A landmark ruling by the Constitutional Court is being challenged before the European courts by a local brokerage firm claiming that administrative fines imposed by the Financial Intelligence Analysis Unit violated its right to a fair hearing.
Following the judgment handed down last month, lawyers representing XNT Limited had told Times of Malta that they intended to contest the “retrograde” decision before the European Court of Human Rights.
Those proceedings have now been filed against the Maltese State.
In its application to the ECHR, XNT’s lawyers say the firm is a licensed execution broker with a ten-person team to handle vetting of potential clients, carrying out all necessary onboarding and compliance processes.
In December 2020 the firm was notified of an inspection that was to be carried out by the FIAU during the following month between January 13 and 26.
Although that was a difficult period since many employees were working remotely, the firm did its utmost to cooperate in full through a series of video calls with the FIAU as well as by supplying all requested client files.
The documentation was so voluminous that some could not be transferred by email but had to be delivered by courier.
Following a meeting in January 2021, the firm received a letter informing it that the FIAU’s Compliance Monitoring Committee had imposed a €244,679 administrative fine.
Notice of that fine was published on the unit’s website, creating “irreparable damage” to the firm’s reputation.
XNT Ltd took twofold legal action.
It appealed the fine before the courts of ordinary jurisdiction.
It also filed constitutional proceedings claiming that the procedure set out by the Prevention of Money Laundering Act, particularly subsidiary legislation whereby the FIAU imposed such hefty penalties, violated the investigated person’s fundamental right to a fair hearing.
Those laws empowered the FIAU to issue fines up to €5 million or, in case of repeated offences, up to 10% of the total annual turnover of the investigated person.
Such penalties were doubtlessly tantamount to criminal punishment and thus could only be issued through a judicial process guaranteeing the right to a fair hearing.
In July 2023, the First Hall, Civil Court in its constitutional jurisdiction upheld the applicant’s claims, declaring that the FIAU was not an independent and impartial court.
It revoked the fine and ruled that the case against XNT Ltd was to continue only after the State enacted legislation to set up an autonomous and independent entity to hear its case in line with all safeguards to a fair hearing.
The FIAU and the State Advocate, as respondents, both appealed that decision.
In November, the judgment was overturned by the Constitutional Court.
While confirming that the FIAU was “not an independent tribunal nor an impartial court,” the judges concluded that a fair hearing was safeguarded as long as the investigated person had “access to full review” before a court.
That conclusion is now being contested before the ECHR where XNT is claiming that certain statements by the Constitutional Court were “legally very incorrect.”
The FIAU acted as investigator, prosecutor and judge.
Its officials, who were State-appointed civil servants having no security of tenure, carried out investigations according to “arbitrary policies” created by the unit itself.
They discussed their findings internally and not in the presence of the investigated person who had no full participation in the process.
Moreover, those same persons who investigate, then sit on the board which discusses the findings and takes a decision on the penalty to be imposed.
That decision is final.
The subject of their investigation may only contest the decision on points of law or fact before the Court of Appeal in its inferior jurisdiction.
Although such a penalty is doubtlessly a criminal punishment, the safeguards to a fair hearing which should apply “more rigorously” are not observed.
The Constitutional Court ruled that such fines were not unconstitutional since the subject person could appeal, produce new evidence, testify and cross-examine FIAU officials.
“This is totally wrong,” XNT’s lawyers argue.
Under the Maltese Code of Organization and Civil Procedure, new evidence is only allowed at appeal stage at the court’s discretion and witnesses are only heard in exceptional circumstances.
Moreover, such an appeal against an FIAU fine must be decided within six months.
That time limit may only be extended upon agreement between the appellant and the FIAU or for some exceptional reason upheld by the court.
No fair trial can be guaranteed by a six-month time limit, especially if witnesses were to be heard, argued the lawyers, thus claiming that the current legislative framework violated the right to a fair hearing in terms of Article 6 of the European Convention.
Lawyers Jose Herrera and David Camilleri are representing XNT Ltd.