Expressions of Interest for Evans Building, old fisheries and Sliema Chalet

Review of Malta’s residency schemes in the works

Finance Minister Clyde Caruana hinted on Monday that more tough decisions are in the pipeline for Air Malta, but insisted that the country has and will still have a national airline.

“Air Malta was a great challenge over the past two years. Decisions by previous administrations left the airline in a position where it could never be efficient. Governments injected tens of millions into the airline, but its problems only increased. If we had done nothing, there would have come a day where the company would have been unable to pay wages and close down.”

Caruana said the European Commission, with whom the government has been discussing the possibility of authorizing state aid, has made it clear that there are no “sacred cows” and that it will not afford Malta any preferential treatment.

“Together with the EC, we need to find a solution that is in the best interest of the country but which also respects EU laws. We drafted a working plan to better address the airline’s expenses. The EC is evaluating the choices it has before it, but I will keep stressing that Malta had, has and will continue to have a national airline”, Caruana said.

“Much more needs to be done to turn Air Malta into a profitable company. It gives me no pleasure, and it will win me no votes, because the decisions are hard and not everyone will like them. What is sure is that Air Malta cannot continue burning tens of millions of euro. These are not things one enjoys doing, but they have to be done and I am willing to do them.”

Economy

Speaking on the economy in general, Caruana said that the government’s strategy for coming months will be focused on safeguarding those industries that are growing, whilst cultivating a culture of innovation for new economic niches and sectors.

Malta Enterprise (ME) is to launch a new one-stop-shop for start-ups and Malta will also host the EU Start-ups Summit. ME will also launch a new Business Incubation Centre in Kordin using EU funds. There will be a new €40 million scheme to help SMEs with cash grants.

A Digital Innovation Hub will be developed and Malta Enterprise will also be doubling its cash grants to all local companies that invest in digital and sustainability projects, thus covering up to 50% of the investment, as up to €100,000.

Gozitan business will continue benefitting from an additional 10% tax credit assistance, which can increase to 20% in case of projects that lead to a decrease in the carbon footprint. There will be other initiatives for companies investing in digital projects, or projects that reduce the consumption of energy, water, waste and land-use.

There are talks on the establishment of a Venture Capital Fund and the government will further be promoting Malta at the World Expo 2025 in Osaka, Japan.

The assistance given to companies as subsidies on their rent fees will be extended and will be doubled to €50,000.

Expressions of Interest

The government will launch Expressions of Interest for Evans Building, the Fisheries building, and the Chalet in Sliema, so that these sites can be given a new lease of life. “We want to see quality projects that respect the value of these locations, that are sustainable and that create new opportunities. Other sites are being explored too”, Caruana said.

The reduction of stamp duty from 5% to 1.5% in cases where businesses are transferred to relatives is being extended.

There will be added investment in the Malta Film Studios, with the construction this next year of the first sound stages in Malta.

Caruana also said that Malta’s residency schemes need to be reviewed in the context of global changes, including Brexit. Laws regulating these schemes will be reviewed, as well as guidelines and their practical administration. “We must ensure that Malta remains attractive, while also ensuring that these schemes remain integrous”, the minister said.

The government also aims to strengthen tourism in the winter months, with new schemes being aimed at attracting tourists to Gozo during the quiet months. The Foundation for the Development of Tourism Zones will become an agency as from January 2023. 

The government will also be working to strengthen the maritime and the aviation sectors, and will announce the relocation of new airlines to Malta in the coming months.

The post BUDGET 23: ‘Tough decisions on Air Malta needed, but country will always have a national airline’ first appeared on The Malta Business Weekly.

While one cannot expect the government to fully offset the impact of inflation, there needs to be a balance between this and controlling the deficit, economist JP Fabri has told The Malta Business Weekly.

This newsroom reached out to Fabri and Clint Flores after the publication of data, by the National Statistics Office, which showed that, at the end of March, General Government debt stood at €8,672.2 million, or 57.6% of Gross Domestic Product (GDP), the National Statistics Office said.

This equates to an increase of €1.17 billion over the corresponding quarter in 2021, largely reflected in Central Government Debt, which amounted to €8,669.9 million.

The NSO press release also showed that currency and deposits stood at €567.3 million, an increase of €98 million over March of 2021.

On the other hand, government revenue stood at €1.29 billion in the first quarter of 2022, marking an increase of €141.4 million when compared to the corresponding quarter in 2021.

Total expenditure in Q1 amounted to €1,692.0 million, an increase of €178.2 million over the corresponding quarter in 2021.

“A lot of the discussion has featured on the headline figures of debt and deficit. The fiscal situation remains important, however a discussion on the context is even more important,” Fabri said.

“When analysing the deficit and debt figures, one needs to keep in mind that COVID remains an unprecedented crisis that necessitated large-scale government intervention to sustain the economy and employment. This happened across Europe with the EU pausing the deficit and debt ceilings. In fact, Mario Draghi, Italy’s Prime Minister, and former ECB President said that economic growth is the most effective way to reduce public debt. Therefore, although we need to focus on debt, it is much more important to talk about economic growth and the investment being done towards supporting such growth.”

