CELEX: 62019TJ0027
Economic and monetary policy
Prudential supervision of credit institutions
Specific supervisory tasks conferred on the ECB
Decision to withdraw a credit institution’s authorisation
Indictment of the main shareholder in a third country
Criterion of good repute
Perception of good repute by the market
Presumption of innocence
Proportionality
Rights of the defence

I.

Background to the dispute
The applicants, Pilatus Bank plc and Pilatus Holding Ltd. are, respectively, a less significant credit institution established in Malta which is subject to direct prudential supervision by the Malta Financial Services Authority (MFSA) and the direct majority shareholder of that credit institution.
According to a press release published by the United States Department of Justice on 19 March 2018, Mr Ali Sadr, the shareholder of the first applicant who indirectly holds 100% of its capital and voting rights, was 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.
According to the indictment adopted by the United States Attorney for the Southern District of New York, some of the funds used to establish and capitalise the first applicant in 2013 had an illegal origin linked to the Venezuelan project.
Following Mr Sadr’s indictment in the United States, the first applicant received, inter alia, withdrawal requests totalling EUR 51.4 million worth of deposits, that is approximately 40% of the deposits on its balance sheet.
On 21 March 2018, the MFSA adopted a directive regarding the removal or suspension of voting rights by which it ordered, inter alia, that Mr Sadr be removed from his post as director of the first applicant with immediate effect and from all other decision-making roles within it, that he suspend the exercise of his voting rights and that he refrain from any legal or judicial representation of the first applicant.
On the same date, the MFSA adopted the directive regarding the moratorium, by which it ordered the first applicant not to authorise any banking transactions, in particular withdrawals and deposits by shareholders and members of the first applicant’s Board of Directors.
On 22 March 2018, the MFSA adopted the directive regarding the appointment of a competent person, in order to entrust that person, in essence, with the exercise of the main powers normally conferred on the first applicant’s governing bodies in respect of its specific activities and its assets.
On 29 June 2018, the European Central Bank (ECB) received a proposal from the MFSA to withdraw the first applicant’s authorisation to take up the business of a credit institution, in accordance with Article 14(5) of Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the ECB concerning policies relating to the prudential supervision of credit institutions (
OJ 2013 L 287, p. 63
).
On 2 August 2018, the MFSA submitted a revised proposal to the ECB to withdraw the first applicant’s authorisation to take up the business of a credit institution.
By letter of 31 August 2018, the ECB invited the first applicant to provide comments on the draft decision withdrawing the authorisation within five working days from the date of receipt of that letter.
On 6 September 2018, the first applicant requested an extension of the hearing period to 14 days as well as access to the file in that procedure.
At the first applicant’s request, the hearing period was extended initially until 17 September 2018 and subsequently until 21 September 2018.
By letter of 13 September 2018, the ECB granted the first applicant access to the file relating to the administrative procedure.
On 21 September 2018, the first applicant submitted its comments on the draft decision withdrawing authorisation, expressing the opposition of its management and shareholders to it.
On 2 November 2018, the ECB adopted, pursuant to Article 4(1)(a) and Article 14(5) of Regulation No 1024/2013, the decision by which it withdrew the first applicant’s authorisation to take up the business of a credit institution (‘the contested decision’).
II.

Procedure and forms of order sought
By application lodged at the Court Registry on 15 January 2019, the applicants brought the present action.
The ECB lodged its defence on 28 March 2019.
By decision of 17 May 2019, the President of the former Second Chamber of the General Court granted the European Commission leave to intervene in support of the form of order sought by the ECB.
The Commission lodged its statement in intervention within the period prescribed.
The applicants lodged their observations on the statement in intervention on 2 August 2019.
The applicants lodged their reply on 28 June 2019 and the ECB lodged its rejoinder on 21 August 2019.
Following a change in the composition of the Chambers of the Court, pursuant to Article 27(5) of the Rules of Procedure of the General Court, the Judge-Rapporteur was assigned to the Ninth Chamber, to which the present case was accordingly allocated.
On a proposal from the Second Chamber of the Court, the Court decided, pursuant to Article 28 of the Rules of Procedure, to refer the case to a Chamber sitting in extended composition.
By decision of the President of the Court of 25 February 2021, a new non-reporting judge and President of the Chamber was appointed to complete the formation of the Court.
On a proposal from the Judge-Rapporteur, the Court (Ninth Chamber, Extended Composition) decided to open the oral part of the procedure and the parties presented oral argument at the hearing on 26 February 2021.
On 26 February 2021, on a proposal from the Judge-Rapporteur, the Court, by way of measures of organisation of procedure provided for in Article 89 of the Rules of Procedure, requested the ECB to answer a question and the other parties to make known their views. That request was complied with within the prescribed time limits.
By decision of the President of the Court of 12 August 2021, the present case was assigned to a new Judge-Rapporteur.
Following the death of Judge Berke on 1 August 2021, the three judges whose signatures appear in the present judgment continued with the deliberations, in accordance with Article 22 and Article 24(1) of the Rules of Procedure.
The applicants claim that the Court should:
–
annul the contested decision;
–
order the ECB to pay the costs.
The ECB, supported by the Commission, contends that the Court should:
–
dismiss the action as inadmissible as regards the second applicant;
–
in the alternative, dismiss the action as unfounded as regards that applicant;
–
dismiss the action as unfounded as regards the first applicant;
–
order the applicants to pay the costs.
III.

Law
A.

Admissibility
The ECB, supported by the Commission, contends, in essence, that the action is inadmissible in so far as it was lodged for and on behalf of the second applicant, since that applicant has not demonstrated that it has a personal and separate interest in the annulment of the contested decision and that it is directly and individually concerned by that decision.
The applicants state that the action is admissible in so far as it was brought by the second applicant, which is the direct majority shareholder of the first applicant.
In that regard, it must be borne in mind that shareholders of a credit institution whose authorisation to take up the business of a credit institution has been withdrawn are not directly concerned by the decision to withdraw authorisation (see, to that effect, judgment of 5 November 2019, ECB and Others v Trasta Komercbanka and Others,
C‑663/17 P, C‑665/17 P and C‑669/17 P
,
EU:C:2019:923
, paragraphs
to
and operative part).
Consequently, as the ECB and the Commission contend, the action is inadmissible in so far as it was brought by the second applicant.
B.

Substance
In support of the action, the applicants rely on 11 pleas in law.
The first plea in law alleges infringement of Article 14(5) of Regulation No 1024/2013 and the principle of sound administration. The second plea in law alleges an error of assessment as to the existence of a ground for the withdrawal of authorisation. The third plea in law alleges a failure by the ECB to exercise its discretion or inappropriate exercise of that discretion. The fourth plea in law alleges a failure to examine the relevant facts and to assess those facts impartially and objectively. The fifth to eighth pleas in law allege, respectively, 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 in law alleges infringement of Article 19 and recital 75 of Regulation No 1024/2013 and a misuse of powers. The 10th plea in law alleges infringement of the rights of the defence and, in particular, of the right to be heard, and the 11th plea in law alleges infringement of the obligation to state reasons.
1.

