M ARSHALL BILLINGSLEA , the American Treasury official in charge of tackling money-laundering, visited Cyprus in May 2018 with a stern message. His office had recently accused ABLV , Latvia’s third-largest bank, of laundering Russian money and starved it of American dollars, forcing it to close. Clean up your banks, Mr Billingslea is said to have told Cypriot officials, or they will be next. Later that summer another Mediterranean island felt similar heat from European officials, who said there had been serious regulatory gaps in Malta’s handling of scandal-hit Pilatus Bank.

The European Union has been jolted by money-laundering scandals over the past year. The one uncovered at the Estonian branch of Denmark’s Danske Bank is reckoned to be among the largest in history. Pressure has grown on European countries to take action. A lot of it has fallen on Malta and Cyprus, respectively the EU ’s two smallest economies, which have acquired a reputation for financial sleaze. A European Commission report on the sale of passports, released on January 23rd, warned that the pair’s investor citizenship schemes expose the rest of the EU to money-laundering risks. Some complain that the countries have been unfairly singled out because they are small. Both say they are now cracking down. But many wonder if this is compatible with their continued enthusiasm for offshore banking.

Cyprus has been a haven for Russian money since the 1990s. But American officials are now looking at it with renewed interest, as they seek to curtail Russia’s influence in the West. There is much to worry them. Viktor Vekselberg, a Russian oligarch under American sanctions since April, owns 9% of the Bank of Cyprus, the country’s largest bank. The country’s name has also cropped up frequently at the trial of Paul Manafort, Donald Trump’s former campaign chief, who is charged with fraud.

The reputation of Malta’s financial sector—newer than Cyprus’s and, for now, too small to trouble America—began to sour in 2017. Daphne Caruana Galizia, an investigative journalist, alleged that Malta-based Pilatus Bank was laundering millions for Azerbaijan’s ruling family, while Maltese officials took bribes to turn a blind eye. (They deny this.) Ms Caruana Galizia was killed by a car bomb in October 2017. Her murder shocked the European Commission into action. It told the European Banking Authority ( EBA) to look into Malta’s supervision of Pilatus Bank a week later.

Regulators are already showing some improvement. The Central Bank of Cyprus ( CBC ) forbade banks to deal with shell companies in June. Malta has increased the budget of its anti-money-laundering regulator six-fold.

But many are sceptical about both countries’ efforts. Panicos Demetriades, the CBC ’s former head, says industries that have sprung up around the banks, including “politically well-connected” law firms, remain mostly untouched. As for Malta, the commission told its regulators in November to “step up” their implementation of the EBA ’s suggestions, warning that failure to meet deadlines could lead to hefty fines. Their citizenship-by-investment schemes also attract criticism. They are the lone EU members on a blacklist maintained by the OECD , a group of mostly rich nations, of countries whose “golden passport” schemes make tax evasion easy.