Fabri said that, nevertheless, a discussion needs to be held on the qualitative terms of the budgetary strategy.

“The operating environment is now different to a year ago. In fact, we need to be aware of the trade-offs once again given that borrowing costs are rising due to the increase in interest rates that have started and are set to continue. The inflationary spiral is also a critical element in this analysis. Government, as it is already doing, needs to adapt its spending strategy to mitigate the impact of higher inflation. This was attested to by Minister Caruana who highlighted the effectiveness of Government’s intervention, which comes at a price of contributing to our deficit. One cannot expect Government to fully offset the impact of inflation however a balance needs to be found.”

“Finally, we need to be conscious of the medium-term fiscal challenges which include an ageing population and therefore the need to press ahead with pension reforms. The need to transition to greener energy and the digital transformation. EU funds will be critical here however there will also be an impact on Government spending. Finally, Government needs to restore fiscal health by building up buffers as the availability of fiscal buffers allowed Government to intervene so directly during COVID.”

Fabri sadi the quality of spending becomes critical and therefore a concerted focus needs to be made on the effectiveness and efficiency of public spending. “It is also pertinent to note that in this vein the Ministry of Finance has already embarked on a spending review. Similarly, it would be good for the Government to start implementing a culture of impact assessments to ensure that programmes and initiatives are truly leaving their desired impact. This will allow realignment and readjustment of such spending.”

In his comments, Clint Flores noted that public debt is lower that what is projected in the Stability and Growth Pact, and this might give the government some flexibility and leeway to manage public finances. In the short-term, this could help sustain the negative shocks coming from the Ukraine-Russia war.

“The figures correspond to the latest (May) European Spring Economic Forecast for 2022. The government revenue is projected to increase in the Spring 2022 forecast, and is also reflected in the numbers released by the NSO. The increase in revenues is not related to inflation. It is true that when one takes the total government expenditure of Q1 2021 relative to Q1 2022 an increase of €178.2 million is registered. However, the Spring 2022 forecast estimates that the deficit is  projected to decrease in 2022. In fact, when one takes the figures of Q4 2021 and Q1 2022, the expenditure is less,” Flores told The Malta Business Weekly.

“My understanding is that this expenditure (Q1 2022) also captures, the cash injection given before the general elections to sustain the inflationary pressures, the subsidies on fuels that covered the month of March, as well as the expenditure related to the pandemic measures including the wage support schemes to businesses; still in place at the end of March. If the downward trend is sustained the government deficit would decrease in 2022 relative to 2021.”

Flores warned, however, that we need to cater for any unforeseen geopolitical events, which are quite volatile and hard to predict.

“Crucially important is that the current government debt is less than the stipulated figures (60% of GDP) in the Stability and Growth Pact. This means that, ceteris paribus, if the deficit is lowered and the projected economic growth is sustained, then it would give the government some flexibility and leeway to manage public finances. This is quite important in the short to medium term to primarily sustain the negative shocks emanating from the war. If the government sustains its expenditure via public investment and stimulates domestic demand, such policy measures would support positive economic growth.”

The economist also warned that the shortages in the labour market might stifle economic growth, if not properly addressed.

“Lastly, one must bear in mind that the government subsidies are avoiding an upward spiral wage inflation that would otherwise be economically detrimental for Malta’s competitiveness in the longer-term.”

The post Balance needs to be found between offsetting inflation and controlling deficit – JP Fabri first appeared on The Malta Business Weekly.

He again insisted that Malta has strong concerns about some aspects of the proposal.

The EU council of finance ministers, or ECOFIN, is currently discussing the proposal pushed by the OECD that would see the minimum corporate tax rate set at 15%.

Malta currently taxes foreign companies 5%. This tax regime has been in place since before EU accession, and was aimed at attracting foreign investment to Malta. While foreign companies initially pay 35% corporate tax like local firms, they benefit from a 6/7 tax refund scheme. 

The OECD pact states that the 15% tax rate would only apply to companies making profits of over €750 million.

Caruana had previously confirmed that Malta had agreed to sign the OECD pact, stating that all countries were being “forced” to sign, but said Malta had some reservations, particularly on the €750m threshold and excluded sectors.

Speaking in Brussels, Caruana said that, while the EU is pushing to take the process to the next level, there are a number of concerns by a small number of countries, while others want more visibility on a technical level.

Malta’s position is that the concerns which are coming up must be discussed and addressed before the voting takes place.

“Malta acknowledges the efforts done at global level in order to get this agreement in place. Throughout this OECD, process we sent our contributions and participated at our best. We said yes, however, we have mentioned that we have strong reservations on certain issues. Issues on which unfortunately we never received any feedback or answer.”

Caruana said he understands the motivation behind this effort and its implications, but said he cannot ignore certain issues, including those that revolve around fairness and the practicality in terms of implementation.

“As it was rightly pointed out earlier, this is a political process and we have to answer to our people. I have to answer to my people. We don’t wish to withdraw our support for this process at this stage, but at the same time I cannot ignore the serious concerns, which are various, on how all this will affect my country. We look forward to discuss these concerns during the upcoming work groups. Nevertheless, I believe that my brief intervention clearly explains where we stand on this matter.”

