Malta is the fourth most secretive EU country according to a global index ranking countries most complicit in helping individuals hide their finances from the law.
The island has creeped up from the 20th most secretive country globally in 2019 to the 18th most secretive in the 2020 index.
The 2020 financial secrecy index, published by the Tax Justice Network, sees the Cayman Islands topping the list of secrecy jurisdictions, followed by the United States and Switzerland.
Luxembourg is the first EU country to feature on the index in sixth place, ahead of the Netherlands in eighth, Germany in 14th and Malta in 18th.
Malta has long been criticised for its tax regime, which benefits foreign corporations and individuals who set up letterbox companies for tax purposes with very little actual physical presence on the island.
How does the index work?
The Financial Secrecy Index ranks each country based on how intensely the country’s legal and financial system allows wealthy individuals and criminals to hide and launder money extracted from around the world.
It grades each country’s legal and financial system with a secrecy score out of 100 where a zero out of 100 is full transparency and a 100 out of 100 is full secrecy.
The country’s secrecy score is then combined with the volume of financial activity conducted in the country by non-residents to calculate how much financial secrecy is supplied to the world by the country.
A highly secretive jurisdiction that provides little to no financial services to non-residents, like Samoa (ranked 86th), will rank below a moderately secretive jurisdiction that is a major world player, like Japan (ranked seventh).
How did Malta fare?
Malta was given a secrecy score of 62/100, which is two points below the average score.
Its worst scores were in the transparency of trust and foundation ownership, transparency of real estate and other asset ownership, corporate tax disclosure and promotion of its tax structures.
In all these categories, Malta was awarded the highest secrecy score, 100/100.
On the other hand, Malta fared well when it came to the international standards and cooperation criteria, including the automatic exchange of information, anti-money laundering legislation, bilateral treaties and international cooperation.
What does the Tax Justice Network think of Malta?
In comments to Times of Malta, Tax Justice Network chief executive Alex Cobham noted Malta’s worsened position.
He said Malta slipped down the rank because it was among the minority of jurisdictions that increased their secrecy score, bucking the global trend towards greater transparency.
Mr Cobham said the change was a small one, with some EU-led improvements in company registration outweighed by poorer evaluations in several indicators, including how Malta’s tax treaties may promote tax evasion elsewhere.
“At the same time, Malta’s share of the global market in financial services exports fell, perhaps because of the reputational damage caused by the shocking murder of investigative journalist Daphne Caruana Galizia and the government’s extraordinary mishandling, at best, of the response.
“Had Malta maintained its global market share, its increased secrecy would have seen its ranking deteriorate further, to 16th, but the lower market share mitigates some of the overall risk posed by Maltese secrecy”, Mr Cobham said.
He said Malta’s government is facing a crisis of legitimacy, and from the outside, there appeared to be a risk that the response was simply to pursue greater financial secrecy and even dirtier money.
“Such a race to the bottom only leads to one place though – the bottom.
It would further sully the island’s reputation, and ultimately fail to provide a sustainable future. Only Malta’s citizens, in the end, can demand a return to transparency and accountability”, Mr Cobham said.