The European Commission is preparing to use little-known powers in EU law to issue binding demands on Malta’s financial regulator after an EU watchdog found “systematic” weaknesses in its enforcement of anti-money laundering rules.
The Financial Times reports that Brussels will for the first time order a member state to strengthen enforcement of its anti-money laundering rules after a string of scandals across Europe’s banking system.
Vera Jourova, the EU’s justice commissioner, told the Financial Times that Brussels would publish a “formal opinion” on action that must be taken by Malta after its financial conduct regulator failed to address concerns raised by the EBA, a pan-EU banking watchdog, in July.
“We will react because the EBA’s report has concrete proposals for improving the functions of [Malta’s] financial intelligence unit. The situation obliges us to come with an opinion,” said Ms Jourova.
The EBA’s report warned of “general and systematic shortcomings” in the work of Malta’s Financial Intelligence Analysis Unit, or FIAU, an independent government agency tasked with combating money laundering and terrorist financing. The commission’s opinion will be formally binding on Malta’s FIAU.
Should it fail to act, the EBA would then be able to give direct orders to Maltese banks to bring them into line with EU rules, such as requirements for customer background checks and other due diligence measures.
The EBA probe centred on the supervision of Pilatus Bank, a private lender, which was accused by US authorities of being set up with criminal proceeds. Pilatus lost its banking licence this year after its chairman was arrested in the US over allegations of evading sanctions against Iran.
But the EBA said the investigation also revealed problems with the “general practice” of the regulator that went beyond “this particular case”. “We have to be quicker than the criminals. Money laundering has the potential to destroy the coherence and working of the EU’s financial sector,” Ms Jourova said.
The report on the Financial Times, quotes Minister Scicluna saying that his government was already working on enforcing new laws to address shortcomings in the fight against illicit financing. He said the country had set up a co-ordinated committee of national bodies, including the central bank and the FIAU, to better counter money laundering. “We cannot drag our feet,” said Mr Scicluna.
The commission has until mid-November to formally issue the opinion, after which Malta’s FIAU has 10 days to reply and set out what changes it intends to make.