Caruana had previously said that Malta had accepted the OECD agreement because all countries were bowing their heads down to it. 

“This is because even if no other country agrees on it, countries can still tax the difference between what Malta taxes locally and that 15% elsewhere,” he had told MaltaToday.

The agreement is now being discussed at EU level so that it can be drafted into a directive.

Once it is approved, a transitory period will allow government to help companies settle into the system.

The post Minimum corporate tax: ‘I have to answer to my people,’ Caruana tells EU ministers first appeared on The Malta Business Weekly.

Malta will “undoubtedly” meet all the requirements of the action plan and get off the Financial Action Task Force’s (FATF) grey list, FIAU deputy director Alfred Zammit told The Malta Independent on Sunday.

Interviewed by The Malta Independent’s editor-in-chief Neil Camilleri on Indepth, Zammit said getting off the grey list is a matter of time, but good progress has been achieved so far.

Malta was grey-listed by the FATF in June after Malta was deemed to have made insufficient progress in two areas. These are related to information about the Ultimate Beneficiary Owners of companies and on efforts to combat moneylaundering deriving from tax evasion. A few weeks earlier, Moneyval, the Council of Europe’s antimoney laundering body, had given Malta a pass grade, having decided that the country had made progress on several issues flagged in a 2018 review.

In the interview, Zammit speaks about the efforts being made by the Financial Intelligence Analysis Unit, in conjunction with the police and other state authorities. He says: “the FIAU of today is not even comparable to the FIAU of 10 years ago,” having seen investment in human resources and the systems used to identify financial crime.

He also said that the private sector is now more aware about the risks and obligations related to money-laundering, more so after the outreach efforts by the authorities.

Zammit also said that the FATF already gave Malta positive feedback when the authorities reported on their progress last October. Malta is currently in the second four-month round of reporting and is in regular contact with the FATF to update it further on the progress made. He said Malta is on the “right track” to get off the grey list.

What process kicks off once a country is grey-listed? What is assessed from thereon?

Being grey-listed means that the FATF would have, after assessing a country, concluded that some of its anti-money laundering structures need improving. This is not a sanction, but rather the FATF pointing out areas that need strengthening. Once a country is grey-listed, the FATF and the country in question agree on an action plan. From thereon, the country will be in regular contact with the FATF to report on the progress made in these areas. Currently, we are in that process. A lot of work is being done on the ground and there is regular communication between Malta and the FATF.https://player.vimeo.com/video/652492769?h=455e512190

What areas were highlighted for improvement?

There are two areas. The first is on transparency of legal persons or beneficial ownership. It is important that the authorities know who the people behind a company are and that such information is correct. The authorities need to have this information easily accessible in case an investigation is needed. Basically, the FATF concluded that Malta needed to do more to ensure that information on Maltese companies, specifically on owners, is correct. Where it is not, the expectation is that the authorities take the necessary steps to ensure that the correct information is provided and to take the necessary steps where breaches of the law are found. The second area is on money-laundering related to tax evasion. Money-laundering means money coming from illicit activities. When the FATF saw what the country’s risks are and what measures had been taken until then, it determined that more needed to be done. The FIAU and the police were given action points so that they could do more work on the ground to fight this type of money-laundering.

Beneficial Ownership (BO): How big of a problem is it in Malta and what are the reasons why people would hide their ownership of companies?

Malta already has a number of good processes in place, such as the business registry, which gives details about a company and the people behind it, but we are not perfect. The FATF felt that the number of instances where incorrect BO information is identified is too low, compared to the number of companies we have. They want us to be able to identify more instances of this. It’s not that we are unable to find out who the owners are. In fact, it’s a very rare occurrence that the FIAU and the police are unable to identify BOs, but we are not perfect and more needs to be done in this regard. This is not only about someone trying to hide their ownership. It’s also about having precise information. But there is a risk that the ownership information is incorrect and that an owner might be hiding behind another individual. We are looking out for these by looking at a large number of relationships between companies and service providers in Malta.

Malta had been given a number of warnings on low ML prosecution rates. While prosecutions are a police job, the FATF said it would like to see greater coordination between the police and the FIAU, particularly on the sharing of information. What is being done to address this?

The FATF said it wants to see the police make better use of the information we give them. The police are responsible for criminal investigations, but the FIAU has an important role in receiving information, including from foreign agencies, analysing it, seeing if there is a suspicion of money-laundering and then handing that information to the police. We work very closely with the police and coordinate daily. Coordination is very important and we must always be prepared to provide any additional information the police may request.

Money-laundering prosecutions have certainly increased, but have they increased enough?

This is not a question of numbers. What is important is that the country shows the FATF that the institutions are working effectively as they should. The FATF will never give you a quota of prosecutions you need to reach.  I think the progress that is being made shows that this is the case and that we’re on the right track.

What is money-laundering related to tax evasion? How widespread is it in Malta and what is being done to address it?