The first plea in law, alleging infringement of Article 14(5) of Regulation No 1024/2013 and the principle of sound administration
The applicants submit that the ECB failed to assume its responsibilities under Article 14(5) of Regulation No 1024/2013 and that it infringed Article 41 of the Charter of Fundamental Rights of the European Union by allowing the MFSA to implement a de facto withdrawal of authorisation without any due process by adopting the directives of 21 and 22 March 2018 and in so far as the ECB merely confirmed the MFSA’s decision.
The contested decision is claimed to be unlawful since, in essence, it is merely a confirmation of a fait accompli created by the MFSA and not a genuine decision by the ECB.
In that context, the applicants submit that the ECB ought to have intervened under Article 6(5)(c) of Regulation No 1024/2013 and in accordance with its obligation to ensure high standards of supervision, in essence, in order to ensure compliance with the relevant prudential requirements, with the allocation of powers in respect of decisions to withdraw authorisation and with the fundamental rules of procedure, inter alia the need for any bank to be truly represented by its own representatives vis-à-vis the regulatory authority rather than being ‘represented’ by a person who is controlled by that authority.
The ECB and the Commission dispute those arguments.
In the first place, it should be borne in mind that, under Article 4(1)(a) of Regulation No 1024/2013, the ECB is exclusively competent to authorise credit institutions and to withdraw authorisations in respect of, inter alia, all credit institutions established in Member States whose currency is the euro.
In addition, Article 14(5) of Regulation No 1024/2013 provides that the ECB may withdraw the authorisation of a credit institution in the cases set out in relevant EU law on its own initiative, following consultations with the national competent authority of the participating Member State where the credit institution is established, or on a proposal from such a national competent authority.
As is apparent from Article 4(1)(a) and Article 14(5) of Regulation No 1024/2013, the MFSA does not have the power to withdraw the authorisations of credit institutions, but only to propose, as the case may be, that the ECB withdraw such authorisations.
As was pointed out in paragraphs 8 and 9 above, it was the ECB which, in accordance with Article 14(5) of Regulation No 1024/2013, decided to withdraw the first applicant’s authorisation on a proposal from the MFSA.
In addition, it must be found that, even if the MFSA exceeded its powers and adopted a decision withdrawing authorisation, such a decision, adopted by a national competent authority, would not, unlike the decision which gave rise to the judgment of 19 December 2018, Berlusconi and Fininvest (
C‑219/17
,
EU:C:2018:1023
), constitute an initiating act, preparatory act or non-binding proposal for the contested decision and would not, therefore, be such as to render that decision unlawful (see, to that effect and by analogy, judgment of 19 December 2018, Berlusconi and Fininvest,
C‑219/17
,
EU:C:2018:1023
, paragraph
).
Similarly, since the MFSA’s directives on the moratorium and on the appointment of the competent person, which are mentioned in paragraphs 6 and 7 above, are not initiating acts, preparatory acts or non-binding proposals for the contested decision, their possible unlawfulness is not such as to render the contested decision unlawful.
Although the MFSA’s directives at issue concern the same situation, they are other decisions which were not adopted pursuant to Article 4(1)(a) of Regulation No 1024/2013.
Accordingly, the applicants’ arguments do not permit the inference that the contested decision was adopted in breach of Article 14(5) of Regulation No 1024/2013.
In the second place, as regards the applicants’ argument that the ECB ought to have intervened under Article 6(5)(b) of Regulation No 1024/2013, it must be borne in mind that, under that provision, when necessary to ensure consistent application of high supervisory standards, the ECB may decide to exercise directly itself all the relevant powers for one or more credit institutions.
However, while Article 6(5)(b) of Regulation No 1024/2013 gives the ECB the option to decide to exercise itself directly all the relevant powers for a credit institution, it does not impose on it the obligation to exercise itself the direct supervision of a credit institution.
It follows that the ECB may decide to intervene, under Article 6(5)(b) of Regulation No 1024/2013, if and when it considers that its intervention is necessary in order to avoid inconsistent application of high supervisory standards by the national competent authorities.
Since the applicants have not shown that the ECB’s failure to intervene in the present case led to an inconsistent application of high supervisory standards, the ECB cannot validly be criticised for not having intervened under Article 6(5)(b) of Regulation No 1024/2013 and in accordance with an alleged obligation to ensure high supervisory standards.
It follows that the fact that the ECB did not decide to exercise itself the direct supervision of the first applicant cannot render the contested decision unlawful.
In the light of the foregoing, the applicants’ arguments do not permit the inference that the contested decision was adopted in breach of Article 14(5) and Article 6(5)(c) of Regulation No 1024/2013.
In the third place, as regards the alleged infringement of the principle of sound administration, the applicants merely assert that, by allowing the MFSA to implement a de facto withdrawal of authorisation without any due process, the ECB infringed their right to have their affairs handled impartially, fairly and within a reasonable time.
Since the applicants do not substantiate their complaint alleging infringement of the principle of sound administration by specific arguments and merely refer to that principle, it must be held that that complaint is inadmissible pursuant to the first paragraph of Article 21 of the Statute of the Court of Justice of the European Union, applicable to the procedure before the General Court in accordance with the first paragraph of Article 53 of that statute, and to Article 76(d) of the Rules of Procedure of the General Court.
Consequently, the first plea in law must be rejected.
2.

