Updated 7.53 pm - Adds PN reaction below
Maltese institutions responsible for implementing and and enforcing money laundering and tax fraud laws are "highly politicised" and the police force's inadequate resourcing could suggest maladministration, the European Parliament's Pana Committee has concluded.
In its report, the MEP committee noted that the Maltese press was also highly politicised. It also questioned the veracity of Nexia BT's answers to written questions by the committee and said that local authorities' failure to investigate Panama Papers revelations meant law-breaking intermediaries were never identified or punished.
Despite various shortcomings, the report writers note that Malta's transparency, tax fraud and money-laundering provisions respected OECD standards and that the country's tax system is "in line with current international and EU standards as regards harmful tax competition."
That finding was welcomed by the government, which in a statement said it was glad the report refuted claims that Malta is a tax haven.
The poorly-equipped police force possibly indicated maladministration, the report writers argued, especially given that the number of convictions and confiscations was "extremely low" when compared to the number of reports police were handed by the Financial Intelligence Analysis Unit between 2013 and 2015.
Pilatus Bank is cited directly, along with Germany's Berenberg Bank, as an example of a European bank which did not adequately carry out mandatory enhanced customer due diligence measures.
The Pana Committee found replies sent it to it by Nexia BT last February hard to believe.
Company director Brian Tonna, the report writers said, claimed to have no relations with the Prime Minister's chief of staff Keith Schembri "despite him having signed a reference letter for Mossack Fonseca explaining that he has had a business and personal relationship with Mr Schembri for many years."
Problems across EU jurisdictions
While Malta comes in for significant criticism over its handling of Panama Papers fallout, it can take solace in the fact that the 121-page report finds multiple failures in many other EU member states.
Member states, the report writers note, "in general do not seem to exert genuine efforts to crack down on tax avoidance and tax evasion," and often turned down requests to discuss the issue using the "flimsiest excuses".
Seven other member states had more offshore entities revealed in the Panama Papers leak than Malta, with most of the named entities set up in Luxembourg, UK and Cyprus.
"In Luxembourg, for example," the report notes, "many offshore companies were set up purely to circumvent the withholding tax."
The report's preamble says the Panama Papers "is only the tip of the iceberg" and cites a Europol finding which says that just 0.6 per cent of the annual amount of money laundered across the globe was uncovered by the leak.
Several EU jurisdictions have been less than totally willing to cooperate on tax matters, the report notes, with 39 separate infringement cases opened over such rules, with Malta among them.
In terms of implementing anti-money laundering rules, the situation is no better: no fewer than 22 member states received infringement letters, with six member states hauled to the European Court of Justice and five sanctioned for failing to implement directives on time.
Malta was however singled out as being "particularly uncooperative" in its reticence to reply to a committee questionnaire sent out to 25 member states.
Report writers raise an eyebrow at the fact that several countries have introduced cash-for-passport schemes without properly verifying the source of funds, although no countries are identified by name.
Among the report's other findings:
- Although the USA has less ambitious anti-money laundering legislation, it does a better job of enforcing and implementing the laws that did exist
- Europe's 20 biggest banks invest €1 out of every €4 they make in profits in low-tax jurisdictions - a "disproportionate" amount, report writers found
- More than two out of every three suspicious transaction reports within the EU come from the UK and the Netherlands
- EU and Portuguese authorities slept at the wheel between 2011 and 2014 when more than €10 billion was transferred from Portugal to offshore accounts, mostly Panama. At least €8 billion of that was transferred by companies linked to Group Espírito Santo when the group was already being investigated by regulators
- The European Commission has failed to properly supervise the implementation of the EU's anti-money laundering directive, due to a lack of resources
- Law-breaking intermediaries are finding ever-more creative ways to get around money-laundering rules, with much attention currently focused on cleaning dirty money by investing in luxury real estate and the sale of securities and life insurance policies.
PN Reaction - A confirmation of what the Opposition had been saying
Addressing a press conference in the evening, Opposition leader Adrian Delia said that the report confirmed that Malta’s institutions had been weakened, something the Nationalist Party had long been stating.
The Pana Committee report also confirmed that Pilatus Bank did take adequate due diligence measures, he said.
The report, he went on, also highlighted the fact that Keith Schembri refused to appear before the committee which meant the government was not only disrespecting local institutions but also those on a European level.
He reiterated calls for measures to strengthen the institutions, again insisting on the resignation of both the Police Commissioner and the Attorney General.