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Europe: Banking Scandals Undermine Transatlantic Confidence

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As banking scandals spread in Europe, trust across the Atlantic is undermined.

The war in Ukraine exposed multiple cracks and weaknesses in the Western alliance. In the face of external pressures, the West cannot overlook its weaknesses as it did in the post-Cold War years. One of these vulnerabilities is the banking and financial sector (for example, the threat to the dollar as a reserve currency). dark money (” dark money ”), together with poor surveillance and its temporary phenomena, pose a real threat that can cause the system to stumble at any time, because it needs transparency to maintain trust and stability across the Atlantic.

Banks have shown particular weakness lately, and here’s the latest example: US investors are preparing to sue the Swiss government over how it engineered a “forced marriage” between the country’s two largest banks. The work of the Swiss authorities spent an investment $17 billion additional Tier 1 capital holders, undermining transatlantic confidence in both European banks and in the competence of European governments’ supervision over them. Next month’s general elections in Andorra could further erode that relationship.

Like Switzerland, the small Pyrenean principality of Andorra has a huge banking sector represented more than 20% of its gross domestic product. It has attracted large deposits from wealthy investors around the world, driven by secrecy, light regulations, and generous tax provisions. It is a sovereign and landlocked country About 80,000 people, with its own laws and political institutions, but strongly linked to France and Spain. Compared to other countries in Europe, the prestige of the Principality of Andorra has allowed all kinds of shadowy dealings in the country’s banking sector, which have sparked huge media scandals in recent months. These scandals are sure to have an impact on the upcoming elections as well as on transatlantic confidence.

Andorra’s elections would generally have gone unnoticed were it not for the fact that the country (along with other tax havens like San Marino and Monaco) is currently in an advanced stage of negotiations with the European Union (EU) for further integration through an association agreement. In a recent report, Martin KrautnerAn anti-corruption expert likened this situation to a “Trojan horse” entering the European financial system. Martin Kreutner’s view is authoritative as he is Dean Emeritus of IACA, the International Anti-Corruption Academy, an intergovernmental agency based in Austria that trains civil servants, especially those in the European Union, and professionals in anti-corruption measures.

How Andorra manages its exceptional banking sector will be at the center of the elections and negotiations with the EU. first Minister Xavier EspotInvestors accuse him, who is running for re-election, of undermining the rule of law in an abuse of power intended to protect Andorra’s former banking families from the attention of US authorities. Known in the media as “The Anduragat It should serve as a warning to investors and policymakers.

In 2015, it was one of the largest banks in Andorra Banca Privada d’Andora (BPA), forcibly nationalized by the Andorran authorities after issuing a notice before Financial Crimes Enforcement Network (FinCEN) from the US Treasury Department, which has designated BPA as a foreign financial institution with significant interest in money laundering. These accusations were presented without evidence and were not investigated by the Andorran authorities. BPA CEO, Juan Bao MikelHe spent two years in prison in Andorra without being charged. BPA contributors are calling out today 500 million euros to the Andorran government for the unfair and reckless takeover of the bank.

Several elements of the case have emerged since then, indicating that the government at the time was instigated by the United States to take action against money laundering and used BPA as a scapegoat to shield other banks from surveillance. Former Spanish Minister of the Interior, Francisco Martinez, recently claimed in a letter to the Prime Minister of Andorra that the Andorran Financial Intelligence Unit (UIFAND) may have provided FinCEN with incorrect and misleading information that prompted the US agency to issue the notice. According to the explosive accusations made this month by the special investigator Paco Marco In a documentary broadcast on Spanish television at the time, US law enforcement authorities investigated an alleged money laundering operation carried out by a Dutch network of drug traffickers through Credit Andorra, another Andorran bank with close ties to the government. These accusations made headlines in Spain and Andorra.

Former BPA contributors, Higene and Ramon SircoHe emphasized that “BPA is the only bank owned by people outside the Andorran institution”. This is why the Andorran elite has targeted the bank as a scapegoat for the US authorities. This alleged scenario prompted BPA’s outraged shareholders to file a lawsuit against the Andorran prime minister for “fraud, influence peddling and waste of public funds” in connection with the handling of the case.

In his report on Andorra, anti-corruption expert Martin Krautner points to “significant legal and regulatory weaknesses” in the country, which clearly need to be addressed. Its main concern is the banking sector and the risks it is exposed to due to the lack of a central bank and proper supervision. “Andorra’s ability to regulate its banking sector and investigate banking scandals in a transparent and fair manner is essential if the country is to continue its integration into the European Union,” said Martin Krautner. It concluded that “improving regulations in the area of ​​combating corruption and money laundering must be high on Andorra’s agenda, particularly during the upcoming elections”.

Gerard Vespeiergeopolitical analyst and editor-in-chief of the French magazine The world decodes, echoes this concern. In a recent study of small European countries, Andorra was considered “a threat to the rule of law in Europe”. For Gérard Vespeier, the BPA case illustrates “how the failure to respect the rule of law and the absence of due process in banking regulations can put private companies and individuals at risk”. And above all, one might add, endangering the European, or even Western, banking system. In the current climate of global tension and division between the West and other nations, this kind of weakness could be disastrous, especially for transatlantic trust. Especially given the recent volatility of the big banks in the US, UK and EU.

David TepperBillionaire founderAppaloosa ManagementHe said financial times In the aftermath of the Credit Suisse case: “If we let this happen, how can we trust debt securities issued in Switzerland, or even across Europe, if governments can simply change laws after the fact.” Another investor called Switzerland a “banana republic”. Time will tell if Switzerland’s defense is solid.However, one thing is certain: in countries like Switzerland and Andorra, banks are a matter of national pride, and their management is inseparable from politics and government affairs.

Despite its roots in small countries, Andorran and Swiss banking is used all over the world. An association agreement with the European Union would make Andorra more attractive to investors looking for a low-tax haven for their savings. However, a dark cloud hangs over the small nations. The Anduraghat scandal suggests that banking regulation under the current government is more a matter of knowledge than behaviour. Even the smallest hint of nepotism affecting the rule of law will have a chilling effect on potential investors, particularly in the aftermath of the Credit Suisse case. Until this issue and the issue of the Business Partnership Agreement are resolved, transatlantic confidence in European banks will continue to be under threat.

Translated article from Forbes US – Author: Melike Kaylan

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