European Parliament’s Panama Papers inquiry on February 9.

The Panama Papers leak revealed that Nordea’s Luxembourg branch had more than 400 clients who were linked to Mossack Fonseca.

Journalist Søren Kristensen from the Danish Broadcasting Corporation and ICIJ explained to MEPs that Nordea appeared in the Panama Papers data leak more than 11,000 times, and that of all banks linked with Mossack Fonseca, Nordea had the sixth highest number of companies incorporated with the law firm overall.

Kristensen provided an example from the Panama Papers data that showed Nordea had written to Mossack Fonseca several times over three years regarding a director in 30 of their client’s companies.

“The problem?” he asked.

“The director is dead. And has been for years. The last time Nordea writes about it, the director Miss Scott has been dead for eight years. And this email also shows, that it doesn’t matter that much. Nordea only wants the director replaced ‘where relevant’. Remember these are companies that on paper have to appear to be real companies with real directors to hide who really owns them.”

Enablers investigate enablers

The inquiry also heard that despite what appears to be clear evidence of criminality by Nordea – including the falsification of documents – revealed in the Panama Papers, the only measure taken in response was the conduction of an internal investigation in which the bank unsurprisingly found itself ‘not guilty’ of promoting tax evasion.

The internal Nordea investigation was carried out by Group Compliance and Group Operational Risk, in collaboration with KPMG. Nordea commissioned Nordic law firm Mannheimer Swartling to act as an external investigator and an external monitor of its internal investigation. (Both reports were published simultaneously here.) Both the Nordea investigation and the report it paid for from Mannheimer Swartling concluded that there was “no evidence” that NBSA (Nordea’s Luxembourg branch) helped clients establish the offshore structures, “nor that they have proactively contributed to customers’ potential tax evasion”.

It concluded that of the 129 offshore structures it had reviewed, 68 “require further analysis” to confirm whether or not the beneficial owners had adhered to Nordea’s policies on tax evasion introduced in its 2009 Code of Ethics.

Nordea concluded that NBSA needed to improve its customer due diligence processes, while Mannhaimer Swartling found that “deficiencies exist related to the governance and control structures in NBSA”.

Nordea’s head of Group Compliance and Executive Management member Matthew Elderfield, and Chief of Staff Johan Ekwall appeared before the Parliament’s inquiry hearing, as did Mannheimer Swartling lawyers Biörn Riese and Andreas Steen, who were responsible for the external investigation.

An incomplete investigation

Irish GUE/NGL MEP Matt Carthy quizzed Matthew Elderfield, former Central Bank of Ireland regulator who was appointed as Nordea’s head of Compliance three months ago, on the nature of its internal investigation during the hearing.

“We can make many criticisms of the nature of the internal investigation that Nordea launched after the Mossack Fonseca data was leaked – the fact that it was conducted in-house in collaboration with a business law firm and KPMG, the secrecy and discretion involved in such a process, and the substitution of this limited and biased mechanism for an open court in ‘exonerating’ Nordea from findings of criminality,” he said.

“But one of the most glaring flaws is that it only investigated those offshore structures with an active and direct link to Mossack Fonseca or the jurisdiction of Panama – 129 out of a total of 562 offshore structure customers.”

The Irish MEP asked if any progress had been made on the bank’s own recommendation to review the remaining 433 offshore structures for possible tax evasion; Nordea representatives responded by saying this process had not yet begun.

Luxembourg loopholes

Kristensen outlined an email the ICIJ had viewed, in which a Danish Nordea employee in Luxembourg asked for a document to be backdated by almost two years on behalf of a Danish client.

“The email is sent in 2012. But they want the document backdated to 2010. The response from Mossack Fonseca? No problem! They even have a fixed fee for that depending on how long you want to backdate it.”

Nordea and Mannheimer Swartling found at least seven cases where NBSA employees requested backdating of documents when renewing Powers of Attorney.

Under Luxembourg law, this is illegal “when aimed at altering the truth”.

But incredibly, both Nordea and Mannheimer Swartling argue that this falsification of documents was not criminal forgery in Luxembourg. They argue that neither NBSA nor its employees cannot be held criminally liable because the cases do not meet all the necessary conditions cumulatively for the act to amount to a crime.

Nordea writes in its investigation report: “At least one of the conditions seems not to be met, which is the clear benefit or illicit advantage of the employee asking for backdating, the bank or another third party or causing prejudice or potential prejudice to a third party. However, the procedures are in violation of the Nordea Code of Conduct.”

Other problems in legislation in Luxembourg and the EU that are demonstrated by this case relate to banking regulations in Luxembourg where banks are not legally obliged to ensure their clients are tax-compliant, bank secrecy rules that prevent reporting, and the fact that tax evasion is not yet treated as a predicate money-laundering crime.

Nordea not alone

Speaking after the hearing, Carthy commented: “It’s clear that the internal investigation carried out by Nordea was a whitewash and a PR exercise.

“Unfortunately, Nordea is not alone. The Panama Papers data shows more than 500 banks registered 15,000 shell companies through the Panamanian law firm.

“We have repeatedly heard details of the role of intermediaries – especially banks and law firms – in moving wealth offshore during the Panama Papers inquiry. Banks typically direct their customers to specialised law firms such as Mossack Fonseca in order to assist clients to set up an offshore structure.

“I find it very difficult to see what legitimate reasons there could be to move capital offshore. Offshore structures are used to conceal wealth from state tax collectors, or to launder cash.

“Clearly the existing ‘Know Your Client’ and customer due diligence rules are insufficient to combat this behaviour. Likewise, the proposed revision to the EU’s Anti-Money Laundering Directive falls short when it comes to lifting the veil on beneficial ownership.”