A credit card service company that caters to the “ultra-rich” had its rights breached when it was fined over €373,000 by the Financial Intelligence Analysis Unit, a court has concluded.

The court concluded that existing laws lack clarity and ordered that a copy of the decision be sent to parliament, in a decision which adds legal weight to a separate court's ruling earlier this year that FIAU administrative fines are unconstitutional.

Insignia Cards Limited, part of a larger group of companies, instituted proceedings in March 2021 against the FIAU and the State Advocate, claiming that its fundamental rights were breached through the investigation and ensuing decision by the FIAU’s compliance monitoring committee to impose a €373,670 fine.

Insignia argued that not only had the unit acted as investigator, prosecutor and judge, but the legislative framework used for compliance procedures did not provide for an adequate remedy, in the form of an effective appeal. 

While upholding all of the applicant’s claims, the First Hall, Civil Court in its constitutional jurisdiction, presided over by Mr Justice Lawrence Mintoff, held that the FIAU was not to blame since it was simply abiding by the laws enacted by the State. 

Laws to combat money laundering and financing of terrorism stemmed from the state’s commitment to transpose EU and international obligations into domestic law. 

EU Directive 2015/849 laid down the sanctions to be implemented by Member States for regulation breaches, leaving however to the discretion of each State the procedure whereby those sanctions were to be imposed.

The FIAU seemed to expect that since these laws stemmed from EU and international obligations, they conformed to fundamental human rights, observed Mr Justice Mintoff.

However Insignia argued that the relative legislation lacked clarity and the court “could not but agree.”

Such lack of clarity could give rise to arbitrary action by the FIAU and this meant that a procedure respecting fundamental rights was all the more required to curb such arbitrariness, striking a balance between the public interest and fundamental rights of citizens.

When all was considered, the court upheld Insignia’s claims declaring that “since the law breached fundamental rights, everything done under it could not be considered to have been done in a manner respecting fundamental rights.”

That meant that the compliance procedure and ensuing decision by the FIAU were to be annulled.

Insignia was informed about the fine by means of a letter dated November 24, 2020.

It appealed the decision before the ordinary courts whilst filing separate proceedings before the constitutional courts claiming that it fundamental right to a fair hearing had been breached.

The firm argued that such administrative procedures carried charges of a criminal nature and thus were to be decided by an independent and impartial court or tribunal in terms of the Constitution and the European Convention on Human Rights. 

This was clearly not the case.

The FIAU lacked autonomy since its Board of Governors was selected by the Finance Minister who determined their salaries for the three-year term in office. 

Moreover, although the law granted a right to appeal the fine before a court, that remedy did not guarantee a fair hearing and equality of arms. 

While the FIAU took over a year to reach a decision, Insignia had only 20 days to appeal, lacking full access to files concerning its case and information necessary to prepare a valid defence. 

The burden of proof also shifted onto the appellant and that appeal decision was final. 

Mr Justice Mintoff observed that Insignia’s right to a fair hearing was to be assured throughout the entire process conducted by the FIAU. 

Insignia had been asked to produce documentation during a supervisory examination which in reality was more of an investigative exercise into the firm’s operations. 

In a ‘potential breaches letter’ dated April 3, 2020 the firm was informed about the supervision that was to be done with the assistance of foreign experts.

The court observed that such information should have been communicated in an earlier notification letter, enabling the firm to better prepare itself for the investigation ahead, thus ensuring equality of arms.

Once the investigation was done, the matter would be referred to the Board to decide on the outcome and relative administrative sanctions accordingly. 

A first investigation took place in July 2017, followed by a more in-depth examination.

Documents requested during the second examination led to self-incrimination and triggered the hefty fine that was to be paid within 20 days.

Insignia received a “minded letter” explaining that the FIAU was considering imposing a fine over certain breaches of anti-money laundering regulations and implementing procedures flagged during the compliance review/investigation. 

It was given the opportunity to make submissions in that regard, but was never informed about the amount of the projected penalty and was thus not aware of the gravity of the charges it was facing.

It was only after receiving the letter in November 2020 that the firm learnt about the “so-called administrative penalty” amounting to €373,670.

Such administrative fines could reach a maximum of €5 million. 

This legal mechanism did not only serve as a deterrent but also punished anyone who failed to conform to the relative regulations.

Even the State Advocate admitted that the decision reached by the FIAU could have “serious effects” on the firm, observed the judge, pointing out that an excessive administrative fine could be imposed “perhaps even unjustly” for a “not so significant breach.”

And that was why the citizens’ right to a fair hearing had to be protected. 

However, the Unit was not to blame, went on the court, pointing out that the FIAU was simply abiding by the laws enacted by the State. 

In light of such considerations, Insignia was awarded €10,000 in moral damages that were to be shouldered by the State Advocate.

Once this decision became final, a copy was to be delivered to the Speaker of the House of Representatives. 

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