Malta said to face prospect of FATF Gray List

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Malta is increasingly likely to become the first EU country to end up on an intergovernmental group’s list of nations that pose a high risk of financial crime by the end of the year, a US official based on Malta said last week.

This was reported by Koos Couvée on website Moneylaundering.com

In September, Moneyval, the European branch of the Financial Action Task Force, or FATF, concluded after an evaluation that Malta, a global banking centre with less than half a million people, 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.

FATF after the assessment gave Malta until next month to implement Moneyval’s 58 recommendations for bolstering its campaign against financial crime to avoid inclusion on the group’s “gray list” of high-risk jurisdictions.

The deadline has since been extended to October as a result of the COVID-19 pandemic but the country probably still has too many hurdles to clear to avoid the list, Richard Daynes, a legal advisor with the US Embassy in Malta, told attendees of a webinar hosted by ACAMS’ Malta chapter on Thursday.

“Unless something happens very quickly, the likelihood is [gray-listing] is going to happen, and it could really be disastrous for Malta’s financial market,” Daynes said. “Even with those additional months, there’s a lot—a lot—that needs to be accomplished here.”

Moneyval warned in September that Maltese prosecutors almost never tackle money laundering as a standalone crime and have yet to secure a single conviction against a shell company or other legal entity involved in illicit finance.

Structural issues within Malta’s justice system often delay investigations and prosecutions for years, the group found, while Maltese regulators tend not to use dissuasive sanctions for AML violations and have mostly failed to adequately supervise the island’s large and high-risk financial sector, which features offshore banking services, online casinos and cryptocurrency firms.

“The threshold to avoid gray-listing is really quite high but it’s clear and it’s considered … on a purely technical basis, so there’s nothing that we can do to sway the opinion of those in the 39 members [countries] of FATF who will make that decision,” Daynes said.

New agency still a paper tiger

In June 2019, three months before Moneyval published a report on its evaluation, Maltese Finance Minister Edward Scicluna announced that his government planned to create a Financial Organized Crime Agency to more effectively pursue high-end money laundering cases, but did not detail how the institution would operate in practice.

One year on and little progress appears to have been made, according to a written response to questions from ACAMS moneylaundering.com from Malta’s National Coordination Committee, or NCC, which was established two years ago to oversee the island’s AML reforms, map emerging risks and enhance data exchanges between authorities.

“Discussions with the relevant authorities are still being held as to how [the agency] will be governed, staffed and what its actual goals will be,” an NCC spokesperson wrote in an email to moneylaundering.com.

Other reforms announced by the finance minister, such as allocating more funds towards investigating money laundering, recovering criminal assets and transferring authority for deciding whether or not to pursue prosecutions for serious crimes from the Malta Police Force to the Attorney General, are now underway, the spokesperson wrote.

Last month, officials assigned 18 more officers to the Malta Police Force’s financial crimes investigations department, bringing the unit’s headcount to just under 80 officers.

After seizing just €2,760 and one vehicle for all of 2018, Malta’s Asset Recovery Bureau last year restrained more than €1.2 million of suspicious funds held in 134 bank accounts, 11 properties and 105 vehicles and vessels, and permanently seized almost €40,000 and a vessel worth nearly €5,000.

“In November 2019, the first criminal case for tax evasion was prosecuted criminally in the Magistrate’s Court, setting a precedent for future cases,” the NCC spokesperson wrote.

Malta has also tightened licensing requirements for financial institutions, began updating its national money-laundering risk assessment, ensured officials from multiple agencies have received training on terrorist financing, and dramatically increased the number of onsite inspections of financial institutions.

But fostering a culture of compliance in public and private institutions remains among Malta’s most difficult challenges, NCC Chairman Alfred Camilleri told attendees of the webinar.

“Putting in place legislation, guidance documents and implementation documents is relatively easy when compared to changing mentalities to instilling a sense of purpose on the part of all stakeholders, to making people believe this is actually the right thing to do,” he said. “It’s almost missionary work here.”

Malta’s Financial Intelligence Analysis Unit, or FIAU, which doubles as the island’s main AML supervisor, has adopted a new supervisory strategy, started adopting a new system for receiving suspicious transaction reports, and examined the risks associated with the country’s citizenship-by-investment schemes and cryptocurrency sector.

FIAU chief Kenneth Farrugia told moneylaundering.com last year that his agency would expand from 51 staff to 130 staff by 2021.

FATF introduced the gray list to highlight strategic AML deficiencies and spur nations into committing to meaningful reforms to address their weaknesses.

But the economic ramifications of a listing risk pushing Malta towards becoming more reliant on funds of suspicious origin, said Federica Taccogna, a partner at FTI Consulting in London.

“That’s the problem for Malta, if gray-listing happens, is that it may create a sense of a broken relationship with international stakeholders,” Taccogna said. “Let’s hope it doesn’t come to that.”