Malta’s test of fire

Malta’s assumption of the rotating EU presidency in 2017 will not only be an opportunity to take the driver’s seat; it will also be a crucial test of our national leadership.

The European Commission has just put forth a new directive intended to counter “money launderers, tax evaders, terrorists, fraudsters and other criminals”. Malta’s presidency will coincide with the implementation of this plan, which aims to extend strict anti-money laundering (AML) regulations throughout the Union.

Malta’s foremost priority, then, will be to strengthen transparency rules and close loopholes which allow individuals and companies to avoid paying tax throughout Europe.

Already, problems can be anticipated. Among other things, the new regulations will grant greater powers to national financial intelligence units, such as Malta’s FIAU: whose director, Manfred Galdes, has only just resigned for greener pastures in the private sector.

It does not bode well that, less than a year before assuming the presidency, Malta has suddenly lost the man at the helm of an organisation which is responsible for investigating tax avoidance and evasion – as well as to force companies and trusts to disclose who are their ultimate “beneficial owners” – at a time when a senior Cabinet minister and the PM’s chief of staff are both supposedly under investigation over precisely the same issues.

The FIAU was run by Galdes together with the Attorney General and the police force’s Economic Crimes Unit, and serves as the prime response point for understanding money laundering patterns and other ways of terrorist financing.

Unsurprisingly, the timing of Galdes’ resignation has raised eyebrows in Brussels, with MEPs questioning Malta’s ability to push through anti-graft legislation in its upcoming EU council presidency. 

Sven Giegold, a German MEP for the Green Party, said that the issue would be raised in the EP’s Panama Papers committee. “This is all very embarrassing… Malta has to get serious. It has to tidy up in order for the whole European financial infrastructure to gain credibility.”

Meanwhile, the director of the EU’s office of Transparency International – a global anti-corruption NGO – has raised doubts about Malta’s willingness to steer through an updated version of the union’s anti-money laundering directive.

These are not concerns that can realistically be ignored forever. Given Malta’s imminent responsibility in heading the fight against corruption and money-laundering, European MEPs are well within their rights to express scepticism. 

Konrad Mizzi remains the only serving European politician to have been named in the Panama Papers; his continued inclusion (however nominal) in the Cabinet of the Maltese government can only undermine the credibility of the country implementing the reform.

Elsewhere, doubts have been raised regarding Malta’s own fiscal legislation. Current regulations allow for the non-registration of trusts that – due to lack of harmonisation of the tax systems – fall outside the scope of the taxation rules of Member States, and as such have no tax residence anywhere. Such trusts not only do not pay taxes, but would also not be registered anywhere.

This is clearly in direct defiance of the thrust of the EC directive, which aims to strengthen transparency and limit tax avoidance. How can the government of Malta propose to solve such matters, when it is widely regarded by the rest of Europe as being part of the problem?

According to an analysis of EU member states’ tax laws, carried out by Oxfam International – which draws on a recent European Commission study on ‘Structures of Aggressive Tax Planning and Indicators’ – Malta is the bloc’s number four facilitator of corporate tax avoidance.

Portuguese Socialist MEP Ana Gomes, the vice-chair of the European Parliament committee that will investigate the Panama Papers, said that she would propose that Malta be placed high on the agenda at the forthcoming discussions. 

“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,” she told Politico, an international news portal. 

“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 – they can set up a company like a Russian doll and can make ultimate beneficial owners hidden.”

Apart from all these doubts, the EU presidency is also a weighty burden of responsibility. The calls for fiscal reform in Europe are driven primarily by a concern with combating poverty and social injustice. Tax avoidance robs European governments of their ability to provide decent welfare. Lack of transparency also undermines public faith in financial institutions, while running the risk of economic collapse that will be most keenly felt by the most materially deprived.

Following the greatest global financial recession since 1929, most European countries introduced austerity measures and unfair tax systems which are skewed in favour of powerful vested interests. Reform is needed to redress the economic injustice in these systems. 

Now it is time for the EU member states, including Malta, to reverse the course of poverty and inequality in Europe, by putting people before corporations.