Accusations of money laundering levelled at Banca Privada d’Andorra by the US authorities threatened to destabilise the country's banking sector, so the government had to act quickly to contain the crisis. Now, Andorran authorities are keen to show that this was an isolated case and that the wider banking sector is both closely governed and performing successfully. 

The Andorran authorities have moved quickly to limit any reputational damage from the problems at Banca Privada d’Andorra (BPA), which in March 2015 was accused by the US authorities of money laundering. They are keen to make clear that BPA is an isolated case, and is not representative of the rest of the Andorran banking sector (see table). Banking accounts for 20% of Andorran gross domestic product and is a large employer in a country with only 70,000 people.

The US Financial Crimes Enforcement Network (Fincen) said, in a note published without warning to the bank, that BPA was a foreign financial institution of “primary money laundering concern”. The bank was alleged to be laundering money for organised crime in Russia and China, and corrupt officials in Venezuela.

Quick response

A week after the allegations were made, BPA’s Spanish subsidiary, Banco de Madrid, filed for bankruptcy. Meanwhile, the Andorran authorities have put in place measures to deal with the parent company. Gilbert Saboya, Andorran minister for foreign affairs, says: “We were not expecting the communication from Fincen. One thing in the Fincen note is important… it is specifically a BPA thing. [Fincen is] implicating high-level managers.

"All the cases named in the Fincen report had been mentioned in public before. The Andorran authorities had been co-operating with the relevant agencies… so we didn’t expect this publication [of the note]. We have had to react quickly and be consistent. We have been swift and clear.

"We immediately named two controllers to the bank to supervise what was being done at the entity. Our intelligence unit responded to the note by blocking accounts in addition to those already under investigation. Our attorney general took an initiative following the investigation. Our intelligence and our judiciary reacted to the note. We had to isolate BPA from the system. Correspondent banks responded immediately and cut BPA from the system. We suspended the board and named new administrators.”

The former CEO, Joan Pau Miquel Prats, is in custody in Andorra and the authorities have taken over management of the bank. Both board members and the CEO deny any wrongdoing.

Cleaning up

BPA, a family controlled bank, with assets of $1.9bn, also has operations in Luxembourg, Switzerland and Uruguay. Lawyers for the family complain that they were given no chance to resolve the issues at the centre of the allegations. Mr Saboya says: “We have had to clean up the bank, segregating legitimate from non-legitimate business. We have worked with PricewaterhouseCoopers, which has a plan for anti-money laundering [AML], and segregating good from bad assets, with a view to a future resolution of the entity. BPA was dead from the moment Fincen [published its note on the bank]. 

“Our key concern is to have a reliable financial system. We need to be swift, tough and quick in responding to BPA. We need to deal with the BPA assets.

“We have passed a new law to enable us to provide a resolution to BPA. We have had to find the best way to value the assets and to identify the toxic part of the balance sheet, which is in the liabilities of the bank. We are examining the possibility of building a ‘bridge bank’, which gathers the good assets and liabilities of the bank, to sell the bank as a whole. Alternatively, we could find a way of selling portfolios of the business as pieces. The final possible route is to hold a judicial liquidation. The first route is the best way to protect clients.”

Andorran banks

A solid system

The BPA affair is a setback for Andorra, which has made great efforts to open up its financial sector and conform to international norms in recent years. The country was removed from the Organisation for Economic Co-operation and Development's (OECD's) list of unco-operative tax havens back in 2009. Andorra has undergone a number of examinations, including by MoneyVal (a monitoring board of the Council of Europe) and the OECD, concerning information exchange.

Andorra has been looking at the evolution of its financial model and is working with San Marino, Liechtenstein and Monaco on an agreement with the EU. 

Mr Saboya says: “The Andorran banks have solvency ratios of 20%, liquidity ratios of 65% and family ownership, and they are managed well… this is a valid model. The expansion of the Andorran banks has mainly come through the acquisition of Spanish banks, not so much through their acquisition of South American assets.

“Good practices in AML are compulsory and we have to ensure the system shows itself to be compliant. In 2011, we signed a monetary agreement with the EU. The entire EU legal framework is in place in Andorra. All the legislation is going to be equivalent to the EU system. We have the legal framework. We have been developing a comprehensive tax framework, to balance the public budget, we have signed double taxation agreements with Spain, France and Luxembourg, and we are in the second round of talks for a double taxation agreement with Portugal. We are looking to build a services sector-based economy. We want to sell services, such as consultancy, to other parts of the world.

“The Andorran government is talking to Monaco and San Marino about setting up a group to get access to the EU internal markets. We are looking at diversifying its economy through expanding our services sector. We are reforming the tax system. We are confident that BPA was an isolated case and it was the responsibility of high-level management.”

Isolated case

The Andorran system has sufficient internal controls to prevent contagion, according to Miquel Soca, the head of fixed-income securities and foreign exchange at Morabanc, the country’s smallest bank. “Contagion won’t happen, because Spain and France are working with Andorra to prevent it. The Spanish prime minister is committed to preventing contagion. He has been discussing the problem with Andorran politicians. The liquidity and solvency ratios of the Andorran banks are very high,” he says. 

EU levels of regulation underpin the stability of Spanish subsidiaries of Andorran banks, says Mr Soca, and he is mystified by the closure of Banco de Madrid. “The way that Banco de Madrid was liquidated so quickly by the Spanish authorities is strange. There was no reason for that. They could have put in a large bank to take it over. Instead it is going to be closed down. I don’t anticipate this being contagious.”

A spokesperson for the Association of Andorran Banks (ABA) says: The Fincen probe has actually shown that this is an isolated case. These practices are by no means widespread in the sector. That's how we see it and that is how it has been seen both internationally and also by our own customers. 

"For years now, Andorran banks have been adopting and working under international standards and protocols in the area of money laundering and the financing of terrorism, just as banks have done in continental Europe as a whole. We at the ABA are confident we'll come out of this even stronger as a solid financial market.”

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