There are several illicit activities that can generate money that is then laundered and tax evasion is one of them. It could be carried out by Maltese individuals who are evading tax but there is also the risk that Malta is used by foreigners to launder money coming from abroad. One way of fighting it is by ensuring that the efforts made by the authorities are in line with the country’s risk. Other entities are involved in this field, such as the police and the tax authorities. One of the things the FATF said is that we need to be clearer on the way we all work together. We receive a lot of reports from banks on suspicion of money-laundering from tax evasion and we coordinate with these authorities, including through operational meetings, where we discuss these cases and how to process them. This has been happening for several months. There have already been several prosecutions, so we are seeing the result of this enhanced coordination between the authorities.

How are we addressing the action plan in a tangible way? Are we talking investment in people, training and equipment?

A bit of everything – both the FIAU and the police have engaged more human resources, but also systems. Over the last couple of years, we invested in systems that help us access and analyse information more quickly. This includes, for example, the Centralised Bank Account Register (CBAR), which lets us check in a matter of minutes, whether a person has a bank account in Malta, and without the need to request that information from the banks, which is time-consuming. Receiving Suspicious Transaction reports is also important, so we organised training sessions for the private sector to inform them on how to report suspicious activity to the FIAU. We also worked with the private sector and the representative bodies to help them identify red flags and guide them on whether a case merits filing a report with the FIAU. Currently, we are also working on a country risk assessment, something which had not been done in years. This helps us to not only get a picture of how much the country is exposed to risks of money-laundering from tax evasion but also on how to mitigate these risks.

Is the private sector now more aware of the importance of understanding ML risks?

Yes, without a doubt. In fact, this was one of the criteria the FATF assessed the country on and it gave us a green light. There is much more awareness now on money-laundering and the financing of terrorism, the risks and the obligations. This is also reflected in the number of STRs we receive. This year so far, we have received over 6,000 reports, which is more than double the amount of three years ago. Furthermore, several companies have audited themselves and invested more to mitigate their ML risks. Others have engaged consultants to strengthen their systems. There is far more awareness and understanding.

Malta was grey-listed in June. In October, the FATF carried out an assessment and noted that progress had already been made, including on effective measures taken against law-breaking companies. What kind of enforcement is being made and what kind of sanctions are being meted out?

We carry out what we call examinations, where we visit entities to see if they are adhering to their obligations. Not every examination leads to sanctions or penalties. In some cases, we find that everything is in order, which is good too, because it helps us understand what the level of compliance is. But when we find shortcomings, we act. If the shortcomings are few and not very serious, we might ask the company to remedy the situation. In more serious cases, we might need to take action and issue a fine.

Some people say that these regulations and enforcement are too much and that it’s only being done to ‘please’ the FATF. Is this criticism justified or is this simply the way things should be?

Globally, there is now much more attention on the subject. Money-laundering is a global problem and standards and expectations are increasing around the world. It is important that the country always does its best to fight crime and to protect its reputation. This cannot be just a temporary thing and it is important that these processes remain in place and that we continue focusing on these areas. We have always done this work but we have recently stepped up our efforts because we now have more resources. The FIAU of today is not even comparable to the FIAU of 10 years ago. We can say the same for other authorities, like the Police, the Malta Gaming Authority and the Malta Financial Services Authority. All countries are strengthening their resources in this regard. When we speak about bureaucracy, we must keep in mind that these regulations are there to protect legitimate businesses. The authorities work in a risk-based approach so dealing with high-risk clients require a more cautious approach.

What is the next step in the monitoring process?

In October, Malta reported to the FATF on a voluntary basis. This gave us the opportunity to explain what we had already done within a couple of months of the grey-listing. We also received positive feedback. The FATF carries out a round of reporting every four months. We have already gone through the first one and we are now entering the second round, where we will be in regular communication with the FATF to update them on the progress made since October.

From what you have seen so far, and from the feedback received from the FATF, do you think Malta will manage to implement the action plan and exit the grey list?

Malta will undoubtedly exit the grey list. This is a question of time. We must keep in mind that Malta was grey-listed on a small number of issues. When Moneyval evaluated Malta in 2018, it issued 58 action points. The FATF found issue with only two of these and this shows us what kind of progress we have achieved. When we look at the work the FIAU and the police are carrying out, including on investigations, prosecutions and information-sharing, we can say that we are on the right track. All indications are positive and we have had good feedback from the FATF. Over the coming weeks, we will continue to show the FATF that we are doing things in a serious and sustainable manner.

The post WATCH: Malta ‘on the right track’ to get off FATF grey list – FIAU deputy director first appeared on The Malta Business Weekly.

A Legal Notice that allows tax defaulters to offset their dues against property sales tax is not an amnesty but the first step towards a change in mentality and towards starting to recoup some €5bn the government is owed in tax, Finance Minister Clyde Caruana told The Malta Independent on Sunday.

This newsroom spoke to Caruana about Legal Notice 419, which has been dubbed by the Opposition and some constituted bodies as an “amnesty”. They say the scheme discriminates against law-abiding citizens who pay their taxes on time.

But Caruana insisted that this is not an amnesty and neither is it intended to favour some sector or the other. Instead, he says, this is a way of incentivising people and companies to pay money that has been owed to the government for years.

