Updated at 12.30pm with government reaction below
Malta’s anti-money laundering regime has failed a review by international experts and the island now has a year to get its house in order or face potential blacklisting procedures.
Monitoring body Moneyval gave Malta just over a year to address a series of shortcomings in its anti-money laundering efforts following a year-long assessment.
The Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism has been reviewing Malta’s financial laws and their enforcement since the start of 2018.
The final position on Malta was approved by the Council of Europe during a closed plenary session last week, with the jurisdiction getting what sources described as a “poor overall rating”.
Moneyval assesses countries’ effectiveness in combatting money laundering across 11 key areas, referred to as ‘immediate outcomes’.
To pass the evaluation, countries have to adopt compliant laws and regulations and prove these are being adequately enforced.
The experts can give a grade of effectiveness – high, substantial, moderate or low – for each of the 11 sections. To pass the test, a country has to get at least a ‘substantial’ in three of the 11 sections.
Sources confirmed that last week Malta only managed to secure this score in two of the sections – the implementation of international sanctions, and international cooperation.
Areas where the country was given a low grade included risk management, money laundering investigation and prosecution, and prevention of financial crime.
Country only managed to secure ‘substantial’ score in two of the 11 sections
Sources in Malta’s government agencies, who were present for every stage of the evaluation, said that having ‘failed’ the Moneyval review, Malta would now be referred to another international body, the Financial Action Task Force (FATF) which would be placing the island on a list of countries to be monitored.
READ: Moneyval findings disputed by minister who said leak puts process in 'jeopardy'
“There have been other EU member states that have gone through this process. It will take around a year and if we make significant progress and complete a number of agreed reforms, then this process will be over. There is a lot of work to be done in the coming months,” one source said.
Another source said this process could eventually see Malta considered a “high risk jurisdiction”, which could impact its financial services economy.
The source said experts had identified shortcomings when it came to legal persons and other practitioners in the financial services industry being prevented from facilitating money laundering activities.
The Moneyval assessment covered the period between 2013 and 2018. Reforms drafted or even implemented after this period were not considered in the final grade.
“Work has already begun to address the situation – and while this did not factor in the review, it is key for how the island will be seen when it comes to the follow-up assessment. Ultimately, if the country gets its act together as a result of this process, then this can be seen as positive in the long run,” the source said.
The government has already spent a significant budget on consultancies to start turning things around, with an informed insider saying the bill would reach “millions of euros”.
PN asks what the government is going to do
In a reaction, the Nationalist Party said the consequences of the Moneyval report were extremely serious for Malta's financial services sector and therefore on Malta's economy.
"One of the main reasons behind this worrying development is the meltdown of the state institutions which are meant to fight money laundering. Since 2013, these institutions have repeatedly failed to carry out their duty without fear or favour, giving in to political pressure as was evidenced by the licensing of Pilatus Bank; the failure of MFSA to take action on Pilatus Bank despite reports of breaches of banking regulations; the failure of government as a whole to take action against Minister Konrad Mizzi and Keith Schembri despite FIAU reports which concluding that there these individuals were involved in suspected cases of corruption and money laundering; and, the sacking of the FIAU officer who was investigating Pilatus Bank and high government officials involved in suspected cases of money laundering," the PN said.
It noted that the government some months ago commissioned international experts to advice on how Malta could avoid being blacklisted. These experts gave their recommendations to the government.
"In the interest of transparency, the Opposition is calling on the government to make public the full report approved by the Council of Europe, the experts' report on what steps need to be taken over the next 12 months and a road map showing how and when these recommendations are going to be implemented.
"The government should also clarify whether the experts' advice included a strong recommendation for steps to be taken against the government officials involved in suspected money laundering. Government should also clarify what steps it is going to take in this regard," the party said.
It said the latest development was yet another confirmation of the dismal record of Finance Minister Edward Scicluna. He had failed to protect Malta's financial services sector preferring instead to protect the interest of his cabinet colleagues and friends. "His failure is going to be borne by all those whose livelihood depends directly or indirectly from Malta's financial services sector."
Shadow ministers Mario de Marco and Kristy Debono, responsible for finance and the economy respectively, signed the statement.