The European Banking Authority (EBA) has found Malta’s Financial Intelligence Analysis Unit (FIAU) in breach of requirements from a directive aimed at curbing terrorist financing and money laundering. They have issued eight recommendations to the Maltese FIAU as result of this breach
“The EBA concluded that the FIAU failed to conduct an effective supervision of Pilatus Bank due to a number of failures, including procedural deficiencies and lack of supervisory actions by the FIAU after its decision to close the case without imposing any sanctions on the bank,” they said in a statement.
The banking watchdog was asked by MEPs to launch an enquiry in a possible breach back in February. A preliminary enquiry was launched following the arrest of the chairperson of Pilatus Bank and the subsequent scrutiny placed on the Maltese branch of the bank
The scene of an earlier protest outside of the FIAU’s offices
The enquiry found a notable number of shortcomings in Malta’s FIAU’s procedures, especially in relation to Pilatus Bank
The FIAU was found to not have keep minutes of all Compliance Monitoring Committee meetings, nor did it have sufficient records of examined files and documents related to the on-site visit of Pilatus Bank, which was seen as especially damning.
And even though the Malta Financial Services Authority had instructed the FIAU to carry out an on-site inspection of Pilatus Bank over two years ago, the inspection had never occurred.
The FIAU were unable to provide legitimate reasons for these shortcomings, leading the EBA to state categorically: “No risk-based justification has been given for this inaction”.
The EBA has now called on the FIAU to improve its money-laundering risk assessment system. It has advised the FIAU to take a “holistic” view, considering all forms of risk and areas of vulnerability. It has also asked the FIAU to implement “robust internal procedures” to supervise anti-money laundering systems currently in place.
“This applies, in particular in relation to those initial findings that are not related exclusively to Pilatus Bank’s failure to provide the required customer diligence documentation, including the very high risks of money laundering to which the institution is exposed not being mitigated adequately and the lack of sound anti-money launder policies established by its board of directors for customers classified as PEPs,” the EBA said.
EBA chairperson Andrea Enria
The FIAU have now been given ten days to show the EBA how it plans to implement their eight new recommendations
“The FIAU should ensure that where it concludes that it does not have evidence of an infringement or a clear-cut breach of applicable legislation, but maintains concerns regarding the adequacy of the an obliged entity’s approach to anti-money laundering, it adopts within a reasonable period appropriate supervisory measures or a supervisory plan designed to address the risk identified,” Andrea Enria, the EBA chairperson, said.
The FIAU now needs to show that it is putting the recommendations into practice. Among other things, they will need to prove Maltese law is in line with European law, as well as taking the appropriate steps of ensuring Malta can fulfil its legal obligations under EU law.
‘I expect the authorities to follow all the given recommendations’ – MEP Roberta Metsola
Maltese MEP Roberta Metsola said she regretted that Malta was in the headlines “for all the wrong reasons” but that Malta had to abide by the recommendations.
“It is clear to everyone that Pilatus bank should never, ever, have been granted a licence to operate in Malta. The fact that it has been able to flout our rules with total impunity for so long is a damning indictment of the regulatory bodies meant to protect citizens from abuse. We expect serious action in order to restore people’s faith in our regulatory bodies. This debacle further underlines the need for a European anti-money laundering authority,” she said.
Similarly, Maltese MEP David Casa told The Times of Malta this was “a massive failure of the regulatory authorities”.
“And the failure of the institutions to act is necessarily linked to the fact that this bank serviced persons at the highest levels of the Maltese government. Pilatus Bank has ceased operations but Nexia BT continues to operate. It is clear that so long as our regulatory authorities do not take action against Nexia BT they cannot claim that are compliant with EU legislation. They must get their act together and desist in what is a clear dereliction of duty,” he said.