Bank of Valletta failed for years to detect or address risks involving thousands of payments, Reuters news agency reported on Wednesday, quoting a European Central Bank report.
It said BOV had not dealt with a litany of risk management failings despite repeated warnings from the Frankfurt-based regulator stretching back to 2015.
The report — adopted by the ECB in the summer after an inspection late last year — called for remedial measures, including assessing if BOV’s top managers are fit for their jobs, and reducing exposure to risks posed by foreign clients by the end of this year.
A senior ECB official acknowledged with Reuters, however, that BOV had shown “a change of attitude” with its new “de-risking” plan launched in May, but he warned that Frankfurt would consider restricting the bank’s services to foreign clients and gaming companies if it again failed to shape up. It could deploy such measures as part of its remit to protect financial stability.
Times of Malta reported last month that scores of gaming and other ‘high risk’ businesses are being cut loose by the bank following instructions by the ECB to de-risk.
In its report, the ECB complained that when foreign nationals seeking to buy a Maltese passport open an account at BOV, the bank registers them as Maltese citizens, which reduced their risk profile.
The report said BOV’s earlier de-risking strategy in 2018 had focused mainly on maintaining accounts and more than 13,000 suspicious payments, some dating back to February 2014, were still waiting to be assessed.
Meanwhile the number of high-risk foreign customers had actually risen and in many cases BOV had no information about the origins of their wealth.
BOV, the ECB found, had no unit to identify bribery and corruption among international clients and did not keep a record of those who had payments blocked due to money laundering risks.
The report said ECB investigators also identified a lack of checks over accounts held by Pilatus Bank, which was shut last year after its Iranian owner Ali Sadr Hashemi Nejad was arrested in the United States on money-laundering and sanctions violation charges.
“Despite warnings, BOV kept scant details about the source of wealth of Pilatus’ directors and no documentation was provided when Ali Sadr opened an account in 2014.”
In another case, BOV allowed CenturionBet, a gambling company which the ECB said had its licence withdrawn in Britain in 2009, to continue transferring money even though its licence had also been revoked by Maltese authorities in 2017.
BOV reacts - ECB report is about the situation a year ago
In a reaction to the ECB report, Bank of Valletta told Times of Malta that the ECB report was based on the situation as it was a year ago.
"Since then, BOV’s de-risking exercise has taken on a much wider dimension. The bank is today engaged in a priority process - agreed with, and monitored by, its regulators - to deal with the legacy issues highlighted by the report. The bank has made strong progress in addressing the specific issues within the relevant timelines, and is confident that its processes will be substantially enhanced as a result."
The bank is today engaged in a priority process - agreed with, and monitored by, its regulators - to deal with the legacy issues highlighted by the report- BOV
BOV also pointed out that it is currently undertaking a Transformation Programme, aimed at strengthening its IT systems and architecture, overall risk profile, internal controls framework, anti-financial crime defences and governance structure.
The Transformation Programme includes a de-risking, or business restructuring and a remediation programme.
"The de-risking, or business restructuring programme, aims at exiting or re-dimensioning business lines where the risk-return ratio is unfavourable, i.e. where the risk inherent in the business is not adequately compensated by the return. The bank is currently exiting from a number of such businesses. Concurrently, it is scaling down its international corporate deposits business, as well as its international personal banking business. Core to this de-risking programme is the criterion that customers must have an economic nexus with Malta."
It said the upgrade of the bank’s anti-financial crime defences is being carried out in partnership with an international consultancy firm. The bank is conducting a complete review and remediation exercise on all its customer files.
Another objective of the programme is to strengthen and upgrade the internal control framework in line with best international practice.