Caruana said he was surprised by the recent criticism, saying he had already announced plans to help government collect tax arrears way back in March.

“Back then, I had said that government was aware that some companies were having liquidity problems and we introduced a number of measures, such as the tax deference scheme. I had also said that some of these companies with cash flow problems were rich in assets, like property and land. We decreased the tax on property sales in a bid to incentivise them to sell off some of their assets and generate the cash they need to settle their tax bills.”

Caruana said that, despite this measure, not much enthusiasm was shown, with individuals and companies owing money to the taxman showing “no real interest” in paying their dues.

In a bid to get things moving, government announced in the 2022 Budget that the tax on arrears will increase from 3.6% to 7.2%.

‘Incentive, not amnesty’

“In no way are we writing off their tax dues, penalties or interest. When amnesties used to be given in the past, tax arrears were written off. I am not doing that. What I’m saying is that we are giving an incentive to those who are asset-rich but have cash flow problems. This is an incentive, not an amnesty.”

Caruana argued that this was a win-win situation, where government would be recouping tax dues and those paying the tax would not end up in an even more precarious financial situation.

“Simply put, if they do not sell their property they won’t be able to pay their tax dues and government will not collect a cent from the money owed to it,” the finance minister said, adding that he is “not cancelling anything from the government balance sheet”.

Caruana was asked to explain in more detail how the scheme works.

Generating cash to pay tax

“Let’s say someone owes half a million euros to the government and they sell a plot of land for half a million. Government takes its half million, but it doesn’t charge the person the tax owed on that property sale.” He added that the tax owed in such a case, would be a small percentage of that €500,000 transaction, so the amount being “forgiven” would be much less than the amount being paid in arrears.

“If we don’t do this, the tax owed to government will never be collected. Some companies are a bit cash strapped right now, so collecting their dues would take a very long time. And there’s a cost to that – if government doesn’t collect tax, it would in turn need to borrow more and pay interest on those loans.”

On the argument that this scheme discriminates against people who pay tax on time as well as on cash-strapped companies that have no assets to sell, Caruana remarked: “So should we give an amnesty to everyone? In any case, this is not amnesty. We are simply helping those who have assets to dispose of them in order to generate the cash they need to pay their tax dues.”

Caruana again noted that this was not a new idea. Government had embarked on the first step in March when it decreased property tax. “We wanted to test the waters to see what willingness there was to pay due taxes. We dangled a carrot, but this did not have any results. It was clear that those who owed to the government had no interest in doing so. This is why in the Budget we decided to increase interest on arrears from 3.6% to 7.2% in 2022.”

“I hope that people don’t start complaining that we are doing too much to get people and companies to pay their taxes. We have to decide what we want. The Opposition has accused me of discrimination in this case, but had labelled us as a party of usury when we increased the interest rate on due taxes. They need to decide what I am.”

In comments to Times of Malta this week, the Finance Ministry said the social partners who are complaining now, had not complained when they had been consulted in March. Pressed further on this, Caruana said the Chamber of Commerce had quoted him on its own website and his speeches had been reported in the press. “I was very clear back then. I did not try to hide this and it is unfair to say that this scheme was introduced in a hush-hush manner. Back then, no one complained.”

Asked why the complaints were coming in now, Caruana said that “it was either that no one was paying attention back then or else there is a political agenda”.

Government ‘used as an overdraft’

Caruana said that, over the years, government has been used as an “overdraft” for business.

“If you don’t pay tax, the penalties and interest are much lower than what they would be if you would default on your loan or bank overdraft. So they ‘borrow’ money from the government instead.  Some people racked up huge tax bills but at the same time became asset rich.”

The tax due can include income tax, National Insurance and Value Added Tax. Asked why government was introducing a scheme that helps individuals and companies who have potentially defrauded the state and their employees by not paying their N.I. contributions, Caruana said: “I understand what you’re saying, but there is a choice to be made. We can either look the other way and fail to collect dues like previous finance ministers did, and just forget the five billion euros, or we actually do something; not only on what should be collected from now onwards but also on what should have been collected in the past.”

“Some people might argue in favour of a more hard-line approach and tell you to start jailing people over uncollected tax. If we were to go for that approach, arresting people and confiscating assets, there are so many people involved that everything would come down. I have to decide between this terror approach, which leads us nowhere, as tax will remain uncollected or start a process that will start to change the way this country thinks.”

More to come on tax collection

The Opposition has said it will file a Parliamentary motion to have the Legal Notice withdrawn. Asked if he was adamant on keeping this scheme in place, Caruana expressed his conviction that the scheme is the right approach.

“There will be strong attempts to stop us from changing things in this country, so that due tax will not be collected. It’s easy to speak up in favour of tax evasion, but when you actually come to it, people will start attacking you because it affects them. I’m standing my ground on this.”

“Before the budget, during the consultation, some people called for an amnesty. But I said ‘no way’; I will not give an amnesty to people who want to pay their tax dues. I want to see that dues are collected.”

Caruana said he is sure that there will be future attacks on other efforts by the government to collect tax arrears but assured that there is “more to come on tax collection”.