The second plea in law, alleging an error of assessment as to the existence of a ground for the withdrawal of authorisation
The applicants submit, in essence, that the contested decision is vitiated by an error of assessment in that the ECB based the withdrawal of authorisation on the existence of an indictment in respect of Mr Sadr for financial offences.
In that regard, the applicants submit that the ECB was not able to rely on a mere press release issued by the US authorities, in particular since that press release stated that every fact described in it had to be treated as an allegation.
In addition, the applicants submit that the ECB did not examine the facts described in the indictment at issue, nor did it take note of their general nature. In particular, the applicants assert that the ECB did not take account of the fact that they related to charges of breaches of the rules relating to US sanctions against the Islamic Republic of Iran, whereas the conduct complained of is not illegal from the perspective of EU law.
The ECB and the Commission dispute those arguments.
It will be necessary to outline the legal framework applicable to the withdrawal of authorisation as well as the statement of reasons for the contested decision concerning the existence of a ground for withdrawal of authorisation and then to ascertain whether, as the applicants submit, the ECB made an error of assessment in that regard.
In the first place, since the shareholder and the credit institution are two separate persons, it must be ascertained, as a preliminary point, whether a fact relating to a shareholder of a credit institution may be relevant to a decision on the prudential supervision of that institution, such as the withdrawal of its authorisation.
In that regard, first of all, it must be borne in mind that Article 4(1)(a) and Article 14(5) of Regulation No 1024/2013, which was adopted to ensure the safety and soundness of credit institutions and the stability of the financial system within the European Union and each Member State (the first paragraph of Article 1 of that regulation), provide that the ECB is competent to authorise credit institutions and to withdraw authorisations of credit institutions in the cases set out in relevant EU law.
As is stated in recital 20 of Regulation No 1024/2013, prior authorisation for taking up the business of credit institutions is a key prudential technique to ensure that only operators with a sound economic basis, an organisation capable of dealing with the specific risks inherent to deposit taking and credit provision, and suitable directors carry out those activities.
In addition, under Article 4(3) of Regulation No 1024/2013, for the purpose of carrying out the tasks conferred on it, and with the objective of ensuring high standards of supervision, the ECB is to apply all relevant EU law, and where that EU law is composed of directives, the national legislation transposing those directives.
Next, it must be noted, first, that Article 14(2) of Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (
OJ 2013 L 176, p. 338
) provides that the competent authorities are to refuse authorisation to commence the activity of a credit institution if, taking into account the need to ensure the sound and prudent management of that institution, they are not satisfied as to the suitability of the shareholders or members, in particular where the criteria set out in Article 23(1) of that directive are not met.
Article 23(1) of Directive 2013/36 sets out the criteria that a shareholder seeking to acquire a qualifying holding in a credit institution must meet in order to be considered suitable in the light of the objective of ensuring the sound and prudent management of credit institutions, having regard to his or her likely influence on the credit institution concerned. Those criteria include, in particular, a criterion of good repute.
The criterion of good repute laid down in Article 23 of Directive 2013/36 is reproduced in Maltese law in Article 13(A)(9) of the Banking Act (Chapter 371 of the Laws of Malta), of 15 November 1994, which uses the same wording as the Directive.
Secondly, under Article 18 of Directive 2013/36, the competent authorities may withdraw an authorisation granted to a credit institution, where such a credit institution no longer fulfils the conditions under which authorisation was granted.
It follows from a joint reading of the provisions referred to in paragraphs 64 to 70 above that the criteria which proposed acquirers must meet in order to be authorised to acquire a qualifying holding, including the criterion of good repute, are applicable to the assessment of the suitability of the shareholders carried out for the purposes of withdrawing authorisation to take up the business of a credit institution.
It follows that authorisation to take up the business of a credit institution may be withdrawn by the competent authorities if, taking into account the need to ensure the sound and prudent management of that institution and to ensure the preservation and stability of the financial system within the European Union and each Member State, those authorities are not satisfied as to the suitability of the shareholders or members who are likely to influence that credit institution, in particular because of their lack of good repute.
In the second place, it must be noted that the concept of good repute is an indeterminate legal concept. Indeed, Article 23(1) of Directive 2013/36 does not contain an exhaustive definition of that concept or a list of conduct which may fall within the scope of that concept. This requires the competent authorities to examine on a case-by-case basis whether the criterion of good repute is met by a shareholder seeking to acquire a qualifying holding in a credit institution, taking into account the relevant facts, the reasons underlying the criterion and the objectives which that criterion is intended to secure. The principle of legal certainty does not, therefore, preclude those authorities from enjoying a discretion in the application of the criterion in question.
In addition, according to the settled case-law, in interpreting a provision of EU law, it is necessary to consider not only its wording but also the context in which it occurs and the objectives pursued by the rules of which it is part (see, to that effect, judgment of 7 June 2005, VEMW and Others,
C‑17/03
,
EU:C:2005:362
, paragraph
and the case-law cited).
In that regard, first, point 10.9 of the Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the banking, insurance and securities sectors, adopted by the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA), states (i) that a proposed acquirer should be considered to be of good repute if there is no reliable evidence to suggest otherwise and the target supervisor has no reasonable grounds to doubt his or her good repute and (ii) that all relevant information available for the assessment should be taken into account.
Secondly, it must be noted that, in its normal meaning, good repute refers to the suitability of a person who complies with customary standards and rules and to the reputation which that person enjoys with the public as regards that fitness and his or her conduct.
Thus, good repute depends not only on a person’s conduct, but also on the perception of that conduct by others.
Thirdly, it is important to bear in mind that the assessment of the good repute of the shareholders of credit institutions is intended to ensure the sound and prudent management of those institutions, to ensure the continuous suitability and financial soundness of credit institutions’ owners and, thus, to ensure the preservation and stability of the financial system within the European Union and each Member State (recitals 16, 17 and 22 of Regulation 1024/2013).
The attainment of the objectives pursued by the rules of which Article 23(1) of Directive 2013/36 forms part is closely dependent on the confidence which the public and the participants in the banking market have in credit institutions. The loss of such confidence may lead to a loss of funding for those institutions and thus create a risk not only for the institution in question, but also for the financial system within the European Union and each Member State.
It must, therefore, be found that the good repute of the shareholders of credit institutions must be assessed by taking account of whether their conduct complies with the applicable laws and regulations and also of the perception of that conduct and their reputation by the public and by the participants in the financial markets.
In the third place, it must be borne in mind that, in the contested decision, the ECB considered that the first applicant no longer met the conditions for authorisation to take up the business of a credit institution and that that situation could not be corrected due to the irreversible damage to its reputation and its business model.
First of all, the ECB noted that Mr Sadr indirectly held 100% of the first applicant’s capital and voting rights.
Next, the ECB observed that, according to a press release published on 19 March 2018 by the US Department of Justice, Mr Sadr had been arrested in the United States on a six-count indictment for his alleged participation in a scheme in which approximately USD 115 million in payments for a Venezuelan housing complex were illegally funnelled for the benefit of Iranian individuals and undertakings, and he had been granted bail after surrendering his passports and travel documents, while being subject to electronic monitoring.
In addition, the ECB stated that the indictment at issue had been subject to intense international media attention and resulted in negative press reports on the first applicant, which seriously tarnished its reputation, in particular taking into account the allegations of the United States Attorney for the Southern District of New York, according to which certain funds used to establish and capitalise that applicant in 2013 had an illicit origin linked to the Venezuela project.
The ECB then considered, in essence, that, taking into account the presumption of innocence and the fact that the charges against Mr Sadr were merely allegations, the indictment against him was such as to raise serious doubts with respect to his integrity in his capacity as shareholder of the first applicant.
The ECB also stated that, according to the joint guidelines mentioned in paragraph 75 above, the integrity of a shareholder is assessed on a case-by-case basis and that it is not called into question solely in the case of final convictions, but any information from credible and reliable sources should be taken into account. Thus, pending criminal proceedings, in particular the prosecution of certain criminal offences, such as fraud or financial crime, including money laundering, could have an impact on the reputation of the person concerned and, consequently, on the supervised credit institution.
The ECB added that, in the present case, the first applicant’s shareholding structure was of particular relevance, in so far as that structure meant that Mr Sadr was the sole ultimate shareholder exercising control over that applicant.
Since Mr Sadr, in his capacity as holder of a qualifying holding which conferred on him control over the first applicant, was no longer, in the ECB’s view, suitable within the meaning of Article 14(2) and Article 23(1)(a) of Directive 2013/36 and of the national provisions transposing those provisions, the ECB concluded that there were grounds to consider that the first applicant no longer fulfilled the conditions under which its authorisation had been granted.
In addition, the ECB detailed, in essence, the reasons for which the existence of a prosecution was sufficient, in the context of prudential supervision which, unlike criminal proceedings, seeks to anticipate and prevent risks, and not to punish individuals, in order to call into question the good repute of the shareholder concerned.
According to the ECB, prudential supervision requires a forward-looking perspective which takes into account the dependence of the financial markets on the public’s confidence in the financial market participants, with the result that it was justified to take into account Mr Sadr’s indictment. The ECB considered that that indictment directly called into question the reputation of the first applicant’s sole shareholder in the eyes of the public, despite the absence of a final conviction.
That is all the more so since the criminal proceedings at issue had, in the present case, an impact on the reputation of the first applicant itself, which led to a detrimental market sentiment evidenced by the significant number of requests for withdrawal of deposits subsequent to the initiation of the proceedings, representing more than 40% of the total amount of deposits shown on that applicant’s balance sheet, and also to the termination of the correspondent banking relationships.
Mr Sadr’s indictment was, moreover, one of the factors for the deterioration in the risk ratio, established by a rating agency, for the Maltese banking sector as a whole, which is apparent from the references to those criminal proceedings, among others, in that agency’s assessment report.
Furthermore, first, the ECB relied on a letter from the first applicant’s main borrower requesting the early termination of its loan, which represented 90% of the first applicant’s loan book, which was, therefore, that applicant’s main source of income.
Secondly, the ECB took into account the fact that, of the remaining 10% of the loan book, consisting in five loans, three borrowers no longer honoured the interest and principal payments, whereas the two others had requested early termination of their loans.
The contested decision therefore contained an express statement of grounds by means of the various reasons described in paragraphs 81 to 94 above, those reasons calling into question the objective of ensuring the sound and prudent management of the credit institution in question and the objective of preserving the financial system within the European Union and each Member State.
In the fourth place, in that context, it must be assessed whether, in the present case, the indictment at issue, under the law of a third country, of the shareholder indirectly holding full control of the first applicant, for financial offences of a certain seriousness was capable of affecting his good repute in such a way as to call into question the financial situation of the credit institution in question and the stability of the financial system within the European Union and each Member State.
First, as regards the applicants’ argument that the contested decision is vitiated by an error of assessment in that the ECB based the withdrawal of authorisation on the existence of an indictment against Mr Sadr for financial offences, it must be stated that the ECB considered that that indictment was such as to raise doubt as to the good repute and suitability of that shareholder possessing a qualifying holding in a credit institution within the meaning of Article 23 of Directive 2013/36 and, consequently, as to the soundness and prudence of the management of that institution.
It must also be pointed out that the ECB stressed that, in the light of the specific characteristics of the banking market, which is closely dependent on the confidence of the depositors and partners of a credit institution, and more broadly on that of the public, such doubt had to be considered sufficient to justify the competent authorities’ envisaging the adoption of measures intended to limit the impact of such charges on the management of the credit institution at issue and on the stability of the financial system within the European Union and each Member State.
More specifically, the withdrawal decision was based on the specific negative effects which the indictment against the shareholder indirectly holding full control of the first applicant had had on the reputation of that shareholder and of that applicant, on the public confidence in the latter and, consequently, on the soundness of the management thereof and the stability of the financial system within the European Union and each Member State.
Among those effects, the ECB identified the significant requests for withdrawal of deposits brought about by the indictment, representing more than 40% of the total amount of deposits shown in the first applicant’s balance sheet, the termination of the correspondent banking relationships and the early termination of the contracts of the first applicant’s main borrowers, but also the deterioration in the risk ratio, established by a rating agency, for the Maltese banking sector as a whole.
In that regard, it must be held that while the indictment of a shareholder indirectly possessing a qualifying holding in a credit institution is not sufficient, in itself, to call into question his good repute, the negative perception of that repute by the public and the clients and partners of that credit institution, following such an indictment may, provided that it is demonstrated on the basis of specific evidence, justify the withdrawal of the authorisation of the institution concerned, in so far as it is such as to create a risk for that credit institution and the banking market as a whole.
Given the importance of public confidence in banking market participants, to take into account the public’s perception of the good repute of a shareholder who has been charged is justified, in view of the objectives of prudential supervision, inasmuch as that supervision aims to further the objective of preserving the stability of the financial system within the European Union and each Member State.
Secondly, as regards the applicants’ argument that the ECB failed to take into consideration the impact of the indictment on the sound and prudent management of the first applicant, it must be stated that the perception of good repute by the market is a factor which must be determined by reference to the objective circumstances of the case.
In that regard, it must be pointed out that the applicants do not deny that the indictment of the first applicant’s main shareholder had a negative impact on the assessment of the risk ratio established by a rating agency for the Maltese banking sector as a whole and led to withdrawals of deposits and the termination of the correspondent banking relationships as well as the early termination of the contracts of the first applicant’s main borrowers.
The applicants merely assert that the indictment at issue had a limited impact and that the withdrawals of deposits were extremely limited.
However, it is apparent from the evidence provided by the ECB in response to a measure of organisation of procedure adopted by the Court that the first applicant’s situation had deteriorated significantly after Mr Sadr’s indictment.
In particular, as was stated in the contested decision and as evidenced by the main borrower’s request to close the loan facility, but also by the MFSA’s authorisation to the first applicant to accept early repayment of that loan, copies of which have been provided by the ECB, the first applicant had lost the major part of its loan portfolio and, therefore, its income-generating capacity.
In addition, as was stated in the contested decision and as evidenced by the requests for closure of accounts and for corresponding fund transfers from several depositors, copies of which have been provided by the ECB, the first applicant had received significant withdrawal requests from depositors.
The first applicant’s capitalisation and liquidity difficulties were also recognised by the members of the Board of Directors in their letter to the competent person of 10 May 2018, as were the requests for the withdrawal of deposits from three depositors, copies of which have been provided by the ECB. In that letter, the directors even anticipate reimbursement of all depositors within a reasonable period of time.
Moreover, even if the withdrawals of deposits were more limited than the ECB considered, as the applicants maintain, the other effects identified are, in any event, sufficient to demonstrate that the indictment at issue, in so far as it undermined the good repute of the first applicant’s sole shareholder as perceived by the public, had significant negative effects on the soundness of that applicant’s management and the stability of the financial system within the European Union and each Member State.
Consequently, since Mr Sadr’s indictment affected his personal reputation and that of the first applicant, of which he was the sole shareholder, and entailed a series of negative effects calling into question the stability of the financial system within the European Union and each Member State, the applicants’ argument that the ECB did not take into consideration the impact of the indictment at issue on the sound and prudent management of the first applicant must also be rejected.
As is apparent from paragraphs 99 to 111 above, the ECB relied on a series of negative factors and effects which followed on from the indictment at issue and which reveal, on an objective basis, the negative perception by customers of the good repute of the first applicant’s shareholder and their lack of confidence in the first applicant following that indictment, which gave rise to a risk for that applicant and for the financial system within the European Union and each Member State.
Thus, in view of the need to ensure the sound and prudent management of credit institutions and the preservation and stability of the financial system within the European Union and each Member State, the ECB did not err in considering that, as a result of Mr Sadr’s indictment and the corresponding perception of his good repute by the first applicant’s depositors and borrowers, which resulted in significant negative consequences for the first applicant’s situation, that shareholder’s lack of good repute as perceived by the banking market justified withdrawing the first applicant’s authorisation to take up the business of a credit institution.
Thirdly, as regards the applicants’ argument that the ECB ought to have examined the conduct complained of in the indictment at issue and the actual facts, it must be noted that the ECB does not have powers of criminal investigation and cannot interfere with the activities of the authorities which have such powers. In addition, to require the ECB to carry out factual checks of an indictment before taking the measures to limit the risks to the market generated by a credit institution whose shareholder has been indicted on account of suspected financial offences in respect of which negative effects have already begun to emerge would run counter to the objective of Article 4(1)(a) and Article 14(5) of Regulation No 1024/2013 and Article 14(2) and Article 23 of Directive 2013/36, which require a rapid and effective preventive response.
In that regard, it must be stated that the applicants do not dispute the facts giving rise to the indictment, but merely assert that they are not illegal under EU law and that their illegality under the law of the third State concerned is doubtful.
However, in the light of the concrete negative effects for the first applicant and the Maltese banking sector which had already emerged, the ECB cannot validly be criticised for failing to take account of the fact that the indictment at issue related to breaches of the rules relating to US sanctions against the Islamic Republic of Iran, while the conduct complained of might not be unlawful from the perspective of EU law, or of the fact that those breaches were exclusively technical in nature in respect of which doubts might still persist.
Even if the actions which justified Mr Sadr’s indictment in the United States were not unlawful under EU law or even under the law of the third State concerned, the most important factor to be taken into account was not, as the ECB indeed stated on page 8 of the contested decision, the merits of the prosecution contained within the indictment at issue, which, moreover, does not fall within its competence, but the consequences of that prosecution on Mr Sadr’s reputation, on the situation of the first applicant and on the banking market as a whole.
Indeed, the ECB assessed the good repute of the first applicant’s shareholder, as perceived by the public, and the participants concerned reacted to that shareholder’s indictment without taking into account the merits of the indictment under the law of the third State concerned or under EU law.
The fact remains that, in such a case, it is for the ECB to take into account, as the case may be, any evidence submitted in the context of the administrative procedure capable of demonstrating the absence of any effect of such a prosecution on the reputation or management of the institution concerned and which might result from the abusive or manifestly unfounded nature of such a prosecution.
Fourthly, for the same reasons, and contrary to the applicants’ submission, it cannot be held either that, by adopting the contested decision, the ECB recognised or rendered enforceable the sanctions adopted by the United States against operators engaged in trade with Iran, within the meaning of Article 4 of Council Regulation (EC) No 2271/96 of 22 November 1996 protecting against the effects of the extra-territorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom (
OJ 1996 L 309, p. 1
), as last amended by Commission Delegated Regulation (EU) 2018/1100 of 6 June 2018 amending the Annex to Council Regulation No 2271/96 (
OJ 2018 L 199
I, p. 1).
Fifthly, the applicants submit that the effects identified in the contested decision do not result exclusively from the indictment at issue, but also from the supervisory measures adopted by the MFSA following that indictment.
However, whatever the impact of the MFSA’s measures, the ECB cannot validly be criticised for having drawn the inferences from the negative effects on the management of the first applicant and the banking market which had already arisen following the indictment at issue in proceeding to withdraw the first applicant’s authorisation.
Sixthly, contrary to the applicants’ submissions, it is irrelevant that Mr Sadr’s likely influence was, at the time the contested decision was adopted, temporarily suspended by the supervisory measures adopted by the MFSA by virtue of the suspension of his voting rights.
Because of their temporary nature, the measures adopted by the MFSA were not such as to remove on a lasting basis the influence of the shareholder concerned on the management of the first applicant.
In addition, the contested decision was not based solely on the risks that the shareholder concerned might bring about for the management of the first applicant, but also on the existence of concrete negative effects on the reputation and soundness of the management of that applicant which the indictment at issue had already produced, irrespective of any decision by that shareholder.
The applicants’ argument that the ECB failed to take into consideration the elimination of the likely influence of the shareholder concerned over the first applicant, which would have rendered his good repute irrelevant, must therefore be rejected.
Seventhly, in the light of the concrete negative effects sustained by the first applicant and identified in the contested decision, the applicants’ claims that the charges against Mr Sadr were unrelated to the first applicant and the relevant events predated its existence must be rejected as ineffective.
Eighthly, as regards the applicants’ argument that the reference to withdrawals of deposits is irrelevant, since the withdrawal of authorisation was based on the suitability of the shareholder indirectly holding control over the first applicant, and not on a lack of liquidity or that applicant’s having insufficient capital, that argument cannot succeed, since those withdrawals were identified as specific negative consequences of the reputational and management problems encountered by the first applicant, which occurred in connection with the indictment concerning that indirect shareholder, and not in order to characterise a risk of lack of liquidity or insufficient capital.
Ninthly, as concluded in paragraph 71 above, and contrary to the applicants’ claims, Article 14(2) of Directive 2013/36, read in conjunction with Article 18 thereof, makes the criteria used to assess whether an acquisition of qualifying holdings in a credit institution must be authorised applicable to the assessment of the possibility of granting or withdrawing an authorisation to take up the business of a credit institution.
The ECB cannot, therefore, be validly criticised for having relied, for the purposes of interpreting the concept of good repute, on the EBA Guidelines on acquisitions of qualifying holdings, in support of its reasoning.
Nonetheless, it does not follow from the provisions referred to in paragraph 130 above or from the provisions of Directive 2013/36 that the procedure to be followed for withdrawing authorisation is subject to the same requirements as the procedure to be followed for applications for authorisation of qualifying holdings.
Contrary to the applicants’ claims, the contested decision is not, therefore, vitiated by error in that it was adopted following a procedure for withdrawal of authorisation which did not comply with the requirements, in particular in terms of time limits, laid down for the procedure for authorising qualifying holdings, because those requirements cannot be applied by analogy to the procedure for withdrawal of authorisation for which such requirements are not laid down.
In the light of all the factors identified in the contested decision in order to establish, first, the lack of good repute of the first applicant’s shareholder, in particular having regard to his perception by the public concerned, and, secondly, the negative effects which that perception had on that applicant, taken together, the applicants’ arguments that the contested decision is vitiated by an error of assessment in that the ECB based the withdrawal of the authorisation on the existence of an indictment against Mr Sadr for financial offences must, therefore, be rejected.
Consequently, the second plea in law must be rejected.
3.

