A constitutional court has overturned a ruling that effectively crippled the Financial Intelligence Analysis Unit’s ability to issue fines.
In a landmark ruling, the court ruled that while the FIAU was not an independent tribunal or impartial court, the right to a fair hearing was safeguarded provided those fined had “access to full review” before a court of law.
Lawyers representing the firm that had contested the FIAU fine’s legality told Times of Malta they intend to contest the “retrograde” decision at the European Court of Human Rights.
It all started in April 2021 when the Malta Financial Services Authority issued a compliance review report in respect of XNT Limited which, in turn, presented its submissions on those findings.
In September 2021, the FIAU’s Compliance Monitoring Committee issued a €244,679 administrative fine against the company which was not invited to attend the meeting where that fine was discussed.
XNT was subsequently informed about the fine which was triggered by various alleged shortcomings on its part in terms of money laundering laws.
The company took two-fold legal action.
It filed an appeal against the FIAU fine before the Court of Appeal and also filed separate constitutional proceedings, claiming that the administrative fine breached its fundamental right to a fair hearing.
Its appeal against the fine is currently still pending, awaiting the outcome of the constitutional proceedings which reached final judgment stage on Monday.
In July 2023, the First Hall, Civil Court in its constitutional jurisdiction had rejected all pleas raised by the FIAU and the State Advocate as respondents sued by XNT and upheld the applicant’s claims.
That court declared that the FIAU fine breached the applicant’s fundamental right to a fair hearing since the financial watchdog was not an impartial or independent court.
While revoking that fine, the court had ruled that the case was to continue only after the State enacted legislation to set up an autonomous and independent entity to hear and decide the case in line with all safeguards to a fair hearing.
Both the FIAU and the State Advocate filed appeals to that decision.
On Monday the Constitutional Court, presided over by Chief Justice Mark Chetcuti and Judges Giannino Caruana Demajo and Anthony Ellul, made extensive reference to ECHR caselaw and the so-called ‘Engel criteria’ developed to determine the nature of such fines.
The fine imposed by the FIAU did not stem from a criminal charge but was a form of punishment meant to serve as a deterrent so that subject persons would adhere to money laundering regulations.
In XNT’s case, the fine related to three categories of breaches: insufficient information about the source of wealth, lack of security of transactions and risks undertaken by the company without the necessary level of due diligence and the fact that the money laundering reporting officer lacked sufficient seniority and command.
When assessing the severity of the fine, the court said that the matter had to be taken in context on a case-by-case basis.
In this case, the €244,679 fine was equivalent to less than 3% of the company’s net profit for 2021.
The court deemed the fine as “not particularly harsh” but nonetheless “substantial.”
Thus the basic safeguards to fundamental rights that applied to a person facing criminal charges, also applied in this case.
“The FIAU is not an independent tribunal nor an impartial court,” said the judges.
Thus the fine “was imposed by an administrative authority which, no matter what the appellants said, was certainly not objectively impartial.”
But the matter did not stop there.
XNT had appealed the fine and to date, the matter was still pending before the Court of Appeal in its inferior jurisdiction awaiting this final decision by the Constitutional Court.
After citing ECHR jurisprudence the court concluded that it would follow the same line of reasoning: there was no breach of the right to a fair hearing as long as the subject person had “access to full review before a tribunal [or] in our case, a court set up by law.”
Under Maltese law that appeal procedure was regulated in terms of the Code of Organization and Civil Procedure which allows fresh evidence to be produced at appeal stage only to a limited extent and at the court’s discretion.
The Constitutional Court acknowledged this but observed that there was nothing stopping the Court of Appeal from authorizing witnesses to be heard, particularly a representative of the company challenging the fine.
Such testimonies and fresh documentary evidence may be allowed if deemed “necessary and useful,” went on the judges.
“In truth, that right lies at the court [of appeal]’s discretion. But it is wrong to make declarations before the process before [that court] takes place.
And every court has the duty to ensure that ordinary law is applied and interpreted in such manner as to conform with fundamental human rights.
Moreover, the burden of proof at appeal stage lies with the FIAU so as to make sure that the subject person’s presumption of innocence is “intact.”
And although the law says that the appeal must be decided within six months, that could be extended upon agreement between the parties or for an exceptional reason. So that relatively short term did not mean that the parties would not get a fair hearing.
When all was considered, the court concluded that article 13(2) of the Prevention of Money Laundering Act and regulation 21 under Subsidiary Legislation 373.01 did not breach the right to a fair hearing.
It turned down XNT’s claims and ordered a copy of the judgment to be inserted in the records of the proceedings pending before the Court of Appeal.
Meanwhile, the company’s lawyers have expressed their intention of pursuing the matter further before the ECHR.
Lawyers Jose’ Herrera and David Camilleri are assisting XNT Ltd.