Estonia And Denmark Regulators Helped Vote Down EBA’s Proposal That They Broke EU Law, Documents Show

November 3, 2021
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Although the vote was originally taken by European supervisors in 2019, it has only just been made public and makes for questionable reading.

Although the vote was originally taken by European supervisors in 2019, it has only just been made public and makes for questionable reading.

On February 18, 2019, the European Banking Authority (EBA) opened a formal investigation into a possible breach of EU law by the Estonian Financial Supervision and Resolution Authority (EFSA) and the Danish Financial Supervisory Authority (DFSA).

This breach of law was in connection with the EFSA and DFSA’s failure to stop money laundering activities linked to Danske Bank and its Estonian branch.

Just two months later the banking watchdog had closed its formal investigation following a vote by the EBA's Board of Supervisors, which rejected a proposal for a breach of Union law recommendation.

Now, two years later, the EBA’s voting results have been made publicly available.

They show that the two authorities under investigation took part and voted to reject the proposal, alongside Belgium, Cyprus, Czech Republic, Finland, Lithuania, Latvia, the Netherlands, Poland, Romania, Sweden and Slovakia.

Twelve countries, including Germany, Ireland and the now-departed UK opted to abstain and only one national supervisor, the Banque de France, came down in favour of a proposal that the two authorities broke EU law.

Official notes taken during the meeting show that the interim chairperson, Belgium’s Jo Swyngedouw, explained that four breaches of Union law had been identified by EBA staff.

These were under the Banking Consolidation Directive, the Capital Requirements Directive and the third Anti-Money Laundering Directive in the period 2007-2014, while outlining recommendations proposed in the draft recommendation adopted by the Breach of Union Law Panel for discussion and vote by the Board of Supervisors.

The police, policing the police

Danish and Estonian representatives used the meeting to criticise the use of the Breach of Union Law instrument in the case, arguing that the facts presented did not support the EBA's conclusions, dismissing the legal analysis as stretched beyond what was “reasonable”, according to the document.

The notes also show that other representatives at the meeting criticised the EBA’s document. For example, some members expressed concerns about the factual basis of the investigation.

“Many members found that cooperation between the two authorities seemed good and that there was and are very different understandings of legal obligations in relation to both governance and AML supervision; and the excessive reliance in the document on some of the information regarding money laundering concerns provided by a third country to the DFSA and EFSA,” the document says.

Representatives also touted the possibility of using different tools to take action in this instance. For example, this could include peer reports or a lessons learned report, which could lead to the disclosure of concerns about supervision by a competent authority without establishing that they amount to breaches of Union law.

The quest for transparency

In April this year, a complaint was made to the European Ombudsman, an independent and impartial body with headquarters in Brussels and Strasbourg that holds the EU’s institutions and bodies to account, as well as promoting good administration.

The complainant sought public access from the EBA to documents showing details of the votes of the EBA’s Board of Supervisors concerning an investigation in which it found that national authorities had breached EU law with respect to the supervision of Danske Bank and Malta’s now doomed Pilatus bank.

The banking watchdog subsequently refused access to the documents in question, invoking an exemption provided for under the EU's rules on public access to documents. Here, it argued that releasing these documents would seriously undermine its decision-making process and that there is no overriding public interest in disclosing the documents.

However, the European Ombudsman, a position currently held by Emily O’Reilly, who took up her position in 2013 following a stint as Ireland’s Information Commissioner, took a different point of view.

In July, the European Ombudsman wrote to the EBA that the preliminary assessment is that the supervisory authority’s refusal to grant public access to the two voting records in question constituted maladministration.

In particular, the ombudsman considered that the EBA did not provide sufficient reasons for refusing access and should have disclosed the voting records. It gave them until October 30 to submit the documents, which were published on the EBA’s website on October 29.

What does this all mean?

The Danske Bank scandal has continued to plague EU regulators since it originally came to light in 2017-18.

Around €200bn of suspicious transactions flowed, via the Estonian branch of the bank, from sources in Estonia, Russia and Latvia in a time period spanning 2007 until 2015.

The scandal led to the bank being exiled from the Baltic state, and its then chief executive, Thomas Borgen, resigning before facing criminal proceedings from the Danish authorities.

The EU has since beefed-up its anti-money laundering proposals, including plans to create a new, pan-EU AML authority, referred to as AMLA by the industry. This authority would deal with cross-border AML cases in particular and will be independent of the EBA.

One source told VIXIO that the new AMLA effectively makes the EBA a “lame duck” and warned that it is important that the EU’s institutions ensure that it does not become de-motivated as its powers get transferred over to the AMLA.

The EBA has also courted criticism from politicians on the left and right of the European Parliament.

In March this year, Sven Giegold, a green politician, told VIXIO that the EBA has performed “relatively poorly” in its supervision of AML law, while Markus Ferber, a centre-right politician, said that “the EBA is not sufficiently independent from its national overlords”, and that an upgrade in its mandate would not help the situation.

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