Banco Madrid, a subsidiary of Andorran lender Banca Privada d'Andorra (BPA), has requested entry into insolvency proceedings and will suspend activity after significant deposit withdrawals. As Sonia Legg reports the move follows the arrest of BPA'S CEO on suspicion of money laundering.
Andorra relies on financial services. In fact assets under management in the tiny principality that lies between France and Spain are 17 times the size of its economy. That means a money-laundering scandal at one of its largest banks a threat to national finances. Banca Privada d-Andorra is battling U.S. allegations it laundered money for international criminal gangs. Last week BPA's CEO was arrested in connection with the investigation. James Bevan is Chief Investment Officer at CCLA. SOUNDBITE: Chief Investment Officer CCLA, James Bevan, saying (English): "Ever since the 9/11 bombings the global community has been absolutely focussed on money-laundering and we will see the tap being tightened remorselessly on banking institutions and areas that do not have the highest standards of probity and integrity." The scandal has already spread to Spain. BPA's Spanish unit, Banco Madrid, filed for bankruptcy on Monday after customers rushed to empty their accounts in the wake of the allegations. The Bank of Spain will guarantee deposits of up to 100,000 euros per client. And said fewer than 500 had more than that. SOUNDBITE: Chief Investment Officer CCLA, James Bevan, saying (English): "I don't consider the problem of Banco Madrid a particular problem for the Spanish banking industry at large. This relates primarily to money laundering challenges in Andorra and I suspect these challenges will be quite descreet and relatively small in scale to the industry as a whole." Andorra's finance minister insists BPA is an isolated case. But ratings agency S&P has already cut the principality's sovereign rating to just two above junk. And it could now lose its ability to deal with U.S. counterparts. That would certainly slow Andorra's otherwise rapid expansion. It saw assets under management grow by nearly two thirds in the five years to 2013.