Andorra’s Banca Privada d’Andorra (BPA) Caps Withdrawals Amid US Money Laundering Allegations: Financial Crisis Deepens for Principality

Banca Privada d’Andorra (BPA) Faces Money Laundering Allegations

In a recent development, the US Department of the Treasury accused Andorra’s Banca Privada d’Andorra (BPA) of money laundering for international criminal gangs. This allegation has led to strict withdrawal limits being imposed by the bank’s state-appointed managers to contain the fallout (Reuters).

Impact on Andorra’s National Finances

Andorra, a microstate nestled between France and Spain, is heavily reliant on its financial services sector. A significant player, BPA, with approximately 20% of assets and liabilities in the Andorran banking system, could potentially strain the principality’s national finances (Standard & Poor’s assessment).

Downgrade of Andorra’s Sovereign Rating

Since the public revelation of these allegations, BPA faced potential loss of operating capabilities with its American counterparties. This, in turn, caused S&P to downgrade Andorra’s sovereign rating one notch, leaving the country just two notches above junk status.

BPA’s Response and Restrictions

BPA’s provisional administrators have imposed weekly limits on cash withdrawals from ATMs, capping the limit at €2,500 per account, and restrictions on national and international transfers.

Andorra’s Transformation Process

Andorra’s finance minister, Jordi Cinca, asserted that the Andorran banking system is under stress but emphasized the country’s commitment to transparency, international exchange of information standards, and fighting money laundering (Andorran television).

Expansion and Vulnerabilities of Andorran Banks

Andorran banks have seen breakneck expansion in recent years, more than doubling their assets under management to €36 billion dollars ($39 billion USD) by 2013. This growth increased the sector’s assets 17 times the size of the local economy. However, S&P cautioned that the central government would not be able to provide requisite financial support to BPA if needed.

Assets Under Management and Diversity of Clients and Countries

The sector’s assets reached an impressive seventeen times the size of the local economy. Andorran banks expanded their reach to numerous countries, including Spain, the United States, Mexico, Dubai, and Brazil.

Spillover Effects to Spain

The scandal has already spilled over to Spain, causing the bankruptcy filing of BPA’s Spanish unit, Banco Madrid. Before the scandal, the bank managed €6 billion euros ($6.3 billion USD) for approximately 15,000 clients.

Impact on Depositors and Guarantees

The Bank of Spain reassured depositors that their deposits up to €100,000 euros would be guaranteed.

Suspension of Reimbursement

The Spanish stock market regulator suspended the reimbursement of investment funds managed by Banco Madrid.

Ongoing Investigations

US officials suspect that money laundering activities did not only occur at BPA’s Andorran headquarters but also at its Spanish unit. Spain’s anti-corruption prosecutor is currently looking into the matter.

Current Developments and Legal Actions

BPA’s Chief Executive, who was suspended alongside the rest of the board last week, was detained over the weekend on suspicion of money laundering. US authorities allege that BPA facilitated the transfer of $4.2 billion through its Andorran headquarters. US allegations of money laundering activities at Banco Madrid are still under investigation.