Malta shall prevail over greylisting through hard work | Andy Ellul

The decision of the FATF Committee to place Malta on the greylist has been a somewhat of an unexpected outcome for the jurisdiction, particularly on the back of the positive Moneyval technical achievement. The odds were all in favour of Malta.

The efforts and improvements made by the jurisdiction were acknowledged by Moneyval in the results of the enhanced follow-up assessment on the adherence to the technical compliance criteria. Malta had just registered an enviable result, ranking amongst the top in Europe in achieving compliant and largely compliant scores on all the technical standards.

Therefore yes, placing Malta, a country that has made considerable improvements in its Anti-Money Laundering (AML) compliance standards on a greylist left everyone perplexed and confused, particularly when one considers the group of other countries on the list, which all require substantial enhanced AML monitoring due to lax controls. All things being equal, based on the results achieved, Malta should be celebrated for its achievements not penalised and placed on a greylist.

The man in the street would ask, “What has led to this controversial decision made by the FATF Committee?”

The FATF President, Markus Pleyer, stated that FATF analysed not only the technical implementation of laws on the statute books but also their effectiveness on the ground. This implies that the issues which led to Malta’s greylisting were motivated by what has been judged as ineffective implementation of certain AML compliance areas.

Assessing the effectiveness of the implementation of laws or regulations is a highly subjective and judgemental exercise which may be skewed by perceptions and benchmarks. This is even more puzzling given that the FATF has praised Malta for making good progress on several issues previously flagged, and when an overwhelming majority of the countries on the Committee were against the greylisting of Malta. Put in layman terms, Malta has been penalised based on the subjective judgement of an influential minority of members on the Committee.

The reasons provided by FATF for greylisting Malta can be crunched into two areas (i) lack of transparency in beneficial ownership structures, and (ii) lack of effectiveness in detecting crimes involving tax evasion.  Remarkably, these two problematic areas are a somewhat universal and an ‘ever-present’ concern in most countries and not solely attributable to Malta. Let’s take a look at the two areas.

Since 1st January 2018, all Maltese companies are obliged to identify, record and report beneficial owners to the Malta Business Registry (MBR). This requirement has been introduced as part of the transposition of the 4th AML Directive, which is an EU Directive aimed at ensuring the implementation of effective measures targeting the prevention of money laundering or terrorist financing across EU Member states.

The issues highlighted by the FATF are legacy issues that have been present for decades and which Malta as a jurisdiction has been addressing in recent years by embedding laws and regulations requiring more transparency in ownership structures, as well as actively disciplining perpetrators and enablers of financial crime.  It would be telling if we were to compare the requirements imposed by the MBR locally – in terms of transparency of ultimate beneficial owners – with our counterparts in the EU. From personal experience, I can tell you that the local requisites are far more rigorous than those in other countries. This is a fact which can be corroborated by many experienced professionals working in the financial services sector.

With respect to taxation issues, the Minister of Finance has during the last year commented several times on the matter. The message is clear from the government, namely that tax dues – current and past – have to be paid in full by one and all, irrespective of the person, position, industry, financial clout or being the man in the street.

Many have noted that the financial services sector will be the most impacted following greylisting. It is true that the financial services will be at the receiving end, mainly due to the enhanced monitoring from international counterparts such as correspondent banks. However, this sector is well prepared given that international counterparts have been requiring enhanced monitoring on Maltese banks and other financial institution since 2019, when Malta was flagged for enhanced monitoring by Moneyval during the initial assessment. Moreover, the financial services sector in Malta is highly resilient and has always fared well during the worst of crises including the recent Covid-19 pandemic, as well as the 2008 financial crisis. Ultimately, the financial services sector in Malta is compliant with EU and International AML laws and regulations and thus should be treated as such by international counterparts.

Whilst still considering the FATF actions against Malta to be disproportionate, the jurisdiction takes on-board the required action points raised by the FATF and will continue to build on the good work that has led to the impressive results achieved during the Moneyval enhanced follow-up assessment. As Prime Minister Abela underlined last week, combatting financial crime was and will continue to be a priority for the jurisdiction and undoubtedly this temporary greylisting will raise awareness, beyond the financial services industry, of the importance of actively preventing and penalising financial crime.

Dr Andy Ellul is a Labour Party Candidate on the 1st and 3rd Electoral Districts