A sudden over-zealous AML regulation is leading to loss in business

Last Updated on Thursday, 11 November, 2021 at 9:19 am by Andre Camilleri

In September, the Basel AML Index 2021 ranked Malta as the worst country in the EU for money-laundering risk. This does not augur well for a country whose one of the main economic pillars is the financial services sector. “Applying effective AML policies is important but the sudden over-zealousness we are witnessing, is excessive and damaging and is undermining 30 years of hard work and the huge investment it took to place Malta on the map,” says DANIEL BILOCCA, Corporate, Risk and Compliance director at NOUV, in an interview with The Malta Business Weekly

What in your opinion should be the country’s main priorities for an effective short-term action plan?

We need to touch base once again with what were the main factors which contributed to and made possible the successful setting up of this financial services sector in the first place. Malta managed to make it against all odds. We accurately drafted and enacted serious and detailed legislation; widened higher educational opportunities intended to prepare a new generation of practitioners, we set up credible regulatory bodies working alongside respected institutions and applied proper high-standard marketing of Malta until we achieved a sound international reputation.

This contrasts with a jurisdiction which from the heights of success has, in just a few years, become grey-listed and ranked as the worst country in the EU for money-laundering risk. The legislation is still in place and practitioners still provide high levels of service but the institutions that matter have been weakened by instances of selective inaction.

While the main effort can only come from government, the response to this national issue also has to be national. Government needs to engage, as openly and as comprehensively as possible, all relevant sectors and professionals. The short-term plan needs to identify the way out of this grey-listing classification and a longer-term plan needs to ensure we regain and maintain the impeccable reputation this country enjoyed up till not long ago.

We need to avoid at all costs a management-by-crisis approach. Dishing out hefty penalties overnight won’t work. Prosecuting tax dodgers is a duty but this will not restore this country’s tarnished reputation. Our institutions need to show that they work, that they are effective and that they can be strong with the strong, and not only with the weak. Being strong with the smaller firms, may ultimately result in their closure and potential loss of jobs.

You are on the ground, meeting clients and engaging with them. What are currently the biggest pain points relating to AML procedures?

The general feeling is that we have gone from normality to an extreme in a flash, forcing operators to over-provide for AML procedures in order to over-protect themselves and their firms from what is now suddenly seeming like over-zealous regulation. As a result, the onboarding of even low or medium risk clients has become excessively detailed and laborious and is leading to unavoidable loss of business.

Attracting new business had already become a very challenging task a few years back when banks started to limit their appetite for new business due to the fact that corresponding banks had put Malta already on their “bad-guys” radar and shied away from performing any transactions for companies with any link to Malta. Adding to this “pain” by exerting more and more pressure on local CSPs and operators will further push potential new business to choose other destinations, rather than Malta and have a catapult-effect on the entire ecosystem.

There are a number of challenges faced by companies and those responsible for anti-money laundering measures which can be solved using the right technology. But are effective AML policies solely a question of updating the technology?

Investments and the updating of technology is the least problem at this time. I firmly believe that it all boils down to culture. We need to ensure to instigate an AML culture, not only within the financial services industry but also in society at large.

We need to explain more what being grey-listed means, how we got here and how government, regulators and us operators have to work together to have Malta removed from this grey list. We have to show the FATF that we are all working in synergy to actually show that the controls that have been put in place, which were also applauded by Moneyval, are effectively the light at the end of the tunnel. Persecuting the self-employed or small to medium firms will not suffice. Government and regulators must show that Malta is addressing the elephant in the room.

Effective AML policy is a double-edged knife: on one hand, the industry portrays itself as transparent but on the other hand, over-zealousness could kill an industry. What are your personal views about this?

Effective and properly applied AML policies and procedures are a valuable and precious tool for any practitioner working within a reputable and strong financial services jurisdiction. But over-zealousness is excessive and damaging. It causes uncertainty and undermines over 30 years of hard work and huge investment that put Malta on the map in this sector. We need to call a spade a spade. The current state of affairs was not caused because of breaches in the application of AML policies but by an international feeling that we have seriously slipped in our national reputation because of perceived inaction on grave issues.

Let’s not forget that Moneyval has been issuing reports on Malta for many years, recommending improvement in the legal framework and in practical implementation while always being given an overall clean bill of health. Throughout all this time, AML policy was introduced because the industry acknowledged that its proper application would bring credibility and make Malta attractive to more reputable investors. AML policy kept being updated and amplified without any shattering effect not with any over-zealousness, but with reason and professionally.

Delays in Malta’s removal from the FATF grey list could impinge on important growth sectors. What are the long-term solutions that the country needs to pursue?

Our colleagues abroad are now applying more in-depth due diligence on anything Maltese and at the same time, long-established businesses here are finding it increasingly difficult to carry out even regular banking transactions internationally, as foreign banks have likewise started to treat Malta as a grey-listed country. This scrutiny did not start now but surely the grey-listing was the cherry on the cake for large banking players, including most corresponding banks that had put Malta in the problematic countries’ list years ago.

Engagement with all relevant sectors and professionals should become a national and urgent effort from which a long-term plan has to be devised to regain the good reputation this country enjoyed. Flexing muscles every so often will not impress the FATF but will only cause irreversible damage more than the grey-listing itself.

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