EU steps up legal action against Malta, Luxembourg over money laundering

[BRUSSELS] The European Commission on Thursday stepped up legal action against Malta and Luxembourg for not fully applying European Union rules to prevent money laundering at banks and through companies.

They are among several EU states where banks have been embroiled in money laundering scandals, but they have failed to strengthen their rules to counter financial crime, according to the EU Commission.

Malta has been subject to a rarely-used disciplinary procedure after serious shortcomings emerged in its supervision of Pilatus Bank, an international lender based on the island that was shut down this week by the European Central Bank over money laundering and fraud allegations.

The lender had received a clean sheet from Maltese authorities despite allegations of processing corrupt payments for senior Azeri and Maltese figures by investigative journalist Daphne Caruana Galizia, who was killed a year ago by a car bomb.

There is no proven link between her murder and the reports she wrote about the bank.

Maltese authorities only took measures against the bank after its chairman was charged with financial crimes in the United States.

Following an investigation by the European Banking Authority, the bloc's watchdog, the Commission said on Thursday it would require changes in the way the Maltese anti-money laundering supervisor, the Financial Intelligence Analysis Unit (FIAU), operates.

EU anti-money laundering rules "need to be enforced with the same high standards across the EU to avoid creating any weak link," EU justice commissioner Vera Jourova said.

The FIAU has ten days to comply with the requirements, which include enhancing its monitoring of and sanction proceedings against banks, gaming companies and other sectors that could be used to launder dirty money.

In a separate decision, the Commission sued Luxembourg for not fully applying the new rules and asked the EU Court of Justice to charge a lump sum and daily penalties until it takes the necessary action.

The revised rules - requiring disclosure of the owners of companies and trusts, stronger sanctioning powers against money laundering and stricter checks on banks, lawyers and accountants - had to be applied in EU states by June 2018, but Luxembourg had failed to fully implement them.

The Commission sent legal warnings for the same reason to Estonia and Denmark, which are grappling with a money laundering scandal implicating Danske Bank. A total of 21 of the 28 EU states have so far received these warnings over delays in applying new rules, the Commission said, although most have since moved to comply.

Only Luxembourg, and Ireland and Romania in earlier decisions, have been sued.

Luxembourg is among EU states that use a loophole to avoid disclosing fines to banks for money laundering, despite international guidelines that recommend publication of sanctions as a key measure to help prevent financial crime.

The Duchy secretly imposed a fine of 8.9 million euros (S$13.95 million) last year on Luxembourg-headquartered Industrial and Commercial Bank of China (ICBC) after a Spanish investigation exposed a large money laundering operation at the bank,according to legal sources.

REUTERS