A long road for the FIAU: meeting Malta’s anti-money laundering commitments

Earlier this week the Council of Europe’s MONEYVAL published a progress report showing significantly improved ratings for Malta in its fight against money laundering and terrorist financing from a technical perspective. Thursday’s report clearly acknowledged the progress made since Malta’s earlier evaluation, at times doing so quite openly when confirming that, “Malta was among the first MONEYVAL countries to implement the regulatory and institutional framework and conduct assessment of money laundering and terrorist financing risks in this area. Malta’s rating on the implementation of this recommendation has been upgraded from ‘partially compliant’ to ‘largely compliant’.”

The government has undertaken several key reforms in the wake of MONEYVAL’s report two years ago, including the bolstering of Malta’s regulatory authorities, introducing new laws and strengthening the police force’s arm responsible for investigating financial crimes.

A lot of the real work on the ground, however, was down to the different authorities involved in this area, not least the Financial Intelligence Analysis Unit. Its Legal Affairs Section went through a lengthy process to bring Malta in line with the onerous requirements of not only the MONEYVAL recommendations but also of the EU’s 5th Anti-Money Laundering Directive. “There are a lot of deadlines involved, a lot of challenges and the need to consult with subject persons because these legislative changes will affect them.”

“In fact, every time we propose amendments, whether they directly or indirectly affect subject persons, we carry out extensive consultation exercises with them. But it is even more than that, the consultation is real, and we invite them to provide us with feedback, including possible alternatives to what we may have proposed that are equally workable” Dr Frendo explains.

The purpose behind the exercise, Dr Phyall elaborates, is twofold: “There is the part where you actually want to make them aware that there are changes in the pipeline, and then we also want to see how to actually frame the text of the law to ensure it works.”

“That is because ultimately, we do need to become compliant with the directives and the MONEYVAL recommendations, but, at the same time, we also need to make sure that what we propose can actually be implemented on the ground, that it is actually doable.”

In view of all the changes necessary and arising from an intrinsic awareness that supporting subject persons into full compliance was critical, the FIAU saw a pressing need to put together a dedicated team to conduct guidance and outreach with subject persons and to explain the changes to the law. Such outreach has become far more frequent these days as the need to communicate more with subject persons keeps growing.

The number of outreach activities increased not only with the subject persons themselves, but also with national and international authorities and counterparts, where the FIAU has contributed by sharing its progress and best practices.

Challenges linked to transposition deadlines

It is not only the deadline in itself that at times can present particular challenges but even the text of the directive or recommendation that has to be reflected in the legislative proposal. Dr Phyall explains, “The wording used can at times be quite generic whereas this cannot be the case when it comes to the laws and guidance that seek to implement these requirements. For example, when it comes to the Centralised Bank Account Register Regulations, Member States have to apply a very strict level of security, but what does that exactly imply and what is being expected of us? We had to come up with an interpretation that can be translated into IT controls, audit trails and so on and so forth.”

“There are also issues, for example, when it comes to contract drafting.  With the Centralised Bank Account Register and the goAML IT system, for example, there were a lot of negotiations with suppliers and with systems users to draw up contracts that cater for the FIAU’s needs in terms of security levels, and to ensure that confidentiality and data protection requirements are catered for as well.”

When it comes to addressing the recommendations made by international bodies such as MONEYVAL, extensive research is conducted, we assess what is happening in other jurisdictions and how they have transposed the recommendations arising from the directives into law. “That,” Dr Phyall explains, “gives us some added comfort that what we propose ourselves is something tangible and concrete.”

The consultative tightrope

The research into implementation practices, is then followed by the consultation phase, where the possibility of meeting those requirements within a Maltese context is gauged and consideration is given to certain limitations subject persons face.  It can, at times be something of a tightrope. “It’s not so much about bartering or negotiating with the different sectors, but you do have to be a little bit more careful with the terms and the words you use,” according to Dr Phyall.

