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Choose Your Words, CEOs!

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Last week,  Stockholm appeals court ruled that former Swedbank CEO Birgitte Bonnesen was guilty of making misleading, financially damaging statements about the bank’s poor anti-money laundering operations in 2018 and 2019. The ruling overturned a decision to acquit Bonnesen by a first instance court and instead sentenced her to 15 months in jail.

“The court concluded that two of the answers were incorrect or misrepresented facts in a way that they were misleading,” Presiding Judge Sven Johannisson told reporters in Stockholm after the verdict, according to the Organised Crime and Corruption Reporting Project (OCCRP).

The Case

This court ruling is not about whether Swedbank had facilitated money laundering activities in the Baltic countries. It is only focused on two specific statements that the then CEO of Swedbank made when asked about whether her bank had found any similar problems to the ones encountered by Danske Bank, which was the focus of a money-laundering controversy at the time. A subsequent investigation by Swedish TV show Uppdrag gransking at the start of 2019 questioned Bonnesen’s statements and brought the issue to the fore.

According to the OCCRP report, “Bonnesen claimed that there were ‘no suspected money laundering-ties to Danske Bank’s operations in Estonia,’ and that Swedbank ‘had gone through everything’ to make sure there were no problems in the bank’s operations in the Baltics.” At the heart of the issue, it seems there was an internal report at Swedbank raising concerns about the possibility of money laundering issues, but the accuracy of which was contested by the bank’s senior management. It seems it was the conjunction of these facts together with prolongued negative impact of Uppdrag gransking‘s revelations on the stock market valuation of Swedbank that the Judge Johannisson took issue with. Bonnesen has consistently denied all charges.

As far as Swedbank is concerned, Sweden’s financial services authority (FSA), Finansinspektionen (FI), fined the bank SEK 4 billion in March 2020. “Finansinspektionen (FI) has investigated Swedbank AB’s governance and control of anti-money laundering measures in the bank’s subsidiaries in the Baltics. FI’s investigation was conducted in cooperation with the supervisory authorities in Estonia, Latvia and Lithuania. FI has also investigated the bank’s work to combat money laundering in its Swedish operations. FI’s conclusion is that Swedbank has demonstrated major deficiencies in its work to combat money laundering in its Baltic operations. The bank’s Swedish operations have not lived up to the requirements in the anti-money laundering regulations,” the Swedish FSA noted on that occasion.

Reactions

Unsurprisingly, the ruling has stirred reactions from within the financial industry. Bonnesen’s lawyer, Per E. Samuelson, told Swedish media he was shocked by the verdict and that his client would appeal.

In an opinion column on Dagens Industri, Eva Redhe, a member of te board of directors of Nordic Growth Market and of Axel Christernsson Interational AB, warned that the ruling risks scaring CEOs into silence, potentially hurting rather than improving transparency in the business world.

Other were more sanguine. Quoted by OCCRP, Anti-money laundering expert Graham Barrow welcomed the “unprecedented” ruling noting that it “should serve as a wake-up call to all senior managers and c-suite executives in regulated firms” and that accountability needs to be real.

CEO’s Responsibility and Choosing Your Words

Sceptical as I am, I firmly believe that we should all know the limits of our expertise and refrain from stretching too far out beyond those borders, lest we make fools of ourselves. Therefore, I do not intend to argue the fine points of the case, especially not the legal ones, but some of the arguments against the ruling merit some commentary.

The fact that the report might scare CEOs into silence seems to imply that they have the option to stay quiet. CEOs represent the companies that they manage and must communicate with shareholders about the general health of a company. Companies need to make regular disclosures about their financial statements and their CEO’s need to be held accountable for the performance of companies. The buck stops with them. It is absolutely legitimate that not everyone is comfortable with that level of responsibility. But that is what CEO’s sign up to. Admittedly, this might have consequences for the type of people that are naturally selected for this role, but that is material for another conversation.

Another bone of contention is that Bonnesen did not disclose the findings of the internal report, which is itself problematic, as doing so could might have shown that the organisation was breaching regulations under her watch. In that position, a CEO is damned if they do and damned if they don’t. But the argument seems to stand on the false  dichotomy fallacy, that is to only see two possible choices when more are available.

Language is complex and rich. The realm of all the things that Bonnesen could have said surely included other options than what she said and revealing the existence of the document and its findings. She did not need to be so categorical in her assertion that there was no problem. She could have simply said Swedbank was looking into the matter but that at the moment evidence was still being collected.

I’m not quite sure how she could have phrased it but that is why corporate communication departments exist. Sure their communiqués might often be dry, uninspiring and not very revealing, but these departments exist to help executives ensure they do not make this sort of mistake.

Could we make this applicable to Climate Change?

What if the standards that apply to the determination of “incorrect or misrepresented facts in a way that they is misleading” and financially damaging were extended to similar statements about the environment and climate change?

Staying in the corporate world, there are plenty of businesses exposed and contributing to climate change risks. Should their executives also be held personally accountable for damagingly misrepresenting these facts to shareholders by the same standard as they are for misrepresenting other governance risks? Top management and boards would be well advised to start considering environmental risks and double materiality as a governance factor if they haven’t already.