The post €5b in uncollected tax: Legal Notice is way to start changing mentality – Caruana first appeared on The Malta Business Weekly.

The project, undertaken by the Office of the Commissioner for Standards in Public Life, is supported by the European Commission and the Organisation for Economic Co-operation and Development (OECD). 

Aims of the project

The government of Malta has committed to improving standards of integrity in public life and is focusing efforts on strengthening the rule of law, transparency and accountability. To advance on these commitments, the Office of the Commissioner for Standards in Public Life has requested technical support from the European Commission’s Directorate General for Structural Reform Support (DG REFORM) in the area of public integrity. To support implementation, the DG REFORM has engaged through its Technical Support Instrument the expertise of the OECD.

The resulting project – ‘Improving the integrity and transparency framework in Malta’ – aims to strengthen the Commissioner’s oversight role and capacity, as well as improve awareness of integrity to inform a strengthened public integrity system in Malta.

To achieve these objectives, the OECD will support the Office across six key areas:  

1)      Increasing the effectiveness of the Office

2)      improving integrity standards to strengthen the Commissioner’s oversight role

3)      improving the process for collecting and verifying asset and conflict of interest declarations

4)      strengthening the Code of Ethics for members of Parliament, Ministers and Parliamentary Secretaries, and supporting implementation through tailored guidance

5)      Improving the policy framework for responsible lobbying

6)      Improving communication on integrity 

With a duration of 24 months, the project will be supported by a Steering Committee comprised of representatives from the Office of the Standards Commissioner, a representative from each parliamentary group, a representative from the Ministry for Justice and Governance, representatives from civil society, as well as DG Reform and the OECD. 

A more effective Standard Commissioner

The exercise will assess the strengths, weaknesses, opportunities and threats in relation to the Office of the Standards Commissioner. It will also analyse its legal, procedural and institutional set-up, the human and budgetary resources and the policy framework in Malta.

A report will be drawn up with recommendations on how to increase the effectiveness of the office and, if needed, increase its resources.

The role of the office is often hampered by the fact that the Standards Commissioner is precluded by law to investigate anything that took place before the role was created in October 2018. The Standards Commissioner has also been calling for a change in the law to give him discretion on whether his reports should be made public. Currently, that decision rests with Parliament’s ethics committee, which is composed of two PL and two PN MPs, and is chaired by Speaker Anglu Farrugia.

There will also be a report with recommendations on how to amend the law itself – the Standards in Public Life Act. This will be done with a view to strengthen the Commissioner’s oversight role, and address omissions, inconsistencies or overlaps in the current legislation.

While following GRECO, Venice Commission and EU recommendations, the exercise will include consultation with local stakeholders from government, official bodies and civil society. The report will include a roadmap with proposals for adopting and implementing the proposed amendments. 

Asset declaration

The current methods of collecting and verifying asset and conflict of interest declarations will be reviewed with a view to improve them. Recommendations in this sense will be drawn up in line with good practices from OECD countries.

There will be recommendations on which officials should submit declarations, and how often. The assessment will also focus on mechanisms for verification of these declarations, as well as sanctions.

A technical working group on asset and conflict of interest declarations will be established. This will include representatives from each parliamentary group, the justice ministry, the OPM, the Economic Crimes Unit of the Police, the Commissioner for Revenue, the State Advocate, the Chamber of Advocates, the Chamber of Commerce, and civil society, as well as international stakeholders such as the EU, GRECO and the OECD.

The Code of Ethics for MPs, Ministers and Parliamentary Secretaries will also be reviewed with the aim of improving ethical standards for political functions in Malta.

Training courses will also be prepared, and a handbook on the Code of Ethics and Guidelines for Ministers and Parliamentary Secretaries will be produced. 

Lobbying

The project also seeks to address undue influence from lobbying in Malta.

The report will include relevant good practices from OECD countries and provide recommendations to improve the policy framework for responsible lobbying.

It will also include draft technical specifications as well as the capacity requirements in terms of human and budgetary resources, and sustainability prospects for the proposed instrument for curbing undue influence in lobbying and ensuring transparency.

A technical working group will be consulting various stakeholders in the field.

Efforts will also be made to raise public awareness on standards in public life, including through the use of social media.

The post Watch: Lobbying transparency, asset declaration among key focus areas in 2-year political standards project first appeared on The Malta Business Weekly.

Caruana also pledged to reduce the deficit to under 6% of GDP in the upcoming budget.

The finance minister was asked for a reaction to the news that international credit rating agency Moody’s has downgraded Malta’s outlook to ‘negative.’

Moody’s affirmed Malta’s rating at A2, but cited high government debt, the recent grey listing by the Financial Action Task Force and pandemic risks to the recovery of the tourism sector when downgrading the country’s outlook.

Reasons for change in outlook

Moody’s noted that Malta’s 10.2% deficit for 2020 was the second-highest in the EU. Coupled with a sharp economic contraction, the debt-to-GDP ratio increased to 54.8% from 42.0% in 2019.

The agency said it expects Malta’s fiscal deficit to further increase to 12.4% of GDP in 2021, the highest in the EU on current projections.

It projects that the debt-to-GDP ratio will increase to 66.4% this year, as a result of subdued economic activity.