“The Covid pandemic did not help because it is one thing to hold meetings at the office face-to-face, but it is quite another to hold such meetings online. They are a workable alternative, but surely not the same as meeting with sector representative bodies and subject persons face-to-face. But despite the challenges, we have managed to meet all our deadlines – the CBAR is active, the goAML system has been launched, we are signing MOUs, we have provided training, we carried on publishing guidance documents, attended international meetings and kept the momentum going.”

Dr Frendo adds how the use of videoconferencing has, at least when it comes to meetings on an international level, significantly increased the interaction during the Covid-19 pandemic. “The FIAU, attended nothing less than five meetings of the Expert Group on Money Laundering and Funding of Terrorism (EGMLTF) presided by the European Commission last year and this year we have already attended to four such meetings via videoconference.  It is not all doom and gloom. But of course, the downside is that when meetings break up there is no networking on the side lines.  There are the plusses and the minuses, but, overall, the frequency of such meetings has actually increased.”

‘We are a main player in the fight against ML/FT, but we are not alone’

The FIAU does not act in a vacuum but in cooperation with other authorities. As Dr Frendo explains, “Even at national level, it is not only the FIAU’s fight against ML/FT. Other important national players, such as the Malta Financial Services Authority, the Malta Gaming Authority, the Commission for Voluntary Organisations, the Asset Recovery Bureau, the Sanctions Monitoring Board, and the Police, among others, are all in some way or another involved. Such national players, including subject persons, essentially work like loops within a chain in the fight against ML/FT”.

To further enhance and facilitate collaboration, during the last year the FIAU concluded three new Memoranda of Understanding to strengthen its cooperation efforts with more national authorities: one with the Accountancy Board, a data sharing agreement with the Malta Business Registry, and another with the Central Bank of Malta.

Apart from the importance of cooperation on a national level, international cooperation is critical to the FIAU, to fully perform its functions.  “For this there are MOUs on cooperation and information exchange with our FIU counterparts. Practically all jurisdictions around the world have their own FIU and they need to communicate with each other. ML/FT are predominantly deemed as cross-border crimes, meaning that they may be committed in, with, or in relation to more than one jurisdiction. While EU directives already provide a strong cooperation and exchange mechanism between EU FIUs; it is not so straight forward when it comes to third countries. Therefore, we strive to establish agreements with our FIU counterparts to further facilitate cooperation and exchange of information. The FIAU has so far concluded some sixteen MOUs and is currently in open negotiations with four other FIUs across the globe.”

“Our Financial Intelligence Section makes use of these agreements practically every hour when they interact with their foreign counterparts. So, even here, the FIAU’s FIU function has to be seen as a global player in the fight against ML/FT.”

Malta’s list of politically exposed positions

Legal changes need not always translate into new obligations but can also make life easier for subject persons. A case in point would be the EU’s 5th AMLD and the requirement for each EU jurisdiction to draw up a list of politically exposed positions.

According to Dr Phyall, this should make things a little easier for subject persons “in the sense that it provides for each member state to draw up a list of those positions in their jurisdiction considered to be politically exposed”.

“At least you know, that when subject persons are onboarding a customer, they now know as it is clearly listed, that the position that person holds is politically-exposed.”

“In our case, the National Coordinating Committee worked on compiling Malta’s list. It has been communicated to the Commission and it will publish it together with those of other member states.”

Each member states’ list will vary, and Malta’s size has been taken into consideration in this respect.  By way of example, whilst certain mayors may feature on some countries’ lists, Maltese mayors will not, naturally because a mayor of larger cities and towns in bigger countries, would have far more powers and budget at their disposal. The ultimate hurdle with any transposition exercise remains the subsequent assessment.

“However, you transpose it,” Dr Phyall says, “You are going to get assessed as to how you have done it. And if there is anything the Commission thinks has not been transposed properly, they are going to point it out and possibly initiate infringement proceedings against the country, which is never a good thing and that we do our utmost to try and avoid.”