Last week,  Stockholm appeals court ruled that former Swedbank CEO Birgitte Bonnesen was guilty of making misleading, financially damaging statements about the bank’s poor anti-money laundering operations in 2018 and 2019. The ruling overturned a decision to acquit Bonnesen by a first instance court and instead sentenced her to 15 months in jail.

“The court concluded that two of the answers were incorrect or misrepresented facts in a way that they were misleading,” Presiding Judge Sven Johannisson told reporters in Stockholm after the verdict, according to the Organised Crime and Corruption Reporting Project (OCCRP).

The Case

This court ruling is not about whether Swedbank had facilitated money laundering activities in the Baltic countries. It is only focused on two specific statements that the then CEO of Swedbank made when asked about whether her bank had found any similar problems to the ones encountered by Danske Bank, which was the focus of a money-laundering controversy at the time. A subsequent investigation by Swedish TV show Uppdrag gransking at the start of 2019 questioned Bonnesen’s statements and brought the issue to the fore.

According to the OCCRP report, “Bonnesen claimed that there were ‘no suspected money laundering-ties to Danske Bank’s operations in Estonia,’ and that Swedbank ‘had gone through everything’ to make sure there were no problems in the bank’s operations in the Baltics.” At the heart of the issue, it seems there was an internal report at Swedbank raising concerns about the possibility of money laundering issues, but the accuracy of which was contested by the bank’s senior management. It seems it was the conjunction of these facts together with prolongued negative impact of Uppdrag gransking‘s revelations on the stock market valuation of Swedbank that the Judge Johannisson took issue with. Bonnesen has consistently denied all charges.

As far as Swedbank is concerned, Sweden’s financial services authority (FSA), Finansinspektionen (FI), fined the bank SEK 4 billion in March 2020. “Finansinspektionen (FI) has investigated Swedbank AB’s governance and control of anti-money laundering measures in the bank’s subsidiaries in the Baltics. FI’s investigation was conducted in cooperation with the supervisory authorities in Estonia, Latvia and Lithuania. FI has also investigated the bank’s work to combat money laundering in its Swedish operations. FI’s conclusion is that Swedbank has demonstrated major deficiencies in its work to combat money laundering in its Baltic operations. The bank’s Swedish operations have not lived up to the requirements in the anti-money laundering regulations,” the Swedish FSA noted on that occasion.

Reactions

Unsurprisingly, the ruling has stirred reactions from within the financial industry. Bonnesen’s lawyer, Per E. Samuelson, told Swedish media he was shocked by the verdict and that his client would appeal.

In an opinion column on Dagens Industri, Eva Redhe, a member of te board of directors of Nordic Growth Market and of Axel Christernsson Interational AB, warned that the ruling risks scaring CEOs into silence, potentially hurting rather than improving transparency in the business world.

Other were more sanguine. Quoted by OCCRP, Anti-money laundering expert Graham Barrow welcomed the “unprecedented” ruling noting that it “should serve as a wake-up call to all senior managers and c-suite executives in regulated firms” and that accountability needs to be real.

CEO’s Responsibility and Choosing Your Words

Sceptical as I am, I firmly believe that we should all know the limits of our expertise and refrain from stretching too far out beyond those borders, lest we make fools of ourselves. Therefore, I do not intend to argue the fine points of the case, especially not the legal ones, but some of the arguments against the ruling merit some commentary.

The fact that the report might scare CEOs into silence seems to imply that they have the option to stay quiet. CEOs represent the companies that they manage and must communicate with shareholders about the general health of a company. Companies need to make regular disclosures about their financial statements and their CEO’s need to be held accountable for the performance of companies. The buck stops with them. It is absolutely legitimate that not everyone is comfortable with that level of responsibility. But that is what CEO’s sign up to. Admittedly, this might have consequences for the type of people that are naturally selected for this role, but that is material for another conversation.

Another bone of contention is that Bonnesen did not disclose the findings of the internal report, which is itself problematic, as doing so could might have shown that the organisation was breaching regulations under her watch. In that position, a CEO is damned if they do and damned if they don’t. But the argument seems to stand on the false  dichotomy fallacy, that is to only see two possible choices when more are available.

Language is complex and rich. The realm of all the things that Bonnesen could have said surely included other options than what she said and revealing the existence of the document and its findings. She did not need to be so categorical in her assertion that there was no problem. She could have simply said Swedbank was looking into the matter but that at the moment evidence was still being collected.

I’m not quite sure how she could have phrased it but that is why corporate communication departments exist. Sure their communiqués might often be dry, uninspiring and not very revealing, but these departments exist to help executives ensure they do not make this sort of mistake.

Could we make this applicable to Climate Change?

What if the standards that apply to the determination of “incorrect or misrepresented facts in a way that they is misleading” and financially damaging were extended to similar statements about the environment and climate change?

Staying in the corporate world, there are plenty of businesses exposed and contributing to climate change risks. Should their executives also be held personally accountable for damagingly misrepresenting these facts to shareholders by the same standard as they are for misrepresenting other governance risks? Top management and boards would be well advised to start considering environmental risks and double materiality as a governance factor if they haven’t already.

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