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On Tuesday this week, former Swedbank CEO Birgitte Bonnesen was found guilty of gross fraud by a Swedish appeals court over her handling of anti-money laundering protocols in Estonia, sentencing her to 15 months in prison. The decision sends a strong signal across the industry regarding accountability, risk management, and governance standards. And while most firms can handle fines, imprisoning a CEO or board director brings the responsibility to a whole new level.
Whilst Bonnesen plans to appeal, the guilty verdict overturns an earlier acquittal, with prosecutors continuing to maintain that Bonnesen gave misleading information to shareholders and the public – intentionally or through negligence – on the bank’s measures to prevent, uncover and report suspicions of money laundering in Estonia.
As the dust begins to settle on the verdict, the longer-term ramifications for banking and fintech leaders, and their respective boards are worth pondering as anti-money laundering and financial crime compliance are put front and centre.
Greater individual risk exposure
Undoubtably, this case will heighten concerns that senior executives could be held liable for financial crime under their watch, particularly when it involves fraud, money laundering, or gross negligence in risk management, even if they were not directly involved, especially if it then leads to more cases where executives are named in lawsuits or regulatory actions related to financial crime.
Are we likely to see executives more cautious in their decision-making, particularly when signing off on financial transactions, compliance reports, or risky business ventures, as they work to ensure they are not seen as negligent or complicit in financial wrongdoing?
Personal accountability
We have already seen the FCA placing senior executives at financial institutions under increased regulatory scrutiny, with a more hands-on approach being taken on risk management and internal controls. However, this decision may place great pressure on leaders to ensure that their organisations are fully compliant with financial crime regulations, including anti-money laundering (AML) rules and sanctions compliance.
Broader than that, could there be the potential for resignations and leadership changes, with senior executives at institutions that have faced scrutiny over financial crime stepping down pre-emptively to avoid legal and reputational risks? A conviction like Bonnesen’s could spark a wave of leadership changes at other financial institutions, particularly where issues like AML lapses or fraud have been flagged.
Either way, we are anticipating executives spending more time and resources ensuring compliance with financial crime regulations to avoid personal liability. There may also be an uptick in the demand for Directors and Officers (D&O) insurance, with higher premiums because of greater legal exposure.
Shift in corporate culture and governance
From a financial crime-perspective, emphasising a “tone from the top” is an important trait of CEOs and senior managers to reinforce values that prioritise compliance with regulations.
Will this event see financial institutions increasingly hiring executives with a background in risk management and/or regulatory compliance to prioritise fostering a culture of compliance and ethical leadership, and to ensure stronger oversight and minimising the chances of financial crime? This could influence the skills and expertise sought in senior management roles going forward.
Will this verdict lead financial services companies to adopt a zero-tolerance approach toward any form of misconduct, regardless of rank, if that isn’t already in place? This could in turn lead to more active involvement from shareholders in corporate governance and risk management practices.
Boards of directors will certainly push for tighter oversight and governance frameworks within their organisations as institutional investors and shareholders demand greater accountability from senior executives regarding financial crime risks. We are anticipating increasing focus on dedicated financial crime compliance monitoring, internal audits, and independent third-party reviews to ensure that risks related to financial crime, fraud, and compliance are identified and addressed in a timely manner. We may even see boards demanding more frequent and detailed reporting from senior management to support more effective risk oversight thereby helping to prevent similar issues from arising.
Firms should certainly re-evaluate their financial crime controls and AML policies considering this case, revamping internal policies where applicable, and look to increase budgets for compliance teams in order bolster compliance infrastructure and invest in better detection technology to avoid regulatory breaches.
Firms may also want to consider taking more decisive actions against potential risks, such as cutting ties with questionable clients or improving firm-wide employee training on financial crime risks.
Outside of compliance, companies should review and, where relevant, improve whistleblower programs to detect early signs of financial crime, fraud or misconduct, allowing employees to report concerns without fear of retaliation. This would serve as a check on potential financial crimes that could expose senior management to liability.
Regulatory reforms
Unquestionably, we will see a response from regulators. This might be something relatively light touch, for example senior management could face more frequent interactions with regulatory bodies to review their compliance efforts improving collaborative efforts to prevent and detect financial crimes.
In some jurisdictions, this could lead to regulatory reforms that impose greater personal liability on senior managers. In the UK, we could see the extension of the Senior Managers and Certification Regime (SMCR), which holds senior executives directly accountable for failures in their areas of responsibility, to all regulated and/or supervised firms. Elsewhere, a high-profile conviction like Bonnesen’s could encourage similar laws or tougher enforcement in other jurisdictions.
In an extreme circumstance, regulators, emboldened by the case, may introduce stricter guidelines around corporate governance, AML, and financial crime prevention. Senior management might be required to certify that proper procedures are in place and that they personally verify compliance.
How we’re supporting firms
For over a decade, Bovill Newgate has supported our clients in managing their financial crime risk exposure. Our team of experienced specialists, including former regulators and Money Laundering Reporting Officers (MLROs), provide in-depth knowledge in areas such as anti-money laundering (AML), counter-terrorist financing, sanctions, fraud management, market abuse, and anti-bribery and corruption.
We are uniquely placed to equip board members and senior leadership with the necessary insights to oversee governance frameworks, review the effectiveness of financial crime policies, and ensure the institution’s culture supports compliance.
As a result of yesterday’s event, we are offering a free of charge board briefing to all new and existing clients, covering critical 2024 regulatory updates and financial crime intelligence gathered directly by Bovill Newgate helping to ensure that senior leadership and directors are fully informed of the current risk landscape and regulatory expectations. You can get in touch with the team here to arrange.
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