Europe’s financial regulation chief has called for the EU to overhaul its money-laundering safeguards after the bloc’s banking watchdog shelved an investigation into the €200bn Danske Bank scandal.
The European Banking Authority voted on April 16 to reject an internal draft report into supervisory failings linked to Danske Bank, the Danish bank whose Estonian operations were at the centre of revelations last year of large flows of illicit Russian money.
The draft, seen by the Financial Times, identified four breaches of EU law in how the bank was supervised by Danish and Estonian authorities, and made recommendations to the two countries for follow-up action.
Instead, the EBA’s board of supervisors, the agency’s key decision-making body, voted to close the investigation without adopting any findings, a move that has drawn sharp criticism from senior EU policymakers.
“It is disappointing that the board of supervisors of the EBA did not act on one of the biggest money-laundering scandals in Europe,” Valdis Dombrovskis, vice-president of the European Commission responsible for financial services policy, told the Financial Times. He said the case showed it was “essential” that legislation be adopted to “transform” the way decisions were taken at the agency.
The Danske Bank revelations are part of a wave of money-laundering scandals to hit the EU over the past 18 months, laying bare weaknesses in the enforcement of EU rules that require banks to carry out due-diligence checks on customers.
The European Commission and MEPs have urged the EBA, which is responsible for ensuring consistent application of bank rules across the EU, to undertake investigations to find out what went wrong.
The 45-page draft EBA report into Danske identified breaches of union law including “significant shortcomings” in co-operation between the Danish and Estonian supervisors, a lack of effective monitoring of whether due-diligence procedures were followed by the bank and insufficient reviews of Danske’s governance arrangements.
The draft report examines the period from 2007, when Danske acquired the operations in Estonia, to 2014, when Estonian authorities carried out on-site inspections that revealed the compliance violations. It was prepared by EBA staff and a panel of senior supervisors.
According to people involved in the meeting on April 16, the vote on the report was split, with one country voting in favour of there having been a breach of union law and a number of abstentions.
In a letter to the European Commission, dated April 26, the EBA said that the draft report had been “rejected conclusively” by the board of supervisors, which is made up of senior officials from the EU’s central banks and other banking watchdogs.
“A number of members of the board of supervisors, while acknowledging that with the benefit of hindsight there were failings in the supervision by the two authorities, did not consider that those failings amounted to a breach of union law,” the EBA said in the letter. A similar letter was sent to a group of MEPs.
But the explanations have failed to ease the irritation in Brussels, where MEPs and others have said the decision is a sign of the agency’s inability to take a tough stand with its own members.
Sven Giegold, a German green MEP who has campaigned for a tougher crackdown against money laundering, said it was “scandalous” that the EBA had chosen to reject the report.
“The national supervisors disregarded their legal obligation to act only in the European interest,” he said. He urged the EU commission to use its own powers to open “infringement procedures” against Denmark and Estonia for failure to apply EU law.
Brussels proposed in 2017 that the EBA be equipped with a full-time executive board, so as to ensure “effective, impartial and EU-oriented decisions”, but the move was resisted by national governments.