FIAU: greylist does not mean enhanced due diligence on Maltese clients

Malta’s greylisting by the Financial Action Task Force (FATF) has placed the island’s financial jurisdiction under increased monitoring, the national financial intelligence unit (FIAU) has told practitioners.

But in an interpretative note published on Friday evening, the FIAU said Malta’s money laundering rules, now that the island is greylisted by the FATF, should not be interpreted as meaning that subject persons are required to apply enhanced due diligence (EDD) measures on all their Maltese customers.

Now that Malta is part of the FATF process to ensure it addresses specific remaining anti-money laundering deficiencies, a number of obligations are triggered, which includes EDD measures than simple due diligence.

However, although subject persons are required to assess the reputability and risk of a jurisdiction to better understand the risks they are exposed to, this obligation is not to be interpreted as being also applicable to Maltese subject persons with respect to Malta itself.

“Subject persons are not required to assess the jurisdictional risks arising from entertaining business relationships or conducting occasional transactions with Maltese or resident clients… subject persons are not expected, solely because of Malta’s placement under increased monitoring by the FATF, to consider Malta as non-reputable or as a high-risk jurisdiction.

“This development need not be considered as a trigger to revise or update the Business Risk Assessment or Customer Risk Assessments. Neither should this development, on its own, result in an intensification of AML/CFT measures, including the application of EDD, with respect to Maltese or Maltese resident customers, including bodies corporate and legal arrangements established in Malta or having Maltese beneficial owners.”

Malta this week was placed under increased monitoring by the FATF, the first EU country under this regime, together with Albania, Barbados, Botswana, Cambodia, Cayman Islands, Ghana, Jamaica, Mauritius, Morocco, Myanmar, Nicaragua, Pakistan, Panama, Uganda, and Zimbabwe. Haiti, the Philippines, and South Sudan were also added to the list.

The FIAU said that subject persons may therefore continue to place reliance on other Maltese subject persons, and may equally continue to apply SDD on Maltese or resident customers in situations which are deemed to pose a low risk of money laundering.

The Prevention of Money Laundering and Funding of Terrorism Regulations (PMLFTR) and the FIAU Implementing Procedures (IPs) may lead subject persons to understand that now that Malta has been placed under increased FATF monitoring, enhanced due diligence measures (EDD) need to be applied by subject persons on all Maltese customers.

Indeed, the FIAU was already receiving a number of queries from Maltese subject persons as to whether they are now required to apply EDD on their Maltese customers, even if such customers do not present a higher risk of money laundering.

EDD will continue to apply depending on obligations imposed on subject persons by the country where they are located.

Very often, these obligations reflect the standards set by the FATF which does not require the automatic application of EDD measures for customers linked to greylisted countries. The FATF itself said that it “does not call for the application of enhanced due diligence measures to be applied to these jurisdictions, but encourages its members to take into account the information presented below in their risk analysis.”

This means that the FATF expects foreign subject persons to take into account the reasons for which their customer’s country was placed under increased monitoring when carrying out their customer risk assessment, and whether the reasons for this exposes them to a higher risk of money laundering.

In Malta’s case, the issues identified by the FATF remain very specific and narrow, and do not reflect issues that are widespread throughout the entire anti-money laundering framework of Malta.