The European Banking Authority's (EBA) inaction in the money laundering scandal involving the Estonian subsidiary of the Danish Danske Bank group involving €200 billion of suspicious transactions (see EUROPE 12100/5) came under fire on Monday 29 April.
The EBA's decision to close the investigation, in the absence of a finding of a breach of EU law, was taken in mid-April (see EUROPE 12239/30). But the revelations on Sunday by several newspapers, including Le Monde and the Financial Times, raise real questions about the ability of national supervisory authorities to be self-critical and remedy the deficiencies observed.
The two newspapers had access to a confidential report from the independent BUL commission (‘Breach of Union Law’) which identifies four breaches of EU law and which the EBA Council did not take into account.
On Monday, the European Commissioner for Financial Services, Valdis Dombrovskis, regretted that the EBA had not acted on “one of the biggest money laundering scandals in Europe”, via Twitter.
The reform of the European Financial Supervisory Authorities (ESAs), adopted at the beginning of April (see EUROPE 12226/9), strengthens the EBA's mandate in the fight against money laundering. But Dombrovskis warns that these new powers will only be “effective [if there is] a transformation in the way decisions are made in the EBA”.
On the same day, Christian Wigand, a Commission spokesman, recalled that the fight against money laundering was one of the priorities of the Juncker Commission. Indeed, it was the Commission itself that asked the EBA to investigate the massive money laundering scandal involving Danske Bank (see EUROPE 12102/16) in September 2018.
“It is important that lessons are drawn from the Danske bank case and that supervision at national level is effective and fully in line with EU law”, he said.
According to the BUL commission's report, the first infringement concerns the cooperation that should have been established by the Danish and Estonian supervisors to supervise Danske Bank's subsidiary. Additionally: - a violation of the 4th anti-money laundering directive from 2015 by the Estonian supervisor; - a violation of the 3rd anti-money laundering directive from 2005 by the Danish supervisor; and - a violation of the 2013 directive on the 2006 banking consolidation and on capital requirements by the Danish supervisor.
In letters published on 26 April on its website and addressed to the Greens/EFA group in the European Parliament and the European Commission's Directorate-General for Justice, the EBA acknowledges that “a number of members of the Board of Supervisors” have noted shortcomings in the supervision exercised by the two authorities, but have not considered them to constitute a violation of EU law.
More broadly, they have reportedly even called into question the finding of infringement of Union law in cases which occurred before the entry into force of the 4th anti-money laundering Directive.
“Many members also considered that the relevant supervisory and cooperation requirements under the Directives referred to above are not clear and unconditional, and so cannot be used to found a breach of Union law recommendation”, the EBA letters state.
The Danske Bank scandal reopens the debate on the governance of ESAs
“This Danske Bank scandal is not a European scandal, it is the one about the limits of the intergovernmental in Europe”, reacted Pervenche Berès (S&D, France) the same day.
The MEP, who was rapporteur on the reform of the ESAs, said that this case demonstrated the urgency of having truly independent European authorities – the major sticking point that had enlivened the interinstitutional negotiations (see EUROPE 12219/6).
“Clearly, the national supervisory authorities wanted to bury the scandal and protect each other. In my report, I had wanted to create an Executive Council, with independent members. Unfortunately, States have wanted to maintain their control over ESAs with a Board of Supervisors in which national authorities always put the national interest first”, she said.
The same is true of German MEP Sven Giegold (Greens/EFA). In his view, the national supervisory authorities have not complied with their legal obligation to act solely in the European interest. “It is grotesque that both the Danish and Estonian supervisors were allowed to vote on their own discharge”, he said.
The two MEPs asked the Commission to launch urgent infringement proceedings against the Danish and Estonian authorities based on the four violations identified in the BUL commission's confidential report.
The European Commission has already launched infringement proceedings against both countries for incomplete transposition of the 4th anti-money laundering directive, including supervisory breaches (see EUROPE 12180/24), the Commission spokesman recalled.
The next European Parliament will have to set up a committee of inquiry to shed light on this case and immediately relaunch the work on reforming the governance of the ESAs, Pervenche Berès said. Sven Giegold has called for the establishment of a European Financial Intelligence Unit and a European Financial Police, as recommended by Parliament, and endorsed the report of the special committee ‘TAXE 3’ on the fight against financial crime, tax evasion and avoidance (see EUROPE 12222/12).
See EBA's letter to Members of Parliament: https://bit.ly/2LctUBV. (Original version in French by Marion Fontana)