EU Court throws out Pilatus Bank's challenge to ECB licence withdrawal

The EU’s General Court has dismissed an action filed by Pilatus Bank plc which sought the annulment of the European Central Bank’s 2018 decision to withdraw the bank’s authorisation to act as a credit institution.

Pilatus Bank plc and Pilatus Holding Ltd., described by the court as “a less significant credit institution established in Malta, which is subject to direct prudential supervision by the Malta Financial Services Authority (MFSA),” had made 11 pleas to the court.

The first plea alleged infringement of an EU regulation and the principle of sound administration. The second alleged an error of assessment as to the existence of a ground for the withdrawal of authorisation. The third alleged a failure by the ECB to exercise its discretion or inappropriate exercise of that discretion. The fourth alleged a failure to examine the relevant facts and to assess those facts impartially and objectively. The fifth to eighth pleas claimed infringement of the principle of proportionality, infringement of the nemo auditur principle, infringement of the right to the presumption of innocence and infringement of the principle of equal treatment.

The ninth plea alleged infringement of other dispositions of European law and abuse of powers.

In its 10th plea, the bank had alleged infringement of the rights of the defence and, in particular, of the right to be heard, and the 11th plea alleged infringement of the obligation to state reasons when giving decisions.

The court noted that according to a press release published by the United States Department of Justice on 19 March 2018, Ali Sadr, who indirectly holds 100% of the bank’s capital and voting rights, had been arrested in the United States on six charges relating to his alleged participation in a scheme, in which approximately USD 115 million in payments to finance a project in Venezuela were illegally funnelled for the benefit of Iranian individuals and undertakings.

Following Mr Sadr’s indictment in the United States, the bank had received withdrawal requests totalling €51.4 million worth of deposits, approximately 40% of the deposits on its balance sheet, noted the court.

On 29 June 2018, the European Central Bank (ECB) received a proposal from the MFSA to withdraw the Bank’s authorisation to function in the business of a credit institution, which had subsequently been adopted on 2 November 2018.

Contesting this decision, the bank lodged an application with the EU General Court on 15 January 2019, based on Article 263 of the Treaty on the Functioning of the European Union, seeking annulment of the ECB’s decision to withdraw the bank’s authorisation to take up the business of a credit institution.

“Having examined and rejected each of the 11 pleas, the General Court concludes that the application must be dismissed in its entirety,” ruled the court.

In an application requesting a stay of proceedings, the bank asked for an expert’s report be commissioned in order to establish that, during the course of the proceedings before the Court, the allegations against Sadr had been dismissed in the United States.

But the General Court pointed out that, “according to settled case-law, the legality of an EU measure must be assessed on the basis of the facts and the law as they stood at the time when the measure was adopted and that acts subsequent to the adoption of a decision cannot affect the validity of that decision.” The request was rejected.

On 21 February 2021, the applicants again applied for a stay of proceedings in order to "give the ECB and the MFSA an opportunity to comply with the new Maltese case-law confirming that access to the Bank is a precondition of an effective representation". The General Court, however, ruled that the ECB is under no obligation to comply with Maltese case-law, adding that as the bank had not referred to any representations made before the MFSA or the Maltese courts, the stay of the proceedings “cannot not be considered to be required by the proper administration of justice.”

Concluding that the application must not be granted, the General court dismissed the action filed by Pilatus Bank plc in its entirety and ordered it to bear their own court costs, as well as those incurred by the European Central Bank.