Failure to take immediate action on suspicions of money laundering in the past few years has tainted Malta’s reputation as a respectable financial services centre. This bad reputation now hangs like an albatross round the country’s neck as successive reports by international regulatory organisations chastise the country for not taking its anti-money laundering responsibilities seriously.
The latest blow to Malta’s reputation will be the publication of the Moneyval report on our anti-money laundering regime. Times of Malta reported that Malta had failed a review and has just over a year to address a series of shortcomings.
To those financial services practitioners who keep their ears to the ground, this failure has not come as a surprise.
The Panama Papers scandal was the first blow to Malta’s reputation. A government minister and the Prime Minister’s chief of staff were exposed as having secret bank accounts in Panama.
The Pilatus Bank saga was another major blow and the operations of Satabank yet another. Investigations by Italian law enforcement authorities have also revealed that some of the e-gaming companies in Malta were involved in laundering the money of organised criminal organisations in Italy.
The government’s strategy to address this reputational risk has so far been unconvincing. Having tight legislation is not enough if enforcement is, willingly or unwillingly, lax. Few believe that the problem is just one of failure to dedicate enough resources to the financial regulators. It is more convincingly attributable to the lack of political will to challenge anything that disrupts the flow of investment irrespective of the reputational risks that some economic activities entail.
The government rhetoric and action on the money laundering issue is possibly causing more harm to the country’s reputation. The refusal of the Prime Minister to sack his chief of staff and one of his ministers involved in the Panama scandal is sufficient proof that the culture of impunity protects those who can rely on political patronage even when they allegedly break the law.
Arguing that Malta is being targeted by international institutions because it is a small country that is so successful economically is another fallacy meant to impress the local audience. Those who take an interest in how international regulators act know that big business giants like Deutsche Bank, HSBC and Danske bank among others had to pay hefty penalties for not taking their anti-money laundering functions seriously.
Policymakers will be foolish if they continue to indulge in the illusion of exceptionalism: believing that Malta’s economic success is exceptional because we are more creative in our growth strategies. The government’s misconception of what constitutes sustainable growth needs to be put at rest if Malta’s reputation is to be restored.
The Institute of Financial Services Practitioners urges the government to take remedial action to reverse the reputational damage. They should do more than that and identify those economic activities that may involve suspicious business transactions. Some practitioners are exposed to conflicts of interest as they may be serving some of these dubious economic activities.
The country’s reputation can only be restored if all stakeholders acknowledge the seriousness of Malta’s deteriorating reputation and work together to prune those activities that have led to this deterioration. This plan may involve financial loss in the short term.
Malta must get serious about money laundering by eliminating sacred cows that for too long enjoyed impunity from an administration that turned a blind eye to abuse of power.