While it expects economic growth to return to 3.5% in 2021, Moody’s said the continued recovery of the tourism sector during the crucial peak of the summer season in July to September has been thrown into doubt by the government’s mid-July decision to require that all arrivals in Malta over the age of 12 be fully vaccinated or undergo a 14-day hotel quarantine.

While numbers are expected to pick up in 2022, the uncertainty brought about by the pandemic and the potential emergence of new virus variants pose risks to the recovery of the sector.

The third reason for the outlook downgrade is related to the recent grey listing by the FATF.

Malta failed the assessment and was told it needs to beef up policing resources and prosecution numbers. The government says it’s action plan aims to take Malta off the grey list within 18 months. Prime Minister Robert Abela said last week Malta was “redoubling” its efforts to return to the white list.

Moody’s said it expects that the longer Malta remains on the greylist, the larger the broader impact on the economy and banking system will be, as enhanced regulatory burdens will increasingly weigh on the activities of Malta-based entities and their international partners. Ultimately, this increases the risk that some of these entities will reassess their current or future business operations in Malta.

Minister says Malta addressing concerns

In a statement issued by the Department of Information yesterday, the government noted that Malta’s A2 rating had been confirmed but failed to mention that the country’s outlook had been revised to ‘negative.’

However, in comments to The Malta Independent on Sunday, Caruana acknowledged that the country is facing challenges.

“It is true that the deficit is high, but I am committed to bringing it down to less than 6% in the upcoming budget. This will lead us to having a stable debt-to-GDP ratio. This addresses Moody’s first concern.”

On the tourism sector, Caruana said “the circumstances are what they are” given the pandemic.

On the FATF grey listing, Caruana said the government has concluded the action plan. “We are now discussing whether there need to be any refinements to it.”

In explaining why it confirmed Malta’s A2 rating, Moody’s said the decision reflects the fact that the increase in Malta’s debt is mitigated by the government’s strong debt affordability as well as its reliable domestic funding base.

It also noted that the economy remains diversified and that non-tourism related sectors have remained resilient despite the pandemic.

Moody’s also noted the resilience of Malta’s banking sector and the efforts undertaken by the Maltese government since 2020 to tackle some of the country’s institutional shortcomings tied to the control of corruption, rule of law and the supervision of money laundering-related risks.

The post Caruana committed to reducing deficit, says FATF action plan in final touches first appeared on The Malta Business Weekly.

The Malta Financial Services Authority (MFSA) received some bad press recently when CEO Joe Cuschieri resigned in the wake of the Las Vegas trip scandal. He stepped down after it emerged that he had gone on a trip to the United States with Yorgen Fenech in 2018, to advise the latter on regulatory matters.

Fenech, who has since been outed as the owner of 17 Black and has been charged with masterminding the murder of Daphne Caruana Galizia, is a casino owner.

The MFSA’s general counsel, Edwina Licari, and a former personal assistant to disgraced OPM chief of staff Keith Schembri, Charlene Bianco Farrugia, also went on the trip.

Cuschieri, who landed the job in April 2018, resigned ahead of an internal MFSA investigation.

The board had later ‘ratified’ Cuschieri’s resignation and appointed the authority’s Chief Officer Supervision as interim, Dr Christopher P. Buttigieg, as interim CEO.

In January of this year, it was also revealed that the MFSA had asked Cuschieri to reimburse some €23,000 he had drawn in ‘extra pay’ for attending board meetings, even if this was part of his duties as CEO.

The authority has now started advertising the CEO vacancy both locally and abroad. The call was posted in international publications such as The Economist.

The authority falls under the responsibility of the Finance Ministry, headed by Clyde Caruana.

Sources said there was a political wish to have a “wide open process for the sake of transparency.”

The call was opened on an international level to help the MFSA “regain credibility,” the sources added.

A specially appointed board will shortlist the applicants and choose the next chief executive. This will be a new procedure, since past CEOs were appointed by the authority’s board of governors.

According to the call, the successful applicant till be, “articulating the vision and strategy for financial services regulation and enhancing the reputation and standing of Malta’s financial services sector.”

The CEO will also be responsible “for the overall performance of the authority and the implementation of its objectives, strategy, and of policies as set by the Board of Governors.”

“Furthermore, you will help define and establish the jurisdiction’s and MFSA’s risk appetite, through formal definition and categorisations of risk, at gatekeeping, as well as at supervisory and enforcement levels.”

The main responsibilities “will focus on ensuring that supervisory and operational activities are undertaken in alignment with MFSA’s values and the established ethical principles.”

Applicants must hold prior experience working in a regulatory environment, ideally with exposure to multiple areas within financial services regulation.

They need to possess “excellent communication skills and a proven track record of engaging across segments within and outside organisations and the ability to make good decisions which are based upon sound judgements and analysis, evidence-based and well-documented case scenarios.”

A “solid” academic background in Financial Services, Management, Accountancy, Law and/or in other finance-related areas are also required.

