[ANALYSIS] Paint it grey: Joseph Muscat’s curse or Robert Abela’s opportunity?

While there are technical reasons for Malta’s greylisting by the Financial Action Task Force, it was the political assassination of Daphne Caruana Galizia and the rot exposed in the Panama Papers that put the spotlight on Malta’s long-standing problems, most of which predate 2013 but aggravated by Joseph Muscat’s vocation to piracy in a bid to short-circuit the road to unprecedented economic growth.

As things stand, his successor Robert Abela finds it more convenient to focus on the technocratic issues raised by FATF to avoid questions on the political factors which triggered the assessment. But the Nationalist opposition’s competence in addressing issues raised by FATF will also be under greater scrutiny, further exposing the lacunas on its front bench – especially in the economy and financial portfolios.

Abela’s strategy: Defuse tensions and don’t poison the well

What’s sure is that Abela has been wise enough to defuse any escalation with key players, in a sign of political maturity and awareness that lashing out at the FATF at home will be read by international circles as an act of bad faith in pending negotiation.

He can’t afford to poison the well Malta has to drink from. Yet one can’t note the contrast between his sobriety, and the nationalistic social media outbursts of supporters who go as far blaming the jealousy of larger countries for Malta’s current plight.

Instead of stamping their feet in protest at what they still see as an “unfair” decision, Prime Minister Robert Abela and Finance Minister Clyde Caruana have chosen sobriety and technocracy, that of defusing situation by framing the FATF grey isting debacle as an opportunity to gain “certification” for Malta’s financial and fiscal system by addressing long standing problems.

On Sunday, Robert Abela summed up the new course by describing Malta’s greylisting by FATF as an opportunity to carry out changes which will make Malta an even more attractive jurisdiction. “The moment we have the certificate of approval on our anti-money laundering systems, it will make us an even more attractive jurisdiction,” Abela said while being interviewed on party radio station ONE Radio.

And while this sobriety is welcome, it has become unsustainable to reconcile his claims of Malta being “the best in the world” with the reality of being greylisted. The current mood has practically robbed Abela out of his arsenal of buzzwords. One can no longer speak of “continuity” when what FATF is demanding is discontinuity, and surely one can’t turn bad news into good news without sounding ridiculous, as Abela risks when downplaying the greylisting as some sort of opportunity.

Complimenting the PM’s new course, Foreign Minister Evarist Bartolo went as far as disowning “conspiracy theories” inviting supporters not to be surprised at other countries “who want to safeguard their wealth” and thus do not want “see our country being used against theirs when it comes to financial transactions”.

The problems under the spotlight

FATF president Marcus Pleyer himself had last week framed the FATF decision in technocratic terms, identifying Malta’s three major shortcomings: namely the weakness in gathering financial intelligence on tax evasion and money laundering, the lack of transparency and accuracy in the beneficial ownership register, and the blurred roles and responsibilities of the Tax Commissioner and the FIAU.

But most importantly he explained that the FATF did not only look at technical and legal compliance but also how the rules are implemented on the ground. And crucially it is not just the FATF technocrats which the government has to convince, but also the governments of Germany, the UK and the USA who for their own reasons reportedly insisted on greylisting Malta.

With that in mind one cannot avoid the need of national reflection on what actually has put the international spotlight on long standing problems like tax evasion. For tax evasion has existed for ages and is structurally ingrained in the “ejja ha nirranġaw” culture which pervades the Maltese way of doing things across the board – from planning and land use to tax arrangements.

One can’t avoid the conclusion that the greylisting was also a political act, triggered by an aversion towards a small state which opened itself to global financial transactions, in a context poisoned by high-level corruption and an assassination with political ramifications.

This also coincides with an international climate which is increasingly hostile to tax monies being siphoned from larger economies to smaller ones through tax competitiveness. The Economist column Charlemagne articulated this sentiment, warning that “the golden era of tiny but mighty states” in the EU “is drawing to a close”.

