Damage to Malta’s reputation has reached significant levels and the potential grey-listing of the country would spell disaster on the financial services sector painstakingly built over the past decades, the Malta Institute of Accountants president has warned.

“Undoing all that occurred in the past few years will take a great deal of effort over a period of time. Grey-listing would be disastrous, not just for us professionals but for the country as a whole. We need to continue working relentlessly to identify further problems and take decisions, no matter the cost,” Fabio Axisa said in an interview.

Malta last year failed an expert review of its money-laundering regime by Moneyval – a Council of Europe group – and was given an October deadline to get its house in order. 

Axisa, who is halfway through his two-year term as president of the body that represents some 3,700 members refuted suggestions that professionals like accountants and lawyers were to blame for this outcome. However, he admitted that “things could have been done better” to bar “polluters”, both within the accountancy profession itself as well as among those who chose Malta as a financial services jurisdiction.

“Our attractiveness and reputation as a jurisdiction were built on introducing reputable and blue-chip companies to Malta and focusing on substance. But over time, maybe due to the level of success itself, the strategy based on quality has been converted into a quantity game aimed at attracting as many companies and players as possible. And when you play the quantity game, you may attract a significant number of interesting players but the propensity of introducing polluters to the jurisdiction increases. As a country, we weren’t good enough at identifying those polluters and taking action immediately and decisively.

“There is this same debate in other sectors such as tourism. Should we focus more on quality rather than numbers? I think we’ll come out of this phase, but we need to work hard. We need to continue identifying polluters, no matter who these are, and take appropriate action. Above all, the financial services sector should never again be treated as a political ball by anyone involved in politics, reverting back to the position years ago which was so fundamental to our success in this area.”

Axisa says the three major areas in which Malta fared worst in the Moneyval evaluation report were supervision, confiscation and prosecution, which are at the heart of the country’s control mechanisms. In the area of supervision, Malta did a lot of work through the Malta Financial Services Authority and FIAU, among others. But on the other two areas it appears that much more work was required based on publicly available information.

The financial services sector should never again be treated as a political ball by anyone involved in politics

“On a technical basis, the Moneyval outcome hinges on our performance in these technical areas. But we cannot ignore the political angle at all. This political angle would heavily depend on how our strategy has been communicated to stakeholders and what national long-term plans have been explained. The repercussions of grey-listing are pervasive. For an economy like ours with a financial services sector like the one we’ve built, it’s a disaster, putting it mildly.”

‘No, we’re not crooks’

He said stakeholders were at times updated on the status of initiatives in different areas, but more communication and interaction is required. “This is extremely important for us as we’ll be severely impacted by this. I’m sure a lot of work is being carried out on different levels, especially on the regulatory infrastructure and landscape, but we’ve still got a lot of work to do.

“If you ask me, we weren’t perfect but the big majority of accountancy professionals are tremendously honest and hard-working people, wanting to do the right thing. Our profession is not characterised by crooks, as some insinuate. I concede that certain professionals could have identified and reported suspicious activity. But over the years, were all reports of suspicious activity investigated and actioned effectively? Did these investigations lead to an appropriate number of prosecutions? The answer is clearly no.

“We need to cleanse the jurisdiction, raise the bar, be selective, turn down opportunities, pay the price but then have a sounder business model.”

Asked about the now-reformed Individual Investor Programme, dubbed as the golden passport scheme, Axisa said this was perhaps a classic example of how the propensity to attract bad apples and polluters increases when one applies the quantity game.

“The IIP has given us too much publicity at the wrong time because the perception around Malta was unfortunately not great. The assassination of Daphne Caruana Galizia then dealt a massive blow to the country’s reputation. Repairing the damage requires massive effort over a number of years.”

Asked about the apparent lack of action taken against Nexia BT, the firm that set up Panama companies for the former prime minister’s close aides, Axisa said “it would be silly to think that two individuals or one firm are the only problems giving rise to the perception that quality was sometimes lacking within the profession”.

Axisa confirmed that both Brian Tonna and Karl Cini from Nexia BT had resigned from the institute when it was investigating their cases. The institute also saw a number of resignations in the past few years resulting from investigations it carried out.

“Without going into the merits of individual cases, there are famous cases and past issues where there is the perception that not much was done to bring the individuals concerned to justice. This leads people to believe that there is a culture of impunity. We must address these past issues decisively, once and for all, by investigating them thoroughly, unearthing all evidence and taking the appropriate action, whatever the cost. Wherever there is pollution, that polluter must be brought to justice, whoever the polluter is,” he said.

Perception and suspicion

Axisa insisted that he had no doubts that the individuals within the regulator did their best “in the circumstances”.

“But in our view, the profession’s regulator should have better and faster access to funding, recruitment, resources and tools and this is definitely impacting the outreach of the regulator. A significant budget makes a difference for any regulator. Why should the Accountancy Board be subject to the public procurement and recruitment rules like any government department? Clearly this doesn’t work.”

To counter any perception issues, the regulator should not be appointed or funded by the government but should be funded entirely by practitioners. It is the only way of avoiding perception and suspicion.

To continue improving the profession and introducing more safeguards, the institute was proposing changes to the Accountancy Profession Act, to redefine the activities that only a professional accountant may carry out and restrict such activities to those who can be considered accountable for their work.

It is also proposing a set of comprehensive guidelines on how professional accountants must act in certain circumstances to deter money laundering.