The third plea in law, alleging a failure by the ECB to exercise its discretion or inappropriate exercise of that discretion
The applicants submit that the contested decision is vitiated since the ECB did not exercise its discretion or exercised it inappropriately.
The applicants state that the fact that the ECB decided to withdraw the authorisation implies that it considered that it had no discretion, that it merely confirmed the fait accompli by the MFSA and that it changed its stance after initially concluding that a withdrawal of authorisation was unjustified.
The ECB and the Commission dispute those arguments.
In that regard, first of all, it must be observed that the fact that the ECB decided to withdraw authorisation and the fact that it followed the MFSA’s proposal cannot demonstrate that it did not exercise any discretion.
Next, it must be stated that, as is apparent from pages 5 to 12 of the contested decision, the ECB carried out a detailed analysis of its own of the first applicant’s situation and did not confine itself to drawing the inferences from the MFSA’s decisions.
Contrary to what the applicants maintain, the ECB cannot, therefore, be validly criticised as having confirmed the fait accompli by the MFSA and as having failed to exercise its discretion.
Lastly, even if the ECB changed its stance during the course of the administrative procedure, this is not such as to demonstrate a failure to exercise its discretion or an inappropriate exercise of that discretion.
On the contrary, the fact that the ECB envisaged various solutions, assuming that this is the case, would tend rather to confirm that it did indeed carry out an assessment and did not merely draw the inferences from the MFSA’s decisions.
The applicants have, therefore, failed to show that the ECB did not exercise its discretion or that it exercised it inappropriately.
Consequently, the third plea in law must be rejected.
4.