Reckoning with Muscat’s legacy

Sure enough Abela did partly address the underlying political malaise by appointing a new police commissioner, under whose watch progress has been made both in the Daphne assassination and on money laundering cases involving Keith Schembri, Nexia BT and other key players of Panamagate.

But he remains politically paralysed when it comes to coming in terms with his predecessor’s legacy.

And while Labour has aligned itself to a sober technocratic response, at least for now, it still ignores the ideological framework which contributed to Malta being placed under the spotlight: the way piracy turned into a vocation under the Muscat administration. Muscat might not have invented the wheel when he inherited the PN’s focus on financial services and tax competitiveness, but he did press on the accelerator, attracting more even more attention with crude money-raking schemes like the sale of citizenship scheme.

In a way it was the Muscat’s administration way of squaring the circle, behaving like an exemplary German schoolboy when it came to balancing the government budget and even achieving a surplus; while enthusiastically opening itself to shady dealings and transactions across the board.

One cannot avoid the deep sense of irony when recalling how back in 2015, former Finance Minister Edward Scicluna enthusiastically supported Germany’s hawkish stance on punishing Greece despite the massive social pain inflicted on it, while turning a blind eye to the shortcomings which led to Malta now being punished by the same global order of which both Scicluna and Muscat were enthusiastic supporters.

Abela still clings to this model of economic growth but may be keener on a driving a slower but more robust engine, which attracts less attention from the exhaust fumes it emits.

And while Muscat’s devotion to piracy was a dangerous ploy to come to terms with global inequalities that penalise countries whose balance of trade puts them at a disadvantage with powerhouses like Germany, as well as being a short-cut to the living standards of richer countries without breaching the EU’s rules on spending, it quickly degenerated into a race to the bottom; the Muscat administration attracted the worse aspects of global capitalism to the point that even hospitals were sold to a letterbox company.

Abela today is defusing the situation by promising to address long-standing problems while refraining from any political judgment on his government’s actions since 2013, while Opposition leader Bernard Grech rightly focuses on the trigger. But he too ignores long-standing failures and offers very little in terms on addressing problems like massive tax evasion. The attitude of the PN since Panamagate has been one which lamented the spotlight being thrown on Malta’s financial sector thanks to Konrad Mizzi and Keith Schembri’s actions, but which ignores any questions on the morality of the system itself.

Bernard Grech’s own tax irony

In his forceful speech in parliament on Monday, Bernard Grech was strong on two points: namely his insistence on Abela coming to terms with the Muscat legacy and his call for a bipartisan task force, which includes both the opposition and stakeholders. By ignoring this sensible proposal Abela risks undermining his own patriotic rhetoric on ‘Team Malta’.

Yet the underlying “I told you so” celebratory mode in the Opposition’s ranks does raise questions on its good faith. And neither can Grech himself escape the irony from his own tax arrangements which saw him settling pending income tax and VAT dues and irregularities spanning a number of years, right before contesting the PN leadership, in what now stands out as another symptom of the ‘ejja ha nirranġaw’ culture, which also contributed to the greylisting.

Crucially, the Opposition will have to prove that it can be trusted with reforms, which require competence. It could simply press the line that only a change in government can secure the trust of international institutions because Abela’s Cabinet is itself a hangover of the Muscat era, but Abela’s strategy of co-opting new MPs to inject new blood in his Cabinet may pay off. Even former Muscat acolyte Emmanuel Mallia is now next in line to be replaced.

Now in the next election Abela will be facing the electorate on the basis of his own actions. In blaming Muscat, the Opposition itself offers Abela a way out of his impasse, giving the PM the opportunity to distance himself further from his predecessor.

An election to sort out the mess

What remains to be seen is whether Abela will delay election plans to the latest possible date (September next year) to first clear Malta’s name from the greylist, before going to the polls, and thus be in a position of using this certification of good health as an electoral plank, something which would rob the Opposition of its thunder.

It remains doubtful that he would take such the risk of putting his own future in the hands of an assessment, which is not within his control.

And while in the face of adversity Abela has shown signs of political maturity, it remains doubtful whether this episode will embolden him to cut that umbilical cord which still ties him to his predecessor.