Moