The European Banking Authority said on Thursday it is investigating the Financial Intelligence Analysis Unit's supervision of Pilatus Bank.

The FIAU appeared to have failed to ensure Pilatus put in place adequate anti-money laundering procedures, and never imposed any sanctions on the bank, the EBA said. 

The EBA said these failures appeared to be in breach of the EU's third anti-money laundering directive.

The probe, opened at the end of last month, comes on the back of a preliminary enquiry conducted by the EBA into the FIAU's supervision of the bank.

In a statement, the EBA said the unit's investigation was initiated based on preliminary conclusions about its supervision of the bank.

It is expected to be concluded by mid-July, after which the EBA will decide if the FIAU breached the directive.

The preliminary enquiry into the Malta Financial Services Authority's supervision is still ongoing, as the EBA is awaiting some final submissions from the authority.

Read: MFSA defends its history of supervising Pilatus Bank

A leaked FIAU report showed the unit found serious shortcomings in the bank’s compliance with anti-money laundering laws during a joint inspection with the MFSA in March 2016.

Inspecting the inspector... the FIAU is being investigated.Inspecting the inspector... the FIAU is being investigated.

An FIAU spokesman told Times of Malta in April that Pilatus Bank had contested the unit's findings and substantiated its submissions with two external audit reports produced by KPMG and Camilleri Preziosi Advocates.

Read: Pilatus Bank used by Azeri elites to move millions into Europe

The FIAU had said that considering Pilatus Bank's response and the two external audit reports, the agency together with the MFSA decided to carry out an on-site follow-up examination.

During this follow-up examination, additional documents were made available to the FIAU and MFSA which had not been provided on the first visit, the spokesman said.

While acknowledging that the issues found in the March inspection no longer existed, the FIAU spokesman said the agency expressed concern in a letter dated September 26, 2016 that information found on site during the follow-up visit was not available during the first visit.

The MFSA placed Pilatus Bank under the control of an administrator following the arrest of its owner Seyed Ali Sadr Hasheminejad in the US on money-laundering and sanction-busting charges.

Shortly before his arrest, the FIAU carried out a surprise inspection at the bank, during which they seized all of its data, including e-mails as well as other means of communication by the bank.

The information is being analysed to establish the precise nature of the bank's operations.


The FIAU in a reaction said it was committed to cooperate fully with the EBA in order to facilitate understanding of the facts of the Pilatus case and the steps taken to date.

"The FIAU has already shared evidence of the regulatory activity it has undertaken with regard to Pilatus Bank and the changes it is making to its internal procedures. The FIAU remains confident that the evidence shows that it has not been in breach of Union law."

Whilst we acknowledge that we need to continue to improve, we believe no breaches in substance or in form can be attributed to the FIAU.- FIAU director

FIAU Director Kenneth Farrugia said: “Whilst we acknowledge that we need to continue to improve, we believe no breaches in substance or in form can be attributed to the FIAU. We recognise that as a jurisdiction we must carry on working to strengthen our approach, not least to further enhance collaboration between the FIAU and the MFSA, and to review the boundaries of our respective competences.”

The FIAU said it had been monitored Pilatus Bank 'intensively' since it was first made aware by the MFSA of potential concerns with the bank 'in late 2015'.

It has conducted multiple on-site inspections,  maintained close on-going supervision of the institution, and collaborated closely with judicial authorities and local and foreign law enforcement authorities. Working closely with the MFSA, it has also commissioned an extensive third-party review of Pilatus’ activities to build a definitive and comprehensive picture of what happened inside the bank. This review is continuing.

Mr Farrugia said the FIAU is 'absolutely committed' to protecting the people of Malta and the  banking system from the threat of money laundering and financial crime.

"Europe faces a growing challenge with financial crime, and to meet it we have to strengthen our capabilities, from our inspection protocols to our IT infrastructure. We believe our supervision of Pilatus Bank was in line with European Union law and we look forward to working with the EBA to address their concerns. We will continue to cooperate with the national and European authorities in the Pilatus Bank case and in addressing the challenges of the increased financial crime risk facing Europe at this time.”

He added that isolated action by the FIAU or other regulatory authorities would not be sufficient to meet the challenge financial crime presents. It would require cooperation and new frameworks and tools both at a national level and at European level. Central to this should be more effective integration between prudential and AML regulation.

"We believe the EBA and other European institutions should consider looking beyond the performance of specific institutions and focus on how prudential and financial crime supervision can be better integrated through changes to frameworks and wider reforms, both to remits and responsibilities and to potential structures, both at a national and EU level."

The FIAU said it is working to continuously strengthen the effectiveness of its supervision activities including overhauling its internal supervisory processes to strengthen its governance, methodology, data and document collection, and record keeping;

It is also teviewing protocols for cooperation with the MFSA for conducting supervision of financial firms and engaging third-party expertise to augment the MFSA capabilities as it responds to the growing proliferation and sophistication of the financial crime threat.

These changes form part of a longer-term programme that was started before the Pilatus case came to prominence.

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