If Malta is to be removed from the Financial Action Task Force’s grey list in the coming months, the government needs to show that it has the political will to introduce new regulations and implement them religiously, without fear or favour.
The Achilles heel of local regulators in every sphere of a civic and economic nature is the reluctance or inability to implement good regulations aimed at convincing people that illegal or illicit behaviour comes with consequences.
The government is finalising an action plan to guide regulators on further legal changes intended to fight financial crime and convince the FATF that its commitment to get tough on such crimes is determined and robust.
One of the government’s proposed actions is to extend the timeframe within which the tax authorities can take action against tax evaders from two to five, or possibly eight, years.
Undoubtedly this is a step in the right direction. If this change is to be more than just a desktop reform though, the tax authorities need to have enough of the right resources in place to investigate cases of suspected tax evasion speedily and thoroughly so that subsequent prosecution will survive the scrutiny of the courts.
This is not just about having the correct number of employees in the tax department. It is also about having competent persons on board who can implement anti-tax evasion systems that have proven effective in other countries.
The tax authorities and their political masters need to adopt a mindset that does not tolerate a kids-gloves approach when dealing with suspected tax evaders.
They also need, for instance, to investigate the lifestyle of suspected tax evaders who fail to prove how they could afford an affluent lifestyle which could not possibly be sustained on their stated income.
Another initiative to speed up Malta’s removal from the FATF grey list is an agreement signed between the Malta Business Registry and the Financial Intelligence Analysis Unit to share information and collaborate on investigations into the ultimate beneficial ownership of financial structures.
Money launderers, especially tax evaders, often engage professional people like lawyers and accountants to find legal and not-so-legal ways of hiding both the origin and the destination of their flow of funds as well as the ownership of their assets.
Another obstacle lies ahead in the regulators’ attempt to make such an agreement more than just a declaration of intent. Malta’s financial services sector has thrived on a business model partly built on the country’s low tax regime. Bankers, accountants, financial planners and lawyers have benefitted from this taxation-friendly strategy. They now need to understand that the borderline between tax evasion and tax avoidance is blurred and, in their advice, should not risk putting their clients on the wrong side of the line.
The mood of most countries on the importance of collecting all the tax dues from individuals and businesses is changing. The harmonisation of tax regimes in the EU is today much nearer than it has ever been. Malta may continue to argue that taxation is a member state prerogative and will never give up its sovereign right on taxation. However, it would be wiser if the economic policymakers start to prepare contingency plans based on promoting more sustainable competitive advantages to attract direct foreign investment.
Getting tough on fighting financial crime must start by updating legislation and regulations to hold abusers accountable for their actions. But the bedrock of an effective anti-financial crime system will always be the political will to implement good legislation.