Trust is the bedrock of any business relationship. When a government promotes and underwrites a national economic strategy that involves high-risk activities, it may initially get away with not being noticed. When reputation-harming incidents erupt, it becomes increasingly difficult to limit the damage to the country’s brand.
That damage has reached significant levels, as pointed out by someone who is at the front line of financial services, Malta Institute of Accountants president Fabio Axisa, in a recent interview with Times of Malta.
Over the last few years, the Labour government has promoted a business model built on economic activities that reputable jurisdictions consider as high risk.
These included the setting up of banks with little effort by the supervisory authorities to ensure that their promoters were indeed fit and proper to conduct the business of banking. Internet gambling was similarly encouraged, even when it was becoming evident that this activity could be used to launder money emanating from criminal activities.
The sale of passports and the administrative secrecy in which it was shrouded raised suspicions in most EU countries and the US that Malta was just interested in cashing in on this scheme.
The money flowed in and improved the public finances, but the hidden cost of this scheme was never quantified.
The residence scheme that replaced the Individual Investment Programme is arguably not very different from the previous programme.
There was a time not so long ago when Malta promoted itself as the ideal location for cryptocurrencies and blockchain new ventures. Both these activities are often associated with money laundering even if there may be legitimate applications of these new technologies.
In business as in politics, perceptions can be as destructive as reality. At a time when the government gave little importance to ensuring that regulators in gaming and financial services were acting independently from national economic strategists, some rogue businesses were set up.
The former prime minister, Joseph Muscat, often openly criticised local banks for being too conservative. The FIAU’s CEO left the anti-money laundering gatekeeper organisation for reasons that are still not entirely clear.
Malta is now suffering the consequences so graphically described in the old English proverb: Give a dog a bad name and hang him. Malta’s brand is severely damaged, and the potential greylisting of Malta by Moneyval would further damage this brand.
Axisa rightly pointed out that not all accountants and lawyers promoting Malta with foreign investors are crooks. But Malta’s economic dependence on financial services, the sale of passports and internet gaming is now so significant that the possible greylisting of Malta could have a profound negative effect on employment and public finances.
So far, Prime Minister Robert Abela is committed to continuity, meaning more of the same as far as economic strategy is concerned. This strategy is not good news for those who believe Malta’s economic model needs urgent reengineering. An economy built on boosting volumes rather than quality output will ultimately falter.
To mitigate the damaged Malta brand, we need to hardwire quality in all our economic activities. Investment in tourism cannot depend on the ever-increasing number of tourists to remain viable. The property development industry should no longer expect to operate in an everlasting boom.
The time is right to acknowledge the excesses of the past when the Malta brand was sold for a quick return. Mitigating the reputational damage sustained by the country should now be the government’s top priority.