Malta watchdog says EU has dropped its anti-money-laundering probe

LONDON (Reuters) - Malta’s financial watchdog said a preliminary European Union investigation into how it applied EU anti-money-laundering rules at Pilatus Bank has been dropped.

The Malta Financial Services Authority (MFSA) said on Tuesday that the European Banking Authority (EBA) found that no EU rules had been broken.

“As a result, the EBA decided to close the preliminary enquiry into a potential breach of Union law by the MFSA,” the Maltese watchdog said in a statement on Tuesday.

The EBA said in July it found “general and systemic shortcomings” in how the island’s Financial Intelligence Analysis Unit (FIAU) applied EU anti-money laundering rules.

Malta’s regulators froze the business of Pilatus Bank in March after its chairman, Ali Sadr Hashemi Nejad, was accused in an indictment filed in a federal court in Manhattan of involvement in a scheme to evade U.S. economic sanctions against Iran

EBA opened its preliminary investigation after the EU Parliament asked for clarification on how Pilatus got its licence, and the EU Commission requested an inquiry into “alleged incorrect or insufficient application of EU law pertaining to the prevention of money laundering” in Malta.

The EBA said on Tuesday it would soon publish the letters it has sent to the European Commission and the European Parliament in relation to the case, without elaborating.

The MFSA said it welcomed recommendations from the EBA to further improve supervision of Malta’s financial services industry.

“The MFSA looks forward to future collaboration with the EBA, as well as other supervisory bodies in the EU, to improve AML supervision and ensure a strong AML environment within Malta and across the EU,” it said.

The MFSA said it was reviewing and improving internal authorisation procedures to strengthen the engagement between the FIAU and the MFSA’s anti-money-laundering team.

Reporting by Huw Jones, editing by Larry King