* Bank's licence revoked after chairman arrested in U.S.
* Case highlights EU's vulnerability to money laundering
* Commission ponders move on Malta's money laundering body (Adds background, legal moves on Malta's supervisors)
By Francesco Guarascio
BRUSSELS, Nov 5 (Reuters) - The European Central Bank has withdrawn the banking licence of Malta's Pilatus Bank, the island's financial regulator said on Monday, after the chairman of the bank was charged in the United States over money laundering and bank fraud.
The lender was also accused of processing corrupt payments for senior Azeri and Maltese figures by investigative journalist Daphne Caruana Galizia. She was killed a year ago by a car bomb in Malta (https://tinyurl.com/yd8nmmap).
"The ECB's Governing Council has decided to withdraw the authorisation of Pilatus Bank with effect from today," Malta Financial Services Authority (MFSA) said in a statement.
Neither the bank nor the ECB were immediately available for comment.
The European Commission is now considering actions against Maltese authorities over their handling of the Pilatus case, a senior EU official said.
MFSA recommended revoking the bank's licence in June. The decision took longer than expected due to legal hurdles, ECB officials have said, highlighting the weakness of the European Union framework for preventing and countering money laundering .
The EU began investigating the Pilatus case after Caruana Galizia's murder in October 2017, for which there is no proven link to the reports she wrote about the bank.
Maltese authorities took no action until the Iranian chairman of the bank, Ali Sadr Hashemi Nejad, was arrested in the United States in March on charges of money laundering and sanctions violation.
After that arrest, the MFSA, which had granted the bank a licence in 2014, froze the assets of Pilatus and recommended the withdrawal of its licence.
The European Banking Authority, the EU-wide banking watchdog, last year opened two investigations into how Malta dealt with Pilatus.
One, into MFSA, was closed in September in part due to the vagueness of EU regulation, EBA chairman Andrea Enria told EU lawmakers. EU governments are discussing an overhaul of the bloc's powers to counter a wave of money laundering scandals, but have so far not considered legislative changes.
A second EBA investigation into the Maltese Financial Intelligence Analysis Unit (FIAU), the country's anti-money laundering body, highlighted serious shortcomings that the body did not remedy, Enria said in a letter to FIAU.
This could lead the European Commission to force legal changes bringing Malta in line with EU rules.
The EU official said the EU executive will discuss this further move on Wednesday, before a Nov. 11 deadline.
In case of no changes, the EU executive could start infringement proceedings against Malta, though they take years to conclude and tend to have limited effect as a deterrent. (Reporting by Francesco Guarascio; editing by Louise Heavens and John Stonestreet)
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