The court terminated the misdemeanor proceedings on the basis of § 29 (1) (1) of the Code of Misdemeanour Procedure (the act in question does not contain the elements of a misdemeanour). The court's main criticism was directed at the evidence used to assign responsibility to a legal entity. When the FIU identifies non-compliance with due diligence measures or a violation of a specific targeted financial sanction, the FIU must demonstrate that a specific board member breached that measure and in the interest of the legal person.
"In such large banks, board members do not apply due diligence measures themselves on a daily basis. Estonian corresponding laws stipulate that each bank must designate a board member responsible for fulfilling due diligence measures. Despite this clear responsibility set out in the law, the court's criticism, figuratively speaking, was that the FIU did not specify clearly enough what the board member was doing 20 floors up in the bank when due diligence measures were not applied on the first floor, leading to a violation of targeted financial sanctions. This is a problematic area in the regulation of misdemeanour proceedings, which has been pointed out by many other authorities who must impose penalties on legal entities in areas where public interests could be significantly harmed — financial system-related violations, competition law breaches, data protection violations, etc.," said Matis Mäeker, head of the FIU.
The actions attributed to LHV
The court's ruling also describes the actions that led to actual consequences.
One action mentioned in the court ruling was that "[LHV] failed to properly apply due diligence measures, allowing payments from Russian companies [behind which were individuals on the EU Russia-related targeted financial sanctions list] to be made into its client [XX]'s account. [There were two] payments for which [LHV] should have applied financial sanctions as a result of due diligence measures." The sum of these two payments was approximately €2.2 million, which should have been frozen. At the time of the transactions, the amount of frozen assets in Estonia related to oligarchs was around €19 million, showing the proportionality of the transactions.
Another action noted by the court ruling was that "[LHV] failed to properly apply due diligence measures, resulting in [a violation of Russia-related targeted financial sanctions and the acceptance of deposits to a Russian resident whose account balance totalled already more than €100,000]. [LHV identified] this breach of the restriction on 05.07.2022 (having previously identified similar [targeted financial sanctions] breaches and notified the FIU during the period from 05.03.2022 to 13.05.2022 on 65 occasions)."
Regarding a third action, the court ruling states that "[LHV failed] to submit a report to the FIU on 17.01.2023 that it had detected a transaction violating targeted financial sanctions and that it had applied restrictive measures. [LHV] froze an incoming payment from [a Russian company] to [its client] on 13.01.2023 in the amount of €597,648.35 but did not submit the corresponding report on the application of the financial sanctions or the suspicion of financial sanctions to the FIU. [LHV] submitted the report only after the FIU's inquiry on 12.09.2023."
Supervision of the application of international financial sanctions is ongoing
"The FIU is the competent authority for enforcing targetedfinancial sanctions. The nature and extent of the actions are evident from the court ruling. Regular reporting that we receive from banks indicate that LHV has been the most conservative among Estonia's four largest credit institutions (under direct supervision by the European Central Bank) in winding down payments related to Russia. LHV largely stopped accepting such incoming Russian payments by January 2023, while the other three major banks did so by July 2022. The law gives us the right to impose penalties under misdemeanour proceedings if we detect violations," added Matis Mäeker.
The supervision of the application of targeted financial sanctions is continuous and consistent. Penalties are one of the supervisory authority's ways to influence market participants and the market to comply with the legal requirements.
Harju County Court ruling No. 4-24-1754, dated 13.09.2024, is available on the Riigi Teataja website in Estonian, including the following RESOLUTION:
1. Tühistada Rahapesu Andmebüroo 03.05.2024. a otsus väärteoasjas nr 980023000002 täies ulatuses ning lõpetada väärteomenetlus VTMS § 29 lg 1 p 1 alusel.
2. Kaebuse esitaja taotlused tunnistaja ülekuulamiseks, täiendavate tõendite kogumiseks, Euroopa Liidu Kohtult eelotsuse küsimiseks ja RahaPTS § 81 lg 1 põhiseadusega vastuolus olevaks tunnistamiseks ja kohaldamata jätmiseks jätta läbi vaatamata.
3. Rahuldada kaebuse esitaja taotlus menetluskulude hüvitamise taotluse esitamiseks tähtaja andmiseks ning määrata, et menetluskulude hüvitamise taotlus tuleb kohtule esitada hiljemalt 7 päeva jooksul käesoleva määruse tegemisest arvates.
4. Jätta rahuldamata kaebuse esitaja taotlus kogu väärteoasja menetluse kinniseks kuulutamiseks.
5. Jätta rahuldamata kaebuse esitaja taotlus avalikustada ainult kohtulahendi sissejuhatuse ja resolutiivosa ning asendada avaldatavas kohtulahendis kõikide isikute, sh menetlusaluse isiku, nimed tähemärkidega.
