No one can deny that the Moneyval assessment is the talk of the town. And with good reason. Its outcome will impact Malta’s attractiveness as a jurisdiction.
Over the past couple of years, people subject to anti-money laundering and counter-terrorist financing (AML/CFT) regulation have had to deal with an overhaul in the way they approach their AML/CFT obligations, due to more detailed and onerous regulatory requirements. This was accompanied by enforcement action taken by the local AML-CFT watchdog, the Financial Intelligence Analysis Unit (FIAU).
Whether the measures undertaken will be enough for Malta to escape the threat of potential grey-listing remains to be seen. Whatever the result, Malta must look ahead; all stakeholders, including the government, national authorities and market operators must put financial crime compliance at the top of their agenda and continue enhancing internal controls to strengthen the fight against money laundering and terrorism funding.
Moneyval plays a crucial role in ensuring that Malta’s AML-CFT standards are adequate and fit for purpose. Moneyval is the Council of Europe’s monitoring body entrusted with assessing compliance with AML-CFT international standards and assessing the effectiveness of the implementation of these standards. Depending on the outcome of this peer review, Moneyval makes recommendations to national authorities, identifying the areas of improvement within legislative and enforcement frameworks.
Through these periodic peer reviews, Moneyval assesses a jurisdiction’s compliance with FATF recommendations, international conventions, as well as EU legislation. If the final outcome of the assessment determines that a jurisdiction has failed to adhere to such standards, that jurisdiction may be placed on the FATF list of ‘Jurisdictions under Increased Monitoring’, also known as grey-listing. Thus, grey-listing would mean that Malta would need to address strategic deficiencies identified by Moneyval and work with the FATF to remedy them.
It goes without saying that being grey-listed will have (negative) consequences. Although it is difficult to gauge the extent of the repercussions arising from grey-listing, there is no doubt that Malta, like any other country, would be impacted on several fronts, not least reputationally and hence, also economically.
A stark reminder of the dangers of grey-listing can be seen in the potential disruption of international banking activities caused by the loss of correspondent banks for the local banking industry. Tensions are running high in the market as the threat of this happening looms closer. A disruption in Malta’s correspondent banking relations would have unprecedented effects on overseas commercial transactions.
In July 2019, Moneyval issued its report on Malta in which it identified a number of shortcomings. The major weaknesses identified were the lack of proper investigations into money-laundering offences, limited human and financial resources to effectively fight money laundering and funding of terrorism, ineffective asset-tracing mechanisms and a lack of awareness by certain non-bank financial institutions and designated non-financial businesses and professions on how money laundering might occur in their institution or sector. A number of recommendations were made and Malta was expected to implement these by the beginning of October 2020, with the aim of strengthening the country’s AML-CFT legislative and enforcement framework.
These recommendations were taken on board by the Maltese authorities which have in the interim worked on a number of fronts to implement Moneyval’s recommendations.
Only by pulling the same rope will the front fighting against money laundering and funding of terrorism stand a chance
In primis, a number of legislative amendments have been implemented. These were mainly aimed at transposing the fifth anti-money laundering directive (5AMLD) into Maltese law ahead of the transposition deadline. Other amendments were introduced with the scope of addressing technical compliance shortcomings identified. While the latter amendments were not voluminous, they are far-reaching. For instance, they have introduced the possibility of administrative penalties being imposed on individuals who have a senior managerial role in an institution. Further legislative amendments are in the pipeline, including new regulations on cash-based transactions in certain economic sectors.
From an enforcement perspective, the FIAU has increased the number of inspections undertaken. This was only made possible by the increased financial resources allocated to the FIAU. The police also beefed up internal human and technological resources in order to better investigate money-laundering offences.
The FIAU has also sought to increase awareness among operators by organising a number of outreach sessions aimed at providing guidance on legal and regulatory obligations, and on a practical level, educating operators on current ML/FT typologies. This effort was accompanied by the publication of several guidance documents providing further clarity on the interpretation of specific certain legislative requirements.
Additionally, greater collaboration and coordination is expected to occur among the various authorities, including the Commissioner of Inland Revenue, the Asset Recovery Bureau, as well as the FIAU, the Malta Financial Services Authority and the Sanctions Monitoring Board.
While commendable, more action is required if Malta is to be at the forefront in adhering to AML-CFT (and anti-financial crime) standards. The financial services industry is as strong as its weakest link. Greater efforts must be made to safeguard this industry which is very sensitive to reputational risk.
Change must start from within, through a change in mindset. With increased regulatory scrutiny, people subject to AML-CFT obligations should view AML-CFT frameworks as pillars of a robust organisation.
Investment in training must become standard in all organisations that can potentially be targeted by money launders or terrorist financiers. Therefore, operators must keep themselves abreast with legislative changes and different typologies used by criminals to launder money or by terrorist groups to fund terrorism, and have the expertise required to update systems and operations effectively within short time frames. Training must become the prime investment to ensure long-lasting reputability.
Cooperation between market players will become an increasingly important tool to fight money laundering and funding of terrorism attempts. Different operators may be faced with the same concerns or challenges. Industry players should seek to come together, through structured associations or working groups, and discuss their challenges and concerns in a more organised and open manner. The sharing of ideas, knowledge, concerns and challenges should be seen as another step towards a more mature and robust financial services industry.
We must also acknowledge that notwithstanding the increased efforts of the FIAU to reach out to industry operators, more needs to be done. Greater and more effective cooperation between the regulator and market players is required; the gap between the expectations of the FIAU and the practical and mundane issues that operators face on a day-to-day basis in seeking to comply with such obligations, is palpable.
Cooperation and collaboration is key to secure meaningful and workable solutions to practical challenges. To achieve this, industry players need to have a forum where to voice their concerns to the FIAU and they should work together to come up with pragmatic solutions. An open approach would benefit the industry as a whole and should be welcomed by the authorities.
The outcome of the Moneyval assessment and Malta’s inclusion on the list of ‘Jurisdictions under Increased Monitoring’, or otherwise, will remain a matter of debate for the coming months, until a final determination is made by the FATF. Now that Malta has already submitted its report to Moneyval on the legislative improvements made, the FIAU and industry players must collaborate to improve existing frameworks.
While lessons are to be learnt from the past, as a jurisdiction, we must focus on the future.
Malta needs to keep abreast with international legislative developments; institutions need to strengthen their systems; authorities need to keep in touch with operators. Operators and institutions must understand that they are both working towards achieving the same goal.
Collaboration is key. Only by pulling the same rope will the front fighting against money laundering and funding of terrorism stand a chance.
Mario Zerafa, senior associate, Ganado Advocates