It took a tip-off from US officials for Europeans to finally catch on. ABLV, one of Latvia’s largest banks, was essentially engaged in mafia-style activities. Money laundering had become “institutionalized” and a focal point of its business. Latvian officials were bribed in a bid to prevent tougher anti-money laundering rules from coming into effect. So reads a report by the US Treasury that was released by the European Parliament.
The Latvian bank was shuttered by European authorities in February, but it wasn’t an isolated event. On Monday, Estonia’s Versobank became the third euro-zone bank to have its banking license withdrawn for alleged criminal activities since the start of the year. The lender is also accused of money laundering, potentially even tied to the financing of terrorism. This time, at least, the deeds were uncovered by Estonia’s own banking regulators.
The three banks that were shuttered may be small, but the implications for Europe are huge. The 19 countries that use the euro currency are trying to integrate their financial systems, forming a banking union to help head off any future crisis. The idea is to let anyone in Europe hold an account at any European bank. German households, who shun stocks and save more money than most Europeans, potentially stand to gain (or lose) the most.
The business model rests on Germans having confidence that their money will be safe in a non-German bank.
Versobank is a perfect example. Some 5,600 Germans held a savings account with the Estonian bank, where they earned a far better interest rate. The typical annual rate for savings accounts in Germany was 0.19 percent in January (see graphic). By putting their money in Estonia they could earn double on average. Some banks even offer more than 1 percent.
Germans gained access to Versobank through the online broker Savedo, one of a series of innovative digital startups that are being pioneered in Germany (given the German propensity to save, this is one of the few areas where German financial startups have taken the lead). In a statement to Handelsblatt Global, Savedo said it takes cases like Versobank “very seriously” and would support any customers seeking compensation.
The very business model of such portals rests on Germans having confidence that their money will be safe in a non-German bank. Though it is true that pan-European deposit insurance guarantees mean that any Germans affected will get their money back, nobody really wants their cash to be used for nefarious purposes. Savedo said that individual cases like Versobank weren’t a cause for concern. EU authorities had acted appropriately by pulling the bank’s license. Making sure such cases remain isolated “is a goal of the banking union,” Savedo noted.
The EU has already taken plenty of steps toward a banking union. Regulations have been harmonized, as has supervision. That’s why these money-laundering cases could prove a major embarrassment for the European Central Bank, which is nominally in charge of overseeing banking supervision in the euro zone. Except the ECB doesn’t have any real authority when it comes to money laundering. The ECB can only become involved if cases are flagged by one of the euro-zone’s 19 national regulators.
That needs to change, says Daniele Nouy, who heads up banking supervision at the ECB. On Monday she spoke of an “untenable situation.” Money-laundering has become an ever-growing problem across the continent, and new rules requiring regulators to share information are not enough. The European Union could no longer allow national regulators to take the lead, she said.
While it could be seen as an attack on their sovereignty, smaller EU members might welcome the help. Diplomats in Brussels say organized crime groups are purposely targeting smaller countries, which lack the expertise and have become overwhelmed with the task of monitoring their local banks.
The fact that three banks have failed also means it’s no longer a problem for just one country. “We have to protect the banking union’s reputation and finally clean up money laundering activities across Europe,” said Sven Giegold, a European parliamentarian from Germany’s Greens.
Mr. Giegold suggested the ECB use its existing authority to conduct a sort of “stress test” focusing on banks’ resilience to preventing financial crimes. More aggressive steps along those lines might allow EU regulators to stop relying on US authorities for information, a situation even Ms. Nouy called “embarrassing.”
Ruth Berschens in Brussels, Frank Wiebe in Frankfurt, Helmut Steuer in Stockholm and Christopher Cermak in Berlin contributed to this story. To contact the authors: Cermak@handelsblatt.com