The volume of money laundering taking place through the property market could be “significant”, according to a national assessment of Malta’s financial crime risks.
The 200-page national risk assessment seeks to identify the country’s money laundering threats and vulnerabilities.
This assessment, led by a committee that includes the police and FIAU, says the full scale of money laundering through the property sector is unknown.
However, the share of real estate assets frozen in Malta in 2021 was estimated at €44.6 million, thereby indicating that money laundering through the real estate sector is “significant”, the report says.
Assets are frozen by the authorities during criminal proceedings involving financial crimes.
The assessment pinpoints property as an attractive method for criminals to hide their illicit proceeds, as it allows them to launder large amounts of money in a single transaction.
Criminals may also invest in property to rebuild and sell at a higher price, to justify their income, the report continues.
In 2021, the government introduced a €10,000 cap on cash transactions for the sale of property and other valuable items.
The report highlighted how these rules do not extend to the use of cash for construction, renovation or finishings, thus raising the risk that cash from criminal activities is laundered through property.
Similarly, concerns were raised about the rental market, as the rent can give criminals a legitimate income.
Tax crimes
The report details how buyers and sellers may attempt to reduce their tax dues on property sales by deliberately undervaluing the properties.
According to data by the tax authorities, 32 per cent of all property deals in 2021 were identified as being potentially undervalued.
The Malta Tax and Customs Administration appoints an independent architect to value the property in cases where undervaluation is identified, according to the report.
Buyers would then be obliged to pay tax on the new valuations.
An analysis of suspicious transaction reports by the FIAU involving property deals found that the majority of reports had at least one Maltese resident involved, and were mainly about tax crimes.
During a three-year period ending in December 2021, property purchases by foreigners did not register an increase, and Maltese nationals accounted for 98 per cent of the property deeds, the report says.
The report also delves into the licensing of estate agents. It says that to date, there has been no enforcement against those operating without a licence.
Furthermore, “vulnerabilities” exist in the licensing law, as people continue only acting as intermediaries during property sales “on an occasional basis”.