The fourth plea in law, alleging a failure to examine the relevant facts and to assess those facts impartially and objectively
The applicants submit, in essence, that the ECB failed to examine the relevant facts impartially and objectively, in that it did not assess the actual effect of Mr Sadr’s indictment on the first applicant’s reputation or distinguish the facts in question from the impact of the measures adopted by the MFSA and public statements made by the ECB, since the contested decision is based on the conclusions by the MFSA which are based on allegations by US law enforcement authorities which are merely preliminary and highly tentative.
The ECB and the Commission dispute those arguments.
In that regard, it is sufficient to note that, in support of the fourth plea in law, the applicants confine themselves to reiterating the arguments put forward in support of the second plea in law.
On the same grounds as those set out in paragraphs 62 to 134 above, the fourth plea in law must, therefore, be rejected.
5.

The fifth plea in law, alleging infringement of the principle of proportionality
The applicants submit that the contested decision is contrary to the principle of proportionality in that, essentially, the considerations relating to proportionality are unconnected to the ground for withdrawal of authorisation, namely Mr Sadr’s indictment in the United States, in that the relative influence of that shareholder did not justify the recognition that his indictment represented a risk to the management of the first applicant and in that the ECB did not give appropriate consideration to less restrictive alternatives to the withdrawal of authorisation.
The ECB and the Commission dispute those arguments.
In the contested decision, first of all, the ECB stated that the objective of the withdrawal of authorisation was to put an end to the first applicant’s non-compliance with the law and to prevent damage to that applicant’s depositors and other creditors and to the national banking sector as a whole which might result from the loss of suitability of the first applicant’s main shareholder.
In addition, in the light of the balance sheet of, and the reputational damage to, the first applicant, the ECB took the view that that applicant’s sale to a third party did not have realistic chances of succeeding, in particular because of the first applicant’s very probable lack of franchise value.
In that regard, the ECB stated that it took into account the first applicant’s deteriorating capital and liquidity position, linked to the damage to its reputation in the light of the negative media coverage to which it had been subject, and relied on information, provided by the competent person at the request of the MFSA, substantiating, in essence, the first applicant’s lack of viability.
The ECB also relied on a letter from the first applicant’s largest borrower requesting, in the light of the facts set out inter alia in the indictment, the early termination of a loan, which represented 90% of the first applicant’s loan book and, therefore, its main source of income.
In addition, the ECB took into account the fact that, of the remaining 10% of the first applicant’s loan book, consisting in five loans, three borrowers no longer honoured the interest and principal payments, whereas the other two had requested early termination of their loans.
Furthermore, the ECB stated that the first applicant’s chances of refinancing appeared extremely limited, since its loan book had declined from EUR 159 million in March 2017 to EUR 66 million in March 2018, it had suffered negative coverage, as a result of Mr Sadr’s indictment and an investigation by the EBA into potential breaches of the law by the Maltese authorities in its supervision, and the termination of the majority of the first applicant’s correspondent bank relationships had forced that applicant to transfer the funds held with those other banks to Bank Ċentrali ta’ Malta (Central Bank of Malta).
Next, the ECB stated that it was apparent from the information provided by the competent person, in essence, that the first applicant’s capital situation was deteriorating, that that applicant was deprived of sources of financing and had little prospect of finding new ones, and that its liquidity remained precarious.
Lastly, after stating that the measures adopted by the MFSA could not remedy the situation and restore the first applicant’s viability, but also that that applicant was making monthly operating losses, the ECB considered that, in view of the risk to the depositors and creditors of the first applicant, any other equivalent supervisory measure within a reasonable timeframe has to be regarded as unrealistic.
The ECB concluded therefrom that it was necessary to proceed with the withdrawal of the first applicant’s authorisation.
The withdrawal of the first applicant’s authorisation was, therefore, considered proportionate, on the ground that that measure was necessary, in the light of that applicant’s financing difficulties, the seriousness of its breaches and its lack of viability, which resulted from the fact that its sole shareholder no longer fulfilled the condition of good repute in the light of his perception by the public, in order to ensure the objective of restoring legality, of ensuring the sound management of the first applicant and of limiting the risks for its depositors and creditors and those for the financial system within the European Union and Malta.
In addition, the objective pursued by the withdrawal of the first applicant’s authorisation was considered not to be achievable by other supervisory measures or by the sale to third parties because of that applicant’s damaged reputation, lack of value and financial and liquidity difficulties.
In that regard, it should be borne in mind that, according to settled case-law, the principle of proportionality requires that acts of the EU institutions be appropriate for attaining the legitimate objectives pursued by the legislation at issue and do not go beyond what is necessary in order to achieve those objectives (judgment of 16 June 2015, Gauweiler and Others,
C‑62/14
,
EU:C:2015:400
, paragraph
and the case-law cited).
In the first place, as regards the objective pursued by the withdrawal of the first applicant’s authorisation, suffice it to note that the contested decision pursues, inter alia, the legitimate objective laid down by the legislation at issue of ensuring the sound and prudent management of credit institutions and the preservation and stability of the financial system within the European Union and each Member State.
Since it is not the only objective pursued, the applicants’ argument relating to the allegedly abstract nature of the objective of restoring legality is not capable of calling into question the legality of the contested decision.
In the second place, as regards the ability of the contested decision to attain the objectives of ensuring the sound and prudent management of credit institutions and the preservation and stability of the financial system within the European Union and each Member State, it is sufficient to note that the withdrawal of a credit institution’s authorisation, in so far as it prevents that institution from continuing to carry on its activities, is appropriate for furthering the objective of preventing that credit institution from being managed in an unsound or imprudent manner and of preventing its activities from posing a risk to the preservation and stability of the financial system within the European Union and each Member State.
In the third place, it must, therefore, be ascertained whether the contested decision went beyond what is necessary in order to achieve those objectives.
In that regard, the applicants submit that the objectives pursued could have been attained more proportionately, first, by the sale of the first applicant to a third party and, secondly, by public statements by the ECB aimed, in essence, at minimising the effects of the indictment of that applicant’s shareholder.
As regards, first, the sale to a third party, the ECB considered that, in the light of the requests for withdrawal of deposits, the termination of the correspondent bank relationships which forced the first applicant to transfer the funds jointly owned with those banks to the Bank Ċentrali ta’ Malta, the very probable lack of franchise value and viability, the deterioration in capital and liquidity, and the termination of the first applicant’s main borrowers’ contracts, the sale of that applicant to a third party had no realistic chances of succeeding.
The applicants do not deny the existence of requests to the first applicant for withdrawal of deposits, but only the extent of those requests. Nor do they dispute the termination of the correspondent bank relationships, the transfer of the first applicant’s funds to the Bank Ċentrali ta’ Malta and the departure of that applicant’s main borrowers, who constituted its main source of financing.
The applicants merely assert that the requests for withdrawal of deposits were extremely limited and that the first applicant had a franchise value on the basis of independent valuations, was viable and was performing well.
However, the applicants cannot validly claim that the first applicant was viable, had a franchise value and was performing well while accepting that it had lost its main borrowers and its main sources of financing and that it had to meet requests for withdrawal of deposits and deal with the termination of the relationships with the correspondent banks which had led to its funds being transferred to Bank Ċentrali ta’ Malta.
As regards, secondly, the possibility of the ECB’s making public statements in order, in essence, to minimise the effects of the indictment at issue on the first applicant, it must be found that, in the light of the damage to the reputation of the first applicant’s shareholder and, consequently, to the first applicant’s reputation, and the extent of the financial difficulties which had arisen following that shareholder’s indictment and before the contested decision was adopted, such statements could not have amounted to an alternative measure capable of achieving the objectives of the sound and prudent management of the first applicant and of preserving the financial system within the European Union and every Member State.
Consequently, the ECB cannot validly be criticised for not having considered those alternative measures.
In the light of the foregoing, it cannot be held that the contested decision went beyond what was necessary to achieve the objectives pursued.
In the fourth place, the applicants put forward a series of arguments, alleging errors of law, infringement of the obligation to state reasons and an error of assessment.
First of all, the applicants submit that the contested decision ‘does not consider’ whether a withdrawal of authorisation is proportionate if a bank turns out to have an indirect shareholder who is allegedly no longer suitable because he has been indicted in the United States.
It is sufficient to note that the explanations provided in the contested decision (see paragraphs 152 to 160 above) show clearly and unequivocally the ECB’s reasoning and have enabled the applicants to ascertain the reasons for the withdrawal of the first applicant’s authorisation and the Court to exercise its power of review (see paragraphs 161 to 171 above).
Next, the applicants submit that the considerations relied on as to the first applicant’s financial situation are unsubstantiated and unsupported by evidence in respect of the ground put forward, that is to say, the lack of suitability of its main shareholder.
That argument essentially reproduces the applicants’ argument that the ECB failed to verify or prove that the indictment of the first applicant’s shareholder had had an impact on that shareholder’s good repute and the first applicant’s reputation capable of justifying the withdrawal of the latter’s authorisation.
However, as is apparent from the analysis of the second plea in law and paragraphs 160, 161 and 172 above, because the negative effects suffered by the first applicant were taken into account, the ECB cannot be validly criticised as not having demonstrated the link between the indictment at issue and the first applicant’s financial difficulties identified in the contested decision resulting from the repute of the shareholder concerned and the public’s perception of that repute.
In addition, the applicants maintain that the contested decision fails to take sufficient account of the weakness of the influence of the shareholder concerned on the first applicant’s management and of the risk that he represents for that management.
Nonetheless, as is apparent from paragraphs 124 to 126 above, the ECB cannot be validly criticised for failing to take account of Mr Sadr’s lack of influence, resulting from the MFSA’s suspension of his voting rights, owing to the temporary nature of that measure.
Indeed, in the light of the concrete negative effects already suffered by the first applicant, that argument cannot show that the withdrawal of authorisation could not be regarded as necessary solely because the influence of that applicant’s shareholder was weak as he had been deprived of his voting rights before the contested decision was adopted.
Lastly, as regards the applicants’ argument that the ECB contradicts itself, since, in the case concerning the Governor of the Central Bank of Latvia which gave rise to the judgment of 26 February 2019, Rimšēvičs and ECB v Latvia (
C‑202/18 and C‑238/18
,
EU:C:2019:139
), it maintained before the Court, contrary to what it argued in the contested decision, that a formal indictment for corruption did not justify the removal of the person charged from his position and insisted that concrete evidence be produced, it is sufficient to note that that case did not have the same subject matter as the present case and did not concern the assessment of the good repute and suitability of the shareholder of a credit institution or their effects on such an institution.
Consequently, the fifth plea in law must be rejected.
6.