When contacted by The Malta Independent and asked whether he is interested in applying for the post, acting CEO Christopher P. Buttigieg said: “I consider myself as a career financial supervisor and have been contributing to the MFSA’s development for more than twenty years. Whist I wouldn’t like to enter into a discussion on a personal matter, please note that I am committed to continue working on achieving the Authority’s objectives.”

The post MFSA looks beyond Malta’s shores to fill CEO role as it seeks to ‘regain credibility’ first appeared on The Malta Business Weekly.

This could end up being a major negative milestone for the country if we do not pass this test, as we could end up being placed on the so-called “grey list”, which is not where we would want to be. Being placed on the grey list would be a death knell for Malta’s financial services industry especially.

In September 2019, Moneyval, the European branch of the Financial Action Task Force, ruled that Malta remains highly exposed to illicit finance but lacks the resources and infrastructure required to prosecute and seize assets from money launderers and the criminals they serve. Moneyval issued 58 recommendations for Malta and gave a year for the situation tohas worked and toiled to fix the issues and Prime Minister Robert Abela has expressed his belief, in the past, that Malta will pass this test.

We all hope that he is right. We all hope that Malta will not fail, due to the damage that will follow, both reputationally and otherwise.

Hopefully Abela’s government changes, made over the past year, will be enough to satisfy Moneyval, namely changes within the Police Force, the FIAU and the MFSA (although these might have been overshadowed by the Cuschieri scandal). At the same time, however, one must point out that Malta should not have reached this point to begin with. Some may argue that this is partly due to the PN administrations not changing things prior to 2013; well that was eight years ago and it’s time for that sort of reasoning to be thrown to the curb. But the Moneyval issue is just the latest in a long line of other things, which have affected the country’s reputation.

Malta’s reputation has taken a beating over the past years. PL apologists argue that this is due to the PN making points at EU level. The EU Parliament is also our Parliament and such an argument does not hold water. It was decisions taken by Joseph Muscat’s government or in certain instances, lack of decisions that led Malta down the road to the tattered reputation of the country. It was the sense of impunity and weak institutions that led the country down that path.

Abela’s government is trying to fix things and he is right to do so. He has slowly moved aside many who were part of Joseph Muscat’s Cabinet, seemingly in order to present a new Party. Although government has worked to try and improve the institutions; there is still a lot that needs to be done.

The PM should, for instance, speak to all his ministers, and take action, over the allegation made by Vince Muscat, that there is a sitting minister who was involved in an unspecified “big job”.

One hopes that Malta will never again find itself in the position it is now and that Malta’s name will eventually recover. But in order for this to happen, government must not make any mistakes. Abela has started to work on cleaning Malta’s name through the legislative changes made… but one misstep is all it takes for that to be thrown away.

The post Editorial: Malta’s reputation – More action needed first appeared on The Malta Business Weekly.

In September 2019, Moneyval, the European branch of the Financial Action Task Force, or FATF, ruled that Malta remains highly exposed to illicit finance but lacks the resources and infrastructure required to prosecute and seize assets from money launderers and the criminals they serve. Malta had until October to implement Moneyval’s 58 recommendations for bolstering its campaign against financial crime to avoid inclusion on the group’s “grey list” of high-risk jurisdictions. Being placed on the grey list would be a death knell for Malta’s financial services industry especially.

Government submitted its final progress report to the Moneyval experts on 5 October. It is understood that the process for Moneyval to assess the report and come up with a final decision was delayed as a result of the Covid-19 pandemic, with experts having to postpone their visit to Malta.

Former Finance Minister Edward Scicluna had told this newsroom that the outcome of Malta’s evaluation was expected in the first half of 2021, but government sources have now said that the report is expected to come “this week or the one after”.

Back in 2019, when Malta failed the review of its anti-money laundering regime, Moneyval had said that the authorities appeared unable to quickly pursue high-level and complex money laundering cases related to financial, bribery and corruption offences, highlighting the need for changes and improvements. Among other things, Moneyval had said that limited resources, both human and financial, weigh negatively on Malta’s capability to effectively pursue this offence. “Investigations and prosecutions do not appear to be in line with the country’s risk profile.”

In October 2020, Malta had sent its final progress report to Moneyval experts in a bid to avoid being placed on the grey list. The report included legislative changes implemented by the country after it had failed the original assessment. Moneyval is currently assessing the country’s efforts.

In January of this year, Prime Minister Robert Abela expressed his belief that Malta is on the road to satisfy all the Moneyval requirements.

“We implemented the changes put forward by Moneyval and I remind everyone that for years Moneyval has been proposing changes and reforms that needed to take place in our country. And we were the government that implemented what was requested,” he had said.

Since the original Moneyval report, many legislative changes, as well as changes of people at the head of Malta’s investigative bodies have been made. One example of this is the new Police Commissioner, Angelo Gafa.

There were individuals who, because they were prosecuted or investigated, claimed that this was being done to appease Moneyval. Former OPM chief of staff Keith Schembri was just last week charged in court over money laundering offences and in a Facebook post expressed his belief that the magisterial inquiry conclusions that led to his arrest were done to accommodate Moneyval to the detriment of exemplary people in business and professionals.

The post Moneyval evaluation expected over the coming days first appeared on The Malta Business Weekly.