FIAU chief left anti-money laundering unit to join legal firm as partner

Manfred Galdes, who headed Malta’s Financial Intelligence and Analysis Unit (FIAU) until his resignation was revealed last week, will be joining the legal advisory firm Fenech Farrugia Fiott (FFF) Legal on 12 September, MaltaToday has learned.

Galdes had been the director of the FIAU since 2008, following a stint with the MFSA and a private services firm before that.

When asked, he said he had resigned as FIAU head to “take up a post in private practice”.

Lawyer Tonio Fenech, who is partner at FFF Legal, confirmed that Galdes would be joining the firm as a partner on 12 September.

“He will also be appointed as a director of ARQ Group’s specialised Anti-Money Laundering and Compliance Advisory unit with effect from the same date,” he said.

FFF Legal is a full-service firm offering legal solutions, established in 2009 by its partners, Fenech, Christian Farrugia and Antoine Fiott. It is focused on six broad practice areas: corporate & commercial law, asset finance & transport law, taxation, financial services, private clients, and litigation & alternative dispute resolution.

Galdes’ move raises questions on how ethical it is for him to join one of the very companies the FIAU was sure to have monitored, as a provider of financial and legal services to high-net-worth individuals and corporations, when he led the agency up to a few days ago. 

The FIAU, first set up in October 2002 by virtue of Legal Notice 297 of 2002, which brought into force the comprehensive amendments to the Prevention of Money Laundering Act, was set up as an agency within the finance ministry.

The minister appoints the board members, but it has a separate judicial personality and operates autonomously from its own offices, with its own staff.

In April, at the height of the media frenzy on the Prime Minister’s chief of Staff Keith Schembri’s and energy minister Konrad Mizzi’s involvement in the Panama Papers leaks, finance minister Edward Scicluna had confirmed in parliament that the FIAU was investigating the matter.

The responsibilities related to the governance of the FIAU are divided among the board of governors and the director, with the board establishing the policy and the director being tasked with the execution of that policy.

Until last week, and since 2008, Galdes served as FIAU director, after having previously held senior positions within the MFSA and with a professional firm, where he focused primarily on compliance and regulatory affairs.

Minister Scicluna stated yesterday that he had no knowledge as to whether the FIAU had completed its investigation of the Panama Papers leaks and insisted he had no remit to ask the unit who was being investigated or at what stage the investigations were.

But unconfirmed rumours have been circulating to the effect that Galdes had handed his confidential report into the matter to police commissioner Michael Cassar in April.

Maltese law stipulates that the police commissioner has the final say as to whether or not to prosecute in cases relating to money laundering, and to take action on reports by the FIAU.

Cassar himself resigned his post soon after he is said to have received the report, and no police action has as yet been announced relating to the Panama Papers leaks.

Opposition leader Simon Busuttil has cast doubts on Galdes's resignation: “Did Galdes resign while the investigation was ongoing? If the investigation is ongoing, what were its conclusions? Is it true that an investigation report had been handed to the police for further action, but just two days [later], the police commissioner resigned?”

And this is where this whole Maltese saga has attracted the attention of the European Union.

The popular European news and commentary website, politico.eu, on Monday reported that the alleged burying of the FIAU’s report “has set alarm bells ringing among EU lawmakers worried about Malta’s ability to steer through new EU anti-money laundering legislation when it holds the rotating presidency of the EU’s Council of Ministers in the first half of next year.”

Politico quoted German MEP Sven Giegold as saying this whole saga was “embarrassing” and that “we will raise this whole mess in the European Parliament’s special Panama Papers committee.”

“Malta has to get serious. It has to tidy up in order for the whole European financial infrastructure to gain credibility,” Giegold said.

The EU parliament’s committee is likely to summon Schembri and Mizzi when it reconvenes after the summer break.

Politico recounted how both men were named in April in the Panama Papers leaks of more than 11 million documents from the Panama-based law firm Mossack Fonseca. 

