Malta’s economy is yet to feel the brunt of greylisting, however, this could change if it takes too long for the country to get a clean bill of health, the Bank of Valletta chairman has warned.

In an interview with Times of Malta, Gordon Cordina mapped out the economic dominos that would come tumbling down were Malta to have its financial quarantine extended.

In June, members of a global anti-money laundering watchdog voted to add Malta to its so-called grey list.

The Financial Action Task Force (FATF) and Malta have since agreed on a series of reforms that must be implemented to prove the country is effectively combating financial crime.

Studies have suggested that greylisting can seriously hamstring a country’s economy, however, opinions vary over what, if any impact, this is having on Malta.

“Much depends on credibility. If the country is perceived by external investors, credit rating agencies, and our interlocutors, as being on a credible path to resolution, then day-to-day business should go on as it is doing now, not without hiccups, not without new questions being asked, but it will go on, and go on relatively unchanged,” Cordina said.

However, if Malta loses its credibility in the international sphere, or suffers some serious deterioration in the way it is perceived, then Cordina warns this is where symptoms may begin to show.

Government sources have indicated that Malta hopes to be off the grey list by around this time next year.

In fact, “18 months” is the time frame that the country’s lead experts have been using when addressing financial sector conferences in recent weeks.

That said, senior political advisers concede that the country’s fate is still largely unknown as its anti-money laundering regime still lays on the surgical table for FATF evaluators to poke and prod.

Whether the work of the siloed institutions can converge and coalesce into a national effort that meets the seismic expectations of the Paris-based FATF will next be discussed in summer 2021.

Delays could start a chain reaction that would have serious repercussions

Back at BOV’s Valletta headquarters, Cordina said delays could start a chain reaction that would have serious repercussions on the country. 

The first step, he said, would be requesting more documentation for business operations. And more forms lead to higher costs of doing business.

Local operators have already had to deal with some of this, but the weight of this paperwork burden would grow if Malta remains untrusted.

This triggers step two, which would see a loss of new investment because of this increase in the cost of doing business, rendering Malta less attractive.

And, thirdly, the process could lead to loss of existing investment too, as operating in Malta becomes too cumbersome.

“But I am not seeing any evidence of this in an obvious way at present,” the Cambridge University-educated economist said.

“Let’s face it. If you are an investor who has been considering coming to Malta, say a year ago, wouldn’t you have factored in the possibility of greylisting into your plans? The prospect of greylisting wasn’t so much of a surprise a year ago. Markets would have already factored it in.” 

Using BOV to illustrate his point, Cordina said that in the bank’s conversations with correspondent (foreign partner) banks, the possibility of greylisting had featured in the lead up to the actual decision taken in summer. 

However, in a sense, ‘greylisting’ had kind of started about three years earlier, when the European Central Bank had directed BOV to begin a process known as derisking, which sees a bank limiting its exposure to businesses deemed to pose too much risk. 

BOV shed several clients during this process but still retained some in relatively risky sectors, like gaming.

“We cannot say no to the entire sector. Gaming is still an essential part of our economy. It would be easier to just not touch the sector but I don’t think that would be a good idea given the economy we operate in. The fortunes of this economy and of this bank are, after all, intertwined,” Cordina said.  

There will be international partners who are ready to listen to this story, and there will be others who are not, Cordina said.

Difficulties would be compounded, however, if Malta’s greylisted status was to prolong.

“Let’s say there is a market expectation that we get out in ‘x’ months, then there will be questions, and once those questions are asked, it becomes difficult for the bank to prove it is covering its risk,” he said.

Ultimately, Cordina said, this is the problem of being greylisted: it doesn’t mean that business is not done with greylisted countries, but foreign interlocutors want further assurances and that costs time and money and can close off certain sectors. 

Cordina’s professional experience spans 25 years covering banking, policymaking and academia. His main area of academic interest at the University of Malta, where he is still a visiting senior lecturer, is the growth and dynamics of economies that, like Malta’s, are prone to heightened risks.