The sixth plea in law, alleging infringement of the
nemo auditur
principle
According to the applicants, in essence, the first applicant’s main difficulties stemmed in the main part from the MFSA’s acts, including its inappropriate reaction to the indictment of Mr Sadr in the United States, and the ECB’s failure to intervene. They submit that the first applicant’s reputational issues were mainly due to the public statements and leaks from within the MFSA and the ECB. The ECB should not therefore be able to rely, as a basis for the contested decision, on the consequences of its own misconduct on account of the fact that it did not perform its role correctly.
The ECB and the Commission dispute those arguments.
In that regard, as is apparent from paragraph 53 above, the ECB is not under an obligation to exercise itself direct supervision of a credit institution and cannot, therefore, be validly criticised for failing to intervene. Thus, it cannot be held that it did not perform its role correctly in that regard.
Consequently, the fact that the ECB did not decide to exercise itself direct supervision of the first applicant is not such as to render the contested decision unlawful.
In addition, it must be borne in mind that, as is apparent from paragraphs 45 to 53 above, the circumstance that acts of the MFSA which were not adopted in the course of the procedure leading to the adoption of the contested decision may be unlawful is not such as to render that decision unlawful since they are not acts preparatory to that decision.
Lastly, as regards the applicants’ submission that the first applicant’s reputational issues are mainly due to the public statements and leaks from within the MFSA and the ECB, it is sufficient to note that they fail to identify any statement or leak in support of their assertion, with the result that those alleged facts and the inferences which they seek to draw from them have not been established.
The arguments relating to infringement of the
nemo auditur
principle must, therefore, be rejected.
Consequently, the sixth plea in law must be rejected.
7.

The seventh plea in law, alleging infringement of the right to the presumption of innocence
According to the applicants, the ECB infringed the first applicant’s right to the presumption of innocence by relying on the indictment at issue without examining the facts relating to that indictment and by misconstruing the indictment.
The ECB and the Commission dispute those arguments.
In that regard, it must be borne in mind that the principle of the presumption of innocence, laid down in Article 6(2) of the Convention for the Protection of Human Rights and Fundamental Freedoms, signed in Rome on 4 November 1950, and in Article 48(1) of the Charter of Fundamental Rights, constitutes a fundamental right which confers rights on individuals which are enforced by the EU judicature (see judgment of 2 September 2009, El Morabit v Council,
T‑37/07 and T‑323/07
, not published,
EU:T:2009:296
, paragraph
and the case-law cited).
The principle of the presumption of innocence requires that any person charged with a criminal offence is to be presumed innocent until proved guilty according to law. It does not preclude the adoption of measures that are not intended to commence criminal proceedings against the person concerned (see, to that effect and by analogy, judgment of 13 September 2013, Anbouba v Council,
T‑592/11
, not published,
EU:T:2013:427
paragraph
and the case-law cited).
The principle of the presumption of innocence does not, therefore, preclude the adoption of measures which do not constitute a criminal sanction and do not imply any accusation of a criminal nature (see, to that effect and by analogy, judgment of 14 January 2015, Gossio v Council,
T‑406/13
, not published,
EU:T:2015:7
, paragraph
) and the adoption of measures which do not constitute a finding that an offence has actually been committed (see, to that effect and by analogy, judgment of 18 May 2017, Makhlouf v Council,
T‑410/16
, not published,
EU:T:2017:349
, paragraph
and the case-law cited).
It is, therefore, necessary to ascertain whether, in the light of those principles, the applicants’ arguments permit the inference that the first applicant’s presumption of innocence has been infringed.
First, the failure to review the facts relating to the indictment at issue does not permit the inference that the first applicant’s presumption of innocence has been infringed.
Indeed, the ECB clearly stated in the contested decision that the indictment at issue contained allegations.
It cannot, therefore, be found that the contested decision implied an accusation of a criminal nature or constituted a finding that an offence had actually been committed within the meaning of the case-law referred to in paragraphs 197 and 198 above.
In those circumstances, the fact that the ECB did not review the facts contained in the indictment at issue is not such as to demonstrate that the principle of the presumption of innocence has been infringed.
In that regard, it must be pointed out that prudential supervision, which is intended to ensure the sound management of credit institutions and to preserve the stability of the financial system within the European Union and each Member State, pursues different objectives from criminal proceedings, the latter being intended to penalise conduct punishable by law.
Thus, the most important factor to be taken into account is not the merits of the prosecution contained in the indictment at issue, on which the ECB did not take a position, but the consequences of that prosecution on the reputation of the first applicant and its sole shareholder and on the stability of the financial system within the European Union and in each Member State.
Secondly, as regards the applicants’ argument that the ECB has not proven that the alleged infringements of prudential requirements had actually been committed, it must be noted that that argument overlaps with the errors of assessment alleged in support of the second and fourth pleas in law.
Accordingly, that argument must be rejected on the same grounds as those set out in paragraphs 62 to 134 above.
Consequently, the seventh plea in law must be rejected.
8.

The eighth plea in law, alleging infringement of the principle of equal treatment
The applicants allege discrimination arising from the fact that no other bank, owned by a Maltese citizen, whose shareholders or management have been formally indicted, has been treated in the same manner and from the fact that the contested decision lacks any comparative analysis in that regard.
The ECB and the Commission dispute those arguments.
It should be recalled that the principle of equal treatment or non-discrimination requires that comparable situations must not be treated differently and that different situations must not be treated in the same way unless such treatment is objectively justified (judgment of 15 April 2010, Gualtieri v Commission,
C‑485/08 P
,
EU:C:2010:188
paragraph
).
In that regard, the applicants simply allege, without providing any evidence thereof, that numerous shareholders and even members of the management of numerous banks have been formally indicted by the authorities without this affecting their position. Thus, it is sufficient to note that the applicants have not established that another bank, owned by a Maltese citizen and whose shareholders or managers were formally indicted for financial crimes, had been treated differently.
In addition, it does not follow from the principle of equal treatment that the ECB is required, in order to show that that principle has been complied with, to include in the statement of reasons for each of its prudential decisions a comparative analysis setting out, as the case may be, other institutions placed in a similar situation and the measures which it may have decided to adopt in respect of them.
The argument alleging a failure to carry out a comparative analysis in the contested decision must, therefore, also be rejected.
Consequently, the eighth plea in law must be rejected.
9.