“According to the documents, only days after the Labour Party won the 2013 Maltese elections, the two men instructed lawyers to set up offshore trusts in New Zealand and companies in Panama. They then tried to set up accounts with eight different banks in tax havens across the world.”

After the EU parliament’s summer break, it will start debating updates to the EU Anti-Money Laundering Directive. The negotiations will be started by Slovakia, which holds the EU presidency until the end of the year, but Malta will probably be at the helm in the final stages of the negotiations.

A European Commission spokesperson told Politico that the idea behind the new rules was to improve transparency. “We aim for a rapid adoption of the revision in order to strengthen transparency rules further and to close any potential loopholes.”

It aims to do that by giving greater powers to national financial intelligence units such as the one formerly headed by Galdes, which look into tax avoidance and evasion, and force companies and trusts to disclose who are their ultimate “beneficial owners.”

The Maltese government would have to sign off on any new proposals made during the discussions with the European Parliament and Commission, but there were growing concerns about the country’s reputation as a financial services hub, Politico reported.

The chief executive of Deloitte in Malta, Malcolm Booker, told Politico that “any kind of disruption in the sector for whatever reason is always an issue. [The financial services sector] wants a quiet, peaceful day, with business as usual. The more transparency, the more regulation, the better.”

Ana Gomes, a Portuguese MEP and vice-chair of the EU parliament’s Panama Papers committee, told Politico: “Malta is definitely a case for particular attention, not just because of allegations against the prime minister’s chief of staff and the minister, and this latest development with the Financial Intelligence Analysis Unit chief resigning, apparently because his recommendations were not followed, but also because Malta is already on our radar.

“Malta is one of the jurisdictions in the EU that has a very lax system of incorporation where it is very easy for anyone who wants to fool the anti money-laundering authorities, can set up a company like a Russian doll and can make ultimate beneficial owners hidden,” said the Socialist MEP.

Gomes said she would be proposing that Malta be high on the committee’s agenda, “even more so with these developments”.

Alfred Zammit, the FIAU’s acting director, confirmed to MaltaToday that the unit could not comment on its activities or any possible investigations it could be undertaking.

Questions sent to the police force seeking confirmation as to whether the police commissioner had received a report from the FIAU on the Panama Papers leaks, remained unanswered by the time this article went to print.

What is the Financial Intelligence and Analysis Unit?

The FIAU is an agency falling under the ministry of finance, that was set up in October 2012 by virtue of the Legal Notice 297 of 2002, which brought into force comprehensive amendments to the Prevention of Money Laundering Act.

The FIAU serves as Malta’s FIU and is the entity designated to fulfill the responsibilities of an FIU set out in the European Union’s Third Money Laundering Directive (Directive 2005/60/EC) and the FATF 40 Recommendations.

The unit serves three main functions: financial analysis, compliance monitoring and legal and international relations.

It is the unit’s Compliance Monitoring Section that is tasked with the oversight and monitoring of compliance by subject persons (including financial institutions and designated non-financial businesses and professions), based on the evolving internal procedures for on-site examinations and off-site monitoring. On-site assessments are either conducted by the compliance officers or by the supervisory authorities concerned, who act on the FIAU’s behalf. In either case the Unit retains responsibility for preparing the relevant compliance reports, which include a list of any remedial action deemed necessary.

According to Article 16 of the act, the FIAU will “receive reports of transactions or activities suspected to involve money laundering or funding of terrorism or property that may have derived directly or indirectly from, or constitutes the proceeds of, criminal activity made by any subject person in pursuance of any regulation made under article 12, to supplement such reports with such additional information as may be available to it or as it may demand, to analyse the report together with such additional information and to draw up an analytical report on the result of such analysis.”

The FIAU has unlimited access to personal and corporate data of any subjects under investigation, and can call on other authorities and entities to ensure that its requests are carried out.

It does not, however, have any authority to prosecute the subjects it investigates and must pass on its reports to the police commissioner for further action.

The law states, in fact, that the unit must “report to the Commissioner of Police any activity which it suspects involves money laundering or the underlying criminal activity, or funding of terrorism and of which it may become aware in the course of the discharge of any of its functions.”