A report in the UK Financial Times headed ‘Watchdogs have clamped down on Binance, one of the largest cryptocurrency exchanges….’ is probably indicative of one of the main reasons why the FATF recently greylisted Malta.
After giving the reasons for the clampdown, the reporters state: “Binance has led a peripatetic life since its founding by Zhao (a 44-year-old Chinese Canadian mogul) in China four years ago. The company shifted its operations after a crackdown by the Chinese authorities in 2017. After moving to Japan, regulators there warned in 2018 it was conducting unauthorised cryptocurrency trading in the country. Malta’s then Prime Minister, Joseph Muscat welcomed Binance with open arms that year, but in 2020 its financial regulator proclaimed that, despite the company’s operations in the EU state, it was not responsible for regulating the exchange”.
There it is. Malta welcomed and accepted the registration of a company that was already engaged in unauthorised crypto business elsewhere and, apparently, was allowed to operate here even before our parliament had enacted legislation (by way of three separate laws) establishing a regulatory framework for blockchain; cryptocurrency and distributed ledger technology, and before Binace was licensed to operate here. One may ask, with what intentions?
Shortly thereafter, Binace announced it was taking a stake in Founders Bank, which was to be owned by digital coin investors and was reputed to be the first decentralised and community-owned bank in the world. The founders said that it would focus on serving tech and crypto business and would offer top-tier banking solutions.
One wonders if the intention was for this bank to replace Pilatus Bank, whose licence as a credit institution issued by the MFSA in 2014 was upgraded to a Category 2 banking licence in August 2015. It will be recalled that, after leaked FIAU reports flagged evidence of money laundering there and serious compliance shortcomings, in March 2018, MFSA finally intervened by appointing an administrator with instructions to start winding down Pilatus’s operations.
Shortly thereafter, Pilatus directors were informed by the European Central Bank that the bank’s licence had been revoked after its chairman was arrested (though much later discharged) in the US on money laundering charges. The closeness of the dates of Pilatus Bank’s demise and the planned setting up of Founders Bank is indeed striking.
While Founders Bank was still awaiting the MFSA’s response to its application for a Malta banking licence, it stated it was expecting to be operational by the middle of 2019. The then Parliamentary Secretary for Financial Services, Silvio Schembri, welcomed Founders Bank “with utmost excitement” and expressed the hope that their fintech solutions would attract even more world-class companies to Malta. He went on to say: “We are honoured to be chosen as the location of the first global community-owned bank that cares deeply about transparency and regulation.”
It is worth noting also that the announcement regarding the new bank came one day after the European Banking Authority admonished the government’s anti-money laundering agency for breaching EU rules in its supervision of Pilatus Bank.
The above-mentioned facts are just a few of the reasons that brought about the deterioration of Malta’s excellent reputation until 2013 as a serious international financial centre. Blaming others, including MEPs Roberta Metsola and David Casa, is indeed dishonourable to say the least.
Although the FATF’s recent report justifying Malta’s greylisting – along with countries like Panama and Zimbabwe – is still being kept under wraps, an official FATF spokesman has publicly stated that the reason is because Malta needed to be placed under “increased monetary surveillance” because there are “significant strategic deficiencies to be addressed”.
Although insofar as is known to date, the lack of strict control on crypto business passing through Malta (billions of cryptos are reported to have been transacted through Malta even before regulatory legislation was enacted), one of these reasons for Malta’s greylisting, was evident from what Finance Minister Clyde Caruana recently said on a TVM programme that he himself has serious reservations on that particular area.
Caruana is now left carrying the can and, evidently, he is doing his best endeavours to do whatever should have been done by his predecessor at the appropriate time. In this he should not shun the support offered him by the parliamentary opposition and also by financial professionals who are the ones who know full well what needs to be done for Malta to regain its rightful place among international financial centres of repute.
Anthony Curmi is a former senior bank executive in Malta and abroad.