Tackling financial crime

Can a financial crime agency resolve the prosecution bottleneck on money laundering and tax evasion?

Last June, Finance Minister Edward Scicluna announced the imminent establishment of ‘a financial organised crime agency, to rapidly identify and prosecute criminals’. 

In so doing, he indirectly raised questions about the ability of existing agencies and authorities – for instance, the Malta Financial Services Authority, the Financial Intelligence Analysis Unit, the police’s economic crimes unit, etc. – to achieve the same goal.

But while this may appear to be an admission of failure on the part of Malta’s institutions, the reality is that the regulatory landscape has changed beyond recognition in recent years. 

The 2008 financial crisis changed the way banks are managed and supervised, with the introduction of more stringent money laundering rules. That has warranted a situation for the MFSA to increase capacity and upscale personnel for the next generation of regulation. 

Obviously, this presented a number of challenges. The MFSA is now in the process of reorganising the way it works to make sure it is an organisation which is robust enough to cater for all the areas it has to supervise – and that has included having to source expertise from abroad, particularly on the financial crime compliance side.

MFSA CEO Joseph Cuschieri has indeed said that for the future, financial crime is going to be the main plank on which the MFSA will focus, apart from conduct and prudential supervision. That requires a new set of skills and a new way of how the authority exercises its supervisory activities: it means more training, more international expertise, and also better salaries and job conditions.

A similar situation arose at the Financial Intelligence Analysis Unit, where, under pressure from European authorities, the FIAU had to reorganise itself across most levels: including beefing up its staff complement, increasing its budgets, and issuing new guidelines on how it carries out its supervisory efforts.

We already know that the MFSA and FIAU cooperate closely on investigations: a case in point is a joint supervisory investigation into every single transaction carried out by the now shuttered Pilatus Bank.

The issue at stake here, however, is whether, once such investigations are carried out, the police force is well equipped and well-resourced enough to take these investigations over with further interrogations and final prosecutions.

Recent experience does not indicate a willingness to act in all cases: and it is precisely this perceived reluctance – especially when it came to high-ranking public officials – that led to all the international pressure in the first place.

How much of this, however, was down to political interference… and how much simply due to an operatively flawed system of investigating and prosecuting financial crime? 

At a glance, it appears that the weak link remains the enforcement arm, as opposed to the investigative one. Simply put, the police and public prosecution have not undergone the same thorough restructuring process as the financial authorities.

This newspaper has already made its case on the need to ensure police officers and investigators have decent enough job conditions and salaries to carry out their duties. But clearly, this is not enough.

In turn, this explains the need for a new, dedicated authority. To overcome the bottleneck that happens at the all-important pre-judicial stage, it seems the government is preparing to enter the fray with a specialised Financial Organised Crime Agency to tackle cases of money laundering and tax evasion. According to the pre-Budget document this year, the strengthening of investigation of economic crimes is one of the priorities for 2020. But how will this unfold in practice?

Scicluna said that details concerning the formation of the agency were “not yet decided”. 

“We have to finalise a set-up which is suitable for our island. Organised financial crime is of a different nature from petty fraud. We need a specialised agency which deals with the big kind of organised financial crime – money laundering that originates from the banks or other financial institutions and is detected by the Malta Financial Services Authority and the Financial Intelligence Analysis Unit. We hope the new agency will address this need,” he said. 

There is, however, a difference between autonomous agencies and institutions such as the police. Regulatory authorities like the MFSA have a free hand in restructuring their organisations and salary structures – in fact, the MFSA in particular is striving to obtain full financial autonomy from government – but police departments are bound by strict rules from government and the civil service.

So will the new FOCA have a free hand in truly being an agency that can attract the best talent to investigate financial crime, with the necessary resources it requires?

Following the controversies that have arisen since the Panama Papers, and the reputational damage that ensued, there can be no doubt Malta is in urgent need of a strong financial crimes agency that can take on the workload that emanates from its economic model’s growth on financial services, gaming, and cryptocurrency. 

This requires criminologists, financial experts, and IT specialists who can truly walk in step with the evolution of Malta’s economic model. 

Above all, however, it requires results: in an environment where Malta’s institutions have been internationally discredited, the last thing we need is another toothless institution which stumbles at the final hurdle. 

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