The EU banking regulator is probing alleged failings over how Maltese watchdogs have enforced money laundering rules over Pilatus Bank.

The European Banking Authority has reportedly begun to probe alleged “shortcomings” over how Malta’s Financial Intelligence Analysis Unit enforced anti-money laundering rules at scandal-hit Pilatus Bank.

Malta’s regulators froze the business of Pilatus Bank in March this year after its chairman, Ali Sadr Hashemi Nejad, was accused in an indictment filed in a federal court in Manhattan of involvement in a scheme to evade US economic sanctions against Iran. The involvement of US authorities in the matter is a significant ratcheting up of international action around the bank.

EBA Chair Andrea Enria said (source: Reuters, 7 June) in a letter to the European Union’s executive European Commission dated 6 June that he has decided to open a formal “breach of union law” investigation in relation to FIAU, the Maltese anti-money laundering watchdog over its handling of Pilatus bank. The announcement follows a “preliminary inquiry” into FIAU and the Maltese markets regulator opened in November 2017, the report said.

The European Union Parliament has asked for clarification on how Pilatus got its licence and the EU Commission requested a probe of “alleged incorrect or insufficient application of EU law pertaining to the prevention of money laundering” in Malta.

"The MFSA can confirm that it is in close collaboration with the EBA regarding its preliminary findings and is working to address the questions that the EBA has raised within the stipulated timeframes," the regulator told WealthBriefing when asked about the matter. 

Enria reportedly has asked for more information by 10 June. Enria reportedly said the preliminary assessment showed that how FIAU conducted its “investigation and planned its supervisory activities” regarding Pilatus does not appear to have met EU anti-money laundering requirements.

Pilatus Bank had been locked in a legal clash with the late Maltese journalist, Daphne Caruana Galizia, over several articles she wrote that accused the bank and Sadr of facilitating corrupt political activities and money laundering. (The investigative journalist was murdered last October in Malta and investigations into her killing continue.) The bank said her articles were false and defamatory. A former bank employee, Maria Efimova, who was reportedly the main source for Caruana Galizia’s accusations, handed herself in to Greek police this week. A European arrest warrant was issued by the Maltese government in response to a complaint of fraud by Pilatus Bank.