It’s about the money and political will: Malta’s financial crime-busters

George Degiorgio had bought the boat from where he detonated the bomb that killed Daphne Caruana Galizia for €30,000 in cash, according to court testimony.

The detail emerged last year in a separate court case in which Caruana Galizia’s murder suspects were charged with money laundering.

The evidence submitted in court showed how cash payments were the preferred transaction method to remain below the radar.

The Degiorgio incident is by no means unique. Malta is still a cash-based society.

A recent survey commissioned by the GRTU showed that 40% of all expenditure in 2018 was conducted in cash. Significantly, the survey also found that a third of merchants refused card payments.

Ordinary expenditure in cash encourages tax evasion but for the more luxury items, where transactions can run into tens and thousands of euros, the issue becomes one of money laundering.

There is no law that prohibits large cash payments for purchases, a situation flagged in the recent report drawn up by Moneyval, a committee of experts from the Council of Europe.

However, that is set to change next year when the government is expected to introduce legislation capping cash payments at €10,000.

Finance Minister Edward Scicluna said the cap on cash payments will apply on the sale of real estate, cars, yachts, precious metals, and art.

The selected areas are prime targets for ‘cleaning’ ill-gotten money.

But while this could be a key plank in the fight against tax evasion and money laundering, it remains to be seen how this measure will be enforced.

In the real estate sector, the mere presence of a notary to register property transfers is in itself a control mechanism because notaries are public officials with legal responsibilities.

However, it is hard to imagine a luxury car dealer refusing a €60,000 cash payment for a sports car, or an antique shop reluctant to sell a precious artwork for €20,000.

Nonetheless, the introduction of a legal deterrent will empower the authorities to pursue criminal action against the players involved when such instances come to their knowledge.

But the fight against financial crime is expected to up a notch next year with the creation of a new agency, which the government has indicated will have the power to investigate and prosecute crimes.

New crime-fighting agency

The budget has earmarked €1 million for the setting up of a Financial Organised Crime Agency (FOCA), which Scicluna said will complement the police’s Economic Crimes Unit.

The government has been tapping expertise in the US and Britain to help in the setting up of the new agency.

The Moneyval report exposed the dismal rate of prosecutions carried out by the police whenever suspicious cases were flagged by the

Financial Intelligence Analysis Unit. A breakdown of figures shows that less than 3% of cases indicated by the FIAU to the police ended up with a prosecution between 2014 and 2018.

Details on the composition of FOCA have so far been scant but the creation of a distinct agency means that its wages will not be constricted by the public service pay scales, as the police are. The authorities hope this will enable them to attract specialised individuals in the complex fight against financial crime.

The €1 million fund will definitely not be enough to create a strong agency but it is an encouraging start, which cannot come too soon.

Police, FIAU and MFSA

As for the police force, the increase in recurrent expenditure is primarily due to a higher wage bill but the Home Affairs Ministry has allocated €15.7 million for IT software, hardware, and support services.

This investment in IT for next year represents a hike of €7.1 million over the budget for 2019.

Although the capital investment in IT falls under the ministry, in the wake of the Moneyval report, the police had announced they were investing in specialised intelligence software.

This software will create a centralised database of information that would facilitate financial investigations and enable the police force to be in constant contact with other Maltese entities.

But the Budget presented last Monday also allocated €8 million to the FIAU, which is almost double the budget for this year.

The FIAU increased its resources over the past couple of years after severe criticism from the European Banking Authority over shortcomings in the case involving Pilatus Bank.

The bank’s licence was eventually withdrawn by the Malta Financial Services Authority after its owner was arrested in the US and charged with evading Iranian sanctions.

The MFSA’s share of public funds are expected to increase by €1 million next year to €13.6 million.

Although significant, the increase may not be enough to cover the ambitious reform outlined by the MFSA to beef up its supervisory mechanisms.

MFSA CEO Joseph Cuschieri had told MaltaToday that the organisation will have to invest anything between €8 million and €10 million to upgrade and change the technology that underpins its operations over the next three years. The authority has remained, by and large, a paper-based organisation unsuitable to modern-day needs.

The organisation’s budget will also have to increase over the period to sustain a bigger and more specialised workforce. But the authority wants to aim for self-sufficiency by increasing the fees for operators, eventually cutting all its funding ties with the government.

The National Co-ordinating Committee on Anti-Money Laundering received a funding boost of €1.1 million, almost doubling its budget to €2.6 million.

Another important component in the fight against financial crime is the State’s ability to recover assets confiscated from criminals. In this regard, the Asset Recovery Bureau will see its budget increase by €70,000 to reach €520,000.

These measures will help to strengthen the fight against money laundering and other financial crime but much as the injection of funds is an important step, the proof of the pudding is when more prosecutions are filed in court.

It has to be seen whether the political will to crack down mercilessly on financial crime will follow the money being invested in the authorities vested with the power to tackle it.