On March 30, the First Hall Civil Court (Constitutional Jurisdiction) in the case Phoenix Payments Ltd vs the Financial Intelligence Analysis Unit (FIAU) and the State Advocate declared that fines imposed by the FIAU were unconstitutional. Although the decision may still be appealed from, it is important to understand the reasoning by Judge Audrey Demicoli in reaching such a decision.

Briefly, the case related to an investigation and a subsequent decision by the FIAU about a number of anti-money laundering failings the unit had noticed in the operations of Phoenix Payments Ltd. The FIAU had ordered Phoenix to pay an ‘administrative' fine of €435,576.

Phoenix appealed before the Court of Appeal (Inferior Jurisdiction) on the basis of the Anti-Money Laundering Act (Chapter 373 Laws of Malta) and subsidiary legislation 373.01. Phoenix also argued that the actions of the FIAU breached Malta’s Constitution.

Whilst the appeal was still ongoing (subjudice) lawyers representing Phoenix filed another case, this time before the First Hall Civil Court in its Constitutional Jurisdiction against the State Advocate and the FIAU.

Phoenix argued that a number of provisions of the Anti-Money Laundering Act were in breach of the right to a fair trial. Additionally, Phoenix claimed that the way how the FIAU had conducted the investigation violated the right to a fair hearing as enshrined by Article 39 of the Constitution and Article 6 of the European Convention of Human Rights (which Malta had ratified in 1987).

In reply to this Constitutional case FIAU and the State Advocate argued that Phoenix did not exhaust all ordinary remedies since the Court of Appeal (Inferior Jurisdiction) had not yet decided on the appeal filed by Phoenix challenging the administrative fine imposed by the FIAU.

The court referred to a judgement in the case Insignia Cards Limited vs the FIAU and held that Phoenix was not using the constitutional process to stall or abuse the process. The company had a right to file the Constitutional case before the Court of Appeal decided on whether the administrative fine should stand or not.

Another preliminary argument raised by the FIAU and the State Advocate related to the fact that the complaint by Phoenix did not relate to criminal accusations or proceedings. Therefore, this complaint could not fall in the parameters of the rights protected by fair hearing. The FIAU argued that there was a distinction between the crime of money laundering itself and administrative fines imposed as a result of lack of conformity with a legal obligation, order or a legitimate directive issued by FIAU.

In fact, the FIAU argued,  proceedings of the crime of money laundering were conducted before the criminal courts whereas administrative fines as a result of regulatory non-compliance were imposed by the FIAU. The merits of this case did not relate to the crime of money laundering but to a lack of conformity with a legal obligation. Therefore, administrative fines should be imposed. Furthermore, the FIAU argued that European Union law - Directive 2015/849/EU- had classified these penalties as administrative in nature.

In dissecting the arguments of the FIAU the court referred to the Engels criteria (Engel and Others v. The Netherlands) to determine what should be regarded as a criminal accusation/ charge. There are three criteria: (i) classification of domestic law; (ii) nature of the offence; (iii) nature and the gravity of the penalty.

The court held that in this case, it was true that the alleged failings by Phoenix were not classified as crimes. However, the nature of the offence, on the basis of which FIAU imposed the administrative fine, could not be considered as ‘compensatory’ but a fine whose purpose was to act as a deterrent.

The court also delved into the criteria that “The offence should also extend to the population at large, although it may be limited to such general categories of persons as taxpayers and road users”. The FIAU argued that the rules which Phoenix was in breach of related to regulatory obligations that were exclusive to subject persons and did not relate to the public in general, thus, this criteria was not satisfied.

However, the court was not of the same opinion as it argued that subject persons classify as a general category of persons and not as a given group with a particular status.

In shedding light on this distinction, the court made reference to a Strasbourg judgement in the case ‘Ozturk v. Germany’ and the domestic judgement in the names Rosette Thake noe. et vs. the Electoral Commission et.

Furthermore, the court held that only in the context of the internal disciplinary proceedings of a group that has a special status (such as disciplinary offences by civil servants and the police), did the European Convention of Human Rights not apply.

Thus, in light of the above considerations, the court decided that the administrative fine imposed by FIAU was of a criminal nature (natura penali) and could be scrutinised in terms of the right to a fair hearing (Article 39 of the Constitution of Malta and Article 6 of the ECHR).

Violation of the right to a fair hearing 

Therefore, having established that the fines imposed by the FIAU against Phoenix were of a criminal nature, the court had to decide on the second test, that is, whether the FIAU was regarded as a “court” in terms of the provisions of the right to a fair trial.

Article 39 (1) of the Constitution stipulates that whenever any person is charged with a criminal offence he shall be afforded a fair hearing within a reasonable time by an independent and impartial court established by law.

The court referred to the judgement in the case Federation of Estate Agents v. Director-General (Competition) et, and held that term “court” should be interpreted in its classic sense of the word.

Therefore, the proceedings of a person accused of a criminal offence should be conducted by an independent and impartial court and not by any other organ.

The court also made reference to the judgement Digisec Media Ltd vs. Director General (Consumer Affairs) et. whereby the First Hall Civil Court (Constitutional Jurisdiction) had referred to a list of superior and inferior courts as established by the Code of Organisation and Civil Procedure in Malta.

The court held that it was not contested that the decision in question was taken by FIAU and not a superior or inferior court as established by domestic law. Furthermore, notwithstanding that the Anti-Money Laundering law provided for the possibility to appeal a decision taken by the FIAU before the Court of Appeal (Inferior Jurisdiction), this was not enough to remedy the unconstitutionality of the FIAU decision.

The right to a fair hearing should be respected and followed from the very beginning of the proceedings.

On this basis the court found that Article 13 (2) of Chapter 373 of the Laws of Malta and Regulation 21 of Subsidiary Legislation 373.01 violated the fundamental rights of Phoenix for a right to a fair hearing as protected under Article 39 (1) of the Constitution of Malta and were therefore null and void.

Consequently, the court declared that the compliance investigation by the FIAU against Phoenix and the subsequent decision of the FIAU to impose the so-called administrative fine were also null and void.

The judgement may still be appealed.

Dr Clive Gerada, is a Senior Associate Azzopardi, Borg & Associate Advocates.