The authority said “corrupt high–level managers and weak anti–money-laundering controls have made BPA (Banca Privada d’Andorra) an easy vehicle for third–party money-launderers”.
It claimed that three senior managers accepted bribes to help criminals in Russia, Venezuela and China to funnel money through the Andorran system.
They were dismissed the next day when the state book charge of the bank. Soon after the bank’s chief exec was arrested and held.
Account withdrawals were limited to €2,500 per week.
Banking is the state’s second largest industry after tourism and accounts for 20% of GDP. Authorities are adamant that BPA is an isolated case and that it is committed to transparency.
Should any other banks become embroiled, however, the principality would face serious trouble as without a central bank there is no mechanism for a bank bail-out.
Andorra uses the euro on an informal basis but is not a eurozone member. It has become heavily reliant on its banking industry. If it fails, so does Andorra.
The crisis has now led ratings agency Standard & Poor’s to downgrade the value of the principality’s sovereign debt.
“The absence of a central bank or a lender of last resort in the Andorran financial system exacerbates the risks, in our opinion.”
S&P said that the government, which runs on a budget of around €400m a year, would have almost no chance of supporting BPA, with assets of more than €3bn.
Being outside the EU, Andorra was able to use only minimal regulation. This combined with a low tax regime attracted many investors.
Just recently has it begun to scrutinise its banks, signing up to international conventions on reporting standards, exchanging tax information with neighbouring countries, and introducing stronger rules on bank capital.
