In the past decade, Malta’s reputation has been badly battered due to its disregard for anti-money laundering regulations.
Following the country’s greylisting by the global anti-money laundering watchdog, the Financial Action Task Force (FATF), the FIAU re-engineered its regulatory processes to convince the task force and the European Banking Authority that its oversight function was being strengthened.
In 2019, the FATF commented: “The FIAU’s appetite to apply higher penalties has recently increased. However, the vast majority of sanctions [penalties] imposed in 2018 by the FIAU are not yet in force, as they are subject to judicial appeal.”
In 2022, on the same day that the Court of Appeal reduced a local bank’s FIAU penalty to a fraction of the original amount, EU lawmakers praised FIAU’s reinvigorated enforcement campaign for having already “yielded tangible results”.
Of course, the results of FIAU’s enthusiasm to put its house in order were not so tangible. Between 2018 and 2022, the combined value of AML fines, either appealed or then under appeal, amounted to €16 million of the €20.8 million in total penalties FIAU sought to collect. No fewer than 40 per cent of the 82 AML-related fines imposed against Maltese firms between 2018 and 2022 have been appealed.
The most recent evidence of the FIAU’s bungled anti-money laundering procedures is the decision by the court that confirmed that the procedures and administrative penalties imposed are unconstitutional.
In a detailed judgment, the presiding judge exposed the flaws in the regulatory processes of the FIAU that often acts as prosecutor, judge, jury and executioner of entities found guilty of not following strict anti-money laundering regulations.
The judge made some strong criticism of the FIAU practices. She argued: “all this is akin to a dictatorial procedure rather than a procedure where the right to a proper hearing of all parties is meant to prevail.”
In the last few years, our courts have either drastically reduced the fines imposed by FIAU or ordered their annulment. It is becoming increasingly common for appellants to question FIAU’s authority to enforce. They argue that the agency disregards their explanations and concerns before penalising them.
The failure of the FIAU to embed more robust governance and legal soundness in its regulatory processes is encouraging a culture of not being held accountable by those responsible for preventing money laundering.
In 2022, former FIAU director Kenneth Farrugia told an online trusted anti-money laundering platform that the reduction in penalties by the Maltese courts “are, from an enforcement point of view, moving back to 2015. If we continue like this, in the long run, the effectiveness of our framework may be impacted and called into question once again”.
Farrugia argued: “the courts are integral to Malta’s AML framework. But we cannot go against one another, with one applying an overhauled, internationally reviewed and accepted enforcement methodology and the other sticking to an old and ineffective one.”
Still, 12 of 29 fines imposed in Malta in 2021 were the subject of an ongoing appeal, compared to only three of the 21 AML-related penalties assessed in Spain and one of the 13 AML-related actions finalised in Italy. In Cyprus, where the risk of illicit finance rivals that of Malta, only one of the five AML fines regulators assessed in 2021 ended up in court.
Rather than try to occupy the moral high ground, FIAU must follow the example of other jurisdictions to improve the anti-money laundering framework.