The ninth plea in law, alleging infringement of Article 19 and recital 75 of Regulation No 1024/2013 and a misuse of powers
According to the applicants, the chronology of the adoption of the decisions of the MFSA and the ECB, the alleged formulation of criticisms and false claims by an opposition party and certain media, but also by the MFSA and the EBA, and the suspicious circumstances of the appointment of the competent person, as well as the circumstances of the case as a whole and the lack of plausible justification in the contested decision, give reason to believe, in essence, that the MFSA did not appropriately assess Mr Sadr’s indictment.
The applicants infer from this that the desire to be seen as an effective regulatory authority and the intention to create a lucrative assignment for a consultancy firm with which the competent person appointed has links were the real reasons underlying the MFSA’s measures and therefore the contested decision, which would represent an infringement by the ECB of its obligation of independence and a misuse of powers.
The ECB and the Commission dispute those arguments.
In that regard, the Court points out that, under Article 19 of Regulation No 1024/2013, the ECB and the national competent authorities acting within the single supervisory mechanism must act independently when carrying out the tasks conferred on them by that regulation. Recital 75 of Regulation No 1024/2013 states that in order to carry out its supervisory tasks effectively, the ECB should exercise the supervisory tasks conferred on it in full independence, in particular free from undue political influence and from industry interference which would affect its operational independence.
It must also be borne in mind that a measure is only vitiated by misuse of powers if it appears, on the basis of objective, relevant and consistent evidence, to have been taken with the exclusive or main purpose of achieving an end other than that stated or evading a procedure specifically prescribed by the Treaty for dealing with the circumstances of the case (judgment of 10 March 2005, Spain v Council,
C‑342/03
,
EU:C:2005:151
, paragraph
).
It must, therefore, be ascertained whether the applicants’ arguments permit the inference that the contested decision was adopted in breach of Article 19 and recital 75 of Regulation No 1024/2013 and whether they contain objective, relevant and consistent evidence that that decision was taken with the main purpose of achieving an end other than that stated or evading a procedure specifically prescribed by the Treaty for dealing with the circumstances of the case.
It must be stated at the outset that the applicants’ arguments relate exclusively to the pursuit of objectives by the MFSA other than those pursued by the legislation at issue, and to an alleged lack of independence on the part of that national authority and that the applicants maintain that such factors are liable to render the contested decision unlawful.
However, even if the MFSA failed to fulfil its obligation of independence and pursued objectives other than those stated, it could not be inferred therefrom that the contested decision is vitiated by the same defects.
Indeed, under Article 4(1)(a) of Regulation No 1024/2013, the ECB is to be exclusively competent to authorise credit institutions and to withdraw authorisations from them.
The ECB’s decisions are, therefore, adopted on the basis of an independent assessment from that of the MFSA, in the light of all the relevant circumstances, including the information in the MFSA’s proposal for a decision.
Since it is apparent therefrom that the ECB is not required to follow the MFSA’s proposal for a decision, the alleged failures to fulfil obligations by the MFSA cannot constitute a lack of independence on the ECB’s part and, therefore, an infringement of Article 19 and recital 75 of Regulation No 1024/2013.
In addition, it must be stated that the applicants have not adduced any evidence capable of showing, on the basis of objective, relevant and consistent evidence, that the contested decision was adopted by the ECB with the exclusive or main purpose of achieving an end other than that stated or evading a procedure specifically prescribed by the Treaty for dealing with the circumstances of the case.
Moreover, as is apparent from the analysis of the second plea in law, the contested decision was adopted by the ECB with the aim of ensuring the preservation and stability of the financial system within the European Union and each Member State.
The applicants have, therefore, failed to demonstrate that the contested decision pursued objectives other than those pursued by the relevant legislation.
Consequently, the ninth plea in law must be rejected.
10.

The 10th plea in law, alleging infringement of the rights of the defence and, in particular, of the right to be heard
First of all, the applicants submit that the first applicant’s rights of defence and right to be heard have been infringed, since the first applicant was deprived of its legal representation and effective representation as a result of the appointment of the competent person, who was regarded, during the administrative procedure, as the first applicant’s sole representative.
The applicants infer from this that the first applicant’s right to be heard was not respected because that right was granted to the competent person, whereas it ought to have been granted to the first applicant’s directors.
Furthermore, the first applicant’s directors do not have access to the documents and IT systems held by that applicant or to its financial resources, which prevents the first applicant from substantiating its claims as to its value and compliance with statutory requirements. Nor has the first applicant been able, and it continues to be unable, to finance its legal representation.
The ECB and the Commission dispute those arguments.
In that regard, first, it must be noted that the rights of the defence, which include the right to be heard, are among the fundamental rights forming an integral part of the EU legal order and enshrined in the Charter of Fundamental Rights (see, to that effect, judgments of 23 September 2015, Cerafogli v ECB,
T‑114/13 P
,
EU:T:2015:678
, paragraph
and the case-law cited, and of 5 October 2016, ECDC v CJ,
T‑395/15 P
, not published,
EU:T:2016:598
, paragraph
).
The right to be heard is protected not only in Articles 47 and 48 of the Charter of Fundamental Rights, which ensure respect for both the rights of the defence and the right to fair legal process in all judicial proceedings, but also in Article 41 of the Charter, which guarantees the right to good administration.
Article 41(2) of the Charter of Fundamental Rights thus provides that the right to good administration includes, inter alia, the right of every person to be heard before any individual measure which would affect him or her adversely is taken (see, to that effect, judgment of 5 October 2016, ECDC v CJ,
T‑395/15 P
, not published,
EU:T:2016:598
, paragraph
and the case-law cited).
Respect for the rights of the defence requires that any person who may be adversely affected by the adoption of a decision must be placed in a position in which he or she may effectively make known his or her views on the evidence against him or her upon which the decision at issue is based (see, to that effect, judgments of 7 January 2004, Aalborg Portland and Others v Commission,
C‑204/00 P, C‑205/00 P, C‑211/00 P, C‑213/00 P, C‑217/00 P and C‑219/00 P
,
EU:C:2004:6
, paragraph
; of 12 December 2006, Organisation des Modjahedines du peuple d’Iran v Council,
T‑228/02
,
EU:T:2006:384
, paragraph
; and of 19 January 2016, Mitsubishi Electric v Commission,
T‑409/12
,
EU:T:2016:17
, paragraph
).
In that regard, account must be taken – which the applicants do not, moreover, dispute – of the fact that the first applicant received the ECB’s letter of 31 August 2018, in which the ECB invited it to submit its observations on the draft decision to withdraw authorisation, and the ECB’s letter of 13 September 2018, in which the ECB granted it access to the file relating to the administrative procedure, to which letters the first applicant simply replied that it confirmed its opposition to the proposed decision.
Account must also be taken of the fact that the first applicant had a total of three weeks in which to comment on the draft decision to withdraw authorisation.
In those circumstances, it must be held that the first applicant was placed in a position in which it could effectively make known its views on the evidence adduced against it in the contested decision.
Secondly, as regards the applicants’ arguments that the first applicant’s rights of defence were infringed owing to the fact that its directors were unable to pay its legal adviser and to have access to its resources and information, it must be held that those circumstances arise exclusively from the appointment of the competent person, considered during the administrative procedure to be that applicant’s sole representative, which falls within the sole competence of the MFSA under Maltese law.
As is apparent from paragraphs 45 and 46 above, such a national decision appointing a competent person does not constitute an act, adopted by a national competent authority, that is an initiating act, preparatory act or non-binding proposal for the contested decision and is not, therefore, such as in any event to render that decision unlawful (see, to that effect and by analogy, judgment of 19 December 2018, Berlusconi and Fininvest,
C‑219/17
,
EU:C:2018:1023
, paragraph
).
On any view, as this was a decision under Maltese law and fell within the competence of the MFSA, the ECB cannot be held liable for the consequences of such a decision.
The obligation to respect the right of addressees of its decisions to be heard does not mean that an institution is under an obligation to ensure and permit that, under the provisions of national law, those addressees have the possibility to pay a lawyer and to have access to their resources in order to be able to exercise their right to be heard.
If that were not the case, this would mean that the decisions of the EU institutions could be rendered unlawful on grounds connected with the application of rules of national law, which do not fall within their competence, over which they have no control.
Nor can the ECB be validly criticised for failing, on the basis of its general power to give instructions to the competent national authorities within the framework of the single supervisory mechanism, to prevent the MFSA from adopting the decision – intended to ensure compliance with the prudential rules – to appoint a competent person, such prevention having the sole aim of enabling the first applicant’s directors to have access to its funds in order to pay their legal adviser and to have access to documents and information intended to enable them to exercise their right to be heard.
First, the ECB is not under any obligation in that regard, beyond the obligation to receive comments from the addressees of its decisions, and, secondly, if that were the case, the attainment of the objectives of the national and EU prudential supervision rules would be jeopardised.
Consequently, the circumstances put forward by the applicants, even assuming that they are established, are not such as to render the contested decision unlawful.
In such circumstances, it would be for applicants to challenge the legality of the appointment of the competent person at national level and, where appropriate, of that person’s decisions refusing to grant their requests for funds in order to pay their legal adviser or their requests for access to resources or information, if necessary, by seeking a request for a preliminary ruling in order to ask the Court of Justice to assess whether EU law, in particular the right to effective judicial protection, precludes such decisions or the appointment of a competent person.
The first applicant could also, subject to meeting the conditions required, request access to documents or information from the ECB, but could also apply for legal aid from the General Court or for a measure of organisation of procedure seeking to obtain relevant documents.
In that regard, it must also be observed that, despite several requests for postponement of deadlines or hearings and requests for a stay in the course of the present proceedings, the applicants have not adduced before the Court any evidence showing that the first applicant had made representations, during the course of the present proceedings, with the MFSA or the Maltese courts in order to allow its legal adviser to obtain access to resources or documents.
The 10th plea in law must, therefore, be rejected.
11.

The 11th plea in law, alleging infringement of the obligation to state reasons
According to the applicants, the contested decision was adopted in breach of the obligation to state reasons on account of the superficial and vague nature of its reasoning, which does not make it possible to determine whether the decision was warranted, to assess the seriousness of the alleged misconduct which gave rise to Mr Sadr’s indictment in the United States and to verify that that conduct was ‘misconduct’ from the point of view of EU law.
The ECB and the Commission dispute those arguments.
It must be borne in mind that, according to a consistent body of case-law, the purpose of the obligation to state the reasons on which an act adversely affecting an individual is based, which is a corollary of the principle of respect for the rights of the defence, is, first, to provide the person concerned with sufficient information to make it possible to ascertain whether the act is well founded or whether it is vitiated by a defect which may permit its legality to be contested before the Courts of the European Union and, secondly, to enable those Courts to review the legality of that act (judgments of 28 June 2005, Dansk Rørindustri and Others v Commission,
C‑189/02 P, C‑202/02 P, C‑205/02 P to C‑208/02 P and C‑213/02 P
,
EU:C:2005:408
, paragraph
; of 29 September 2011, Elf Aquitaine v Commission,
C‑521/09 P
,
EU:C:2011:620
, paragraph
; and of 6 September 2013, Iran Insurance v Council,
T‑12/11
, not published,
EU:T:2013:401
, paragraph
).
The statement of reasons required by Article 296 TFEU must disclose in a clear and unequivocal fashion the reasoning followed by the institution which adopted the measure in such a way as to enable the persons concerned to ascertain the reasons for the measure and to enable the court having jurisdiction to exercise its power of review (see judgment of 15 November 2012, Al-Aqsa v Council and Netherlands v Al-Aqsa,
C‑539/10 P and C‑550/10 P
,
EU:C:2012:711
, paragraph
and the case-law cited).
However, although the statement of reasons for an EU measure, which is required by Article 296(2) TFEU, must show clearly and unequivocally the reasoning of the author of the measure in question, so as to enable the persons concerned to ascertain the reasons for the measure and to enable the Court to exercise its power of review, it is not required to go into every relevant point of fact and law (judgments of 19 November 2013, Commission v Council,
C‑63/12
,
EU:C:2013:752
, paragraph
, and of 16 June 2015, Gauweiler and Others,
C‑62/14
,
EU:C:2015:400
, paragraph
).
In the first place, it must be observed that the contested decision discloses in a clear and unequivocal fashion the reasoning followed by the ECB, so that its statement of reasons enables the first applicant to ascertain the reasons for the measure and the court having jurisdiction to exercise its power of review.
It is clear from the contested decision that it was based on Mr Sadr’s indictment in the United States for financial offences and the negative effect of that indictment on his reputation and the first applicant’s financial situation, which called into question the objective of ensuring the sound and prudent management of that credit institution.
It is also clear that the withdrawal of the first applicant’s authorisation was considered proportionate, on the ground that that measure was necessary, in the light of the bank’s financing difficulties, the seriousness of its breaches and its lack of viability resulting from the indictment of its shareholder and the damage to its reputation, in order to ensure the objective of restoring legality, of ensuring the bank’s sound management and limiting the risks for its depositors and creditors and those for the Maltese and European banking market.
Moreover, the objective pursued by that withdrawal was considered to be unattainable by other supervisory measures or by the sale of the first applicant to third parties on account of the damage to its reputation, its lack of value and its financing and liquidity difficulties.
In those circumstances, the applicants’ argument that the superficial and vague nature of the contested decision’s reasoning does not enable it to be determined whether that decision was warranted must be rejected.
In the second place, the applicants submit that the statement of reasons for the contested decision does not make it possible to assess the seriousness of the alleged misconduct which gave rise to Mr Sadr’s indictment in the United States and to verify that that conduct was misconduct.
However, it is stated in the contested decision that the indictment at issue concerns identified financial offences which are considered to be such as to raise serious doubts as to Mr Sadr’s integrity as a shareholder of the first applicant.
In addition, the contested decision includes a reference to links to official internet sites where the indictment against Mr Sadr in the United States and the press release published on that occasion can be consulted.
Since the charges which led to Mr Sadr’s indictment in the United States are identified in the contested decision and that decision refers to the indictment at issue, it cannot be considered that the statement of reasons for that decision does not make it possible to assess the seriousness of the alleged misconduct which gave rise to the indictment, contrary to the applicants’ submission.
The applicants’ arguments that it is impossible to assess the seriousness of the alleged misconduct which gave rise to the indictment of Mr Sadr in the United States and to verify that that conduct was misconduct cannot, therefore, succeed.
Consequently, the 11th plea in law must be rejected.
IV.

The applications for a stay of proceedings, for measures of organisation of procedure and for measures of inquiry submitted by the applicants
First, by letter of 25 February 2021, the applicants made an application for a measure of organisation and inquiry and for an expert’s report to be commissioned in order to establish that, during the course of the proceedings before the Court, the allegations against Mr Sadr had been dismissed in the United States.
The ECB and the Commission submitted their observations on that application.
It must be borne in mind 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 (see judgment of 11 May 2017, Sweden v Commission,
C‑562/14 P
,
EU:C:2017:356
, paragraph
and the case-law cited), such that acts subsequent to the adoption of a decision cannot affect the validity of that decision (judgment of 17 October 2019, Alcogroup and Alcodis v Commission,
C‑403/18 P
,
EU:C:2019:870
, paragraphs
and
).
Since the charges against Mr Sadr were withdrawn after the contested decision was adopted, that withdrawal was not, in accordance with the case-law cited in paragraph 272 above, such as to affect its legality, with the result that the applicants’ application must not be granted.
Secondly, by letter of 21 May 2021, the applicants made an application for a measure of organisation of procedure and inquiry in order to enable them to state their views on the Opinion of Advocate General Hogan in Bank Melli Iran (
C‑124/20
,
EU:C:2021:386
), which concerns the interpretation of Regulation No 2271/96 as last amended by Delegated Regulation 2018/1100.
The ECB and the Commission submitted their observations on that application.
In that regard, it must be recalled that, for the reasons set out in paragraph 120 above, Regulation No 2271/96 has no bearing on the present action.
Indeed, the ECB has not recognised or rendered enforceable a decision imposing a sanction within the meaning of Regulation No 2271/96, since it assessed the good repute of the shareholder concerned as perceived by the market and the participants concerned have reacted to the indictment without taking into account its merits under the law of the third State concerned or EU law.
Accordingly, the applicants’ application must not be granted.
Thirdly, in a letter of 21 February 2021, the applicants 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 ECB and the Commission were heard on that application.
Since, as stated in paragraphs 245 and 246 above, the ECB is under no obligation to comply with Maltese case-law and the first applicant has not referred to any representations made before the MFSA or the Maltese courts, the stay of the present proceedings cannot be considered to be required by the proper administration of justice within the meaning of Article 69(d) of the Rules of Procedure.
The applicants’ application must not, therefore, be granted.
In the light of the foregoing, the action must, therefore, be dismissed in its entirety.
V.

Costs
Under Article 134(1) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party’s pleadings. Since the applicants have been unsuccessful, they must be ordered pay the ECB’s costs, in accordance with the form of order sought by the ECB.
Under Article 138(1) of those rules, the Member States and institutions which have intervened in the proceedings must bear their own costs. Consequently, the Commission must bear its own costs.

On those grounds,
THE GENERAL COURT (Ninth Chamber, Extended Composition)
hereby:

1.
Dismisses the action;

2.
Orders Pilatus Bank plc and Pilatus Holding Ltd. to bear their own costs and to pay those incurred by the European Central Bank (ECB);

3.
Orders the European Commission to bear its own costs.

Van der Woude
Costeira
Kancheva
Delivered in open court in Luxembourg on 2 February 2022.
E. Coulon
Registrar
S. Papasavvas
President
(
*1
)	Language of the case: English.