In 2017, when two banks - Nordea and DNB - merged under the Luminor brand, not only the assets of the Latvian branches of both banks were transferred to the Swedish joint venture, but also the annual contributions to the Deposit Guarantee Scheme. The Republic of Latvia has applied to the Court of Justice of the European Union for the Kingdom of Sweden to return the money.
This will be a great opportunity for Latvia to get payback for the lost case of the Swedish ship that was cut into scrap metal at the turn of the millennium, in which Latvia paid Sweden more than 2.5 million dollars plus interest for a pile of scraps that nobody actually needed. At the time, the concession was crucial to ensure that Sweden did not stand in the way of Latvia's accession to the European Union. Now Latvia does not really have anything to blackmail Sweden with, but it has a chance of winning a fair trial, unless the Kingdom of Sweden itself offers a settlement and gives up the money.
There is no information about this lawsuit in the Latvian public information space. This is understandable, since financial and any other kind of inter-state disputes, let alone with allies, are not publicized and are decided by the government in closed sessions. This is also to avoid making its legal strategy known to its opponents in advance. However, the website of the Court of Justice of the European Union publishes information on all proceedings initiated by the Member States, and the only active case currently pending involving Latvia is Case C-822/21, entitled "Action brought on 30 December 2021 - Republic of Latvia v Kingdom of Sweden".
By its application, the Republic of Latvia requests the Court to declare that the Kingdom of Sweden has failed to fulfil its obligations under the European Union Directive on Deposit Guarantee Schemes, since, by refusing to transfer to the Latvian Deposit Guarantee Fund the contributions paid by the Latvian branch of Nordea Bank AB, the Kingdom of Sweden has acted contrary to the purpose of the Directive. The purpose of the Directive is to facilitate the taking up and pursuit of the business of credit institutions, while ensuring effective protection of depositors and reducing the risk for taxpayers.
"The Kingdom of Sweden has adversely affected the integration of the single market and in so doing undermines the mutual trust between EU Member States, which is a pre-requisite for cross-border integration," the application states.
It should be made clear that the Deposit Guarantee Schemes Directive is the real reason why banks pool their savings to pay out to customers in the event of any bank going under. After the collapse of Bank Baltija, few recovered their money. But now, according to the regulation, "Member States shall ensure that the coverage for the aggregate deposits of each depositor shall be set at EUR 100000 in the event of deposits being unavailable", as happened with PNB Bank, as happened with ABLV Bank. Guaranteed amounts were paid to customers, at least those whose money was not investigated by the Financial Intelligence Unit.
However, the Directive also lays down the principles for the maintenance of guarantee schemes and the action to be taken in the event of a bank or its branch changing the flag under which it operates. And Latvia is referring to Article 14 of the Directive, "Cooperation within the Union".
"The Republic of Latvia submits that, by refusing to transfer the contributions paid and in formally justifying that refusal by the date on which those contributions were actually paid, the Kingdom of Sweden has infringed Directive 2014/49/EU and that that infringement compromises the achievement of EU objectives and strips Latvia of the right to contributions which compensate the risk associated with deposits guaranteed by a credit institution transferred under its responsibility, resulting in a breach of the principle of sincere cooperation enshrined in Article 4(3) TEU and the achievement of the objectives of Directive 2014/49/EU being compromised." So says the CJEU. Latvia requests that the infringement be remedied, that the contributions made by the Latvian branch of Nordea Bank AB be paid into the Latvian Deposit Guarantee Fund in full, and that the Kingdom of Sweden is ordered to pay the costs of the proceedings. The statement does not specify the specific amounts at stake, but the Directive itself states that the 12 previous months' contributions are being carried forward. Apparently, the Swedes are manipulating the dates of the bank branch transfer and the instalments to avoid having to reimburse Latvia. It is likely that several million euros are involved. A lot of money - otherwise there would be no point in such international litigation. Credit institutions pay a certain proportion of the total amount of deposits into the Deposit Guarantee Fund. The balance sheet of the Latvian Deposit Guarantee and Insured Protection Fund at the end of last year showed more than €360 million, which could be paid to depositors after a bank's death if necessary.
Banks in Latvia are born and die as quickly as mushrooms after rain, so here is a reminder of what Nordea really was. It became the Latvian branch of Nordea Bank Finland Plc in 2001. Before that, it was called Merita Bank. In 1992, it was established as the Investment Bank of Latvia, with the Latvian State as a shareholder. In recent history, in 2017, the Financial and Capital Market Commission allowed the Latvian branch of Nordea and all its assets to be transferred to DNB Bank. The assets of Nordea and DNB banks in the Baltic States were then transferred to the Swedish joint venture Luminor Group AB. Luminor is now majority-owned by the US-based private equity firm Blackstone. Nobody knows what kind of capital it is, but a branch of the Estonian-registered Luminor Bank operates in Latvia. At one stage of Nordea's metamorphosis, the Kingdom of Sweden caused financial damage to the Latvian state, which Latvia is now seeking to recover through the courts.
Neatkarīgā asked the Ministry of Justice to explain the nature of the proceedings against the Kingdom of Sweden, but the Ministry did not provide a substantive reply, not even the amount in dispute. It only sent a few quotes from the same European Court of Justice statement, the link of which was sent to the Ministry by Neatkarīgā. Here is the reply:
"On 30 December 2021, Latvia brought an action against Sweden (Case C-822/21) for Sweden's refusal to transfer to the Latvian Deposit Guarantee Fund the contributions paid by the Latvian branch of Nordea Bank AB in Sweden, calculated for the contribution period in accordance with Article 14(3) of Directive 2014/49/EU. Sweden is thus acting contrary to the purpose of Directive 2014/49/EU and has adversely affected the integration of the single market. Latvia requests the CJEU to order Sweden to remedy the infringement and to transfer to the Latvian Deposit Guarantee Fund the full amount of the contributions paid by the Latvian branch of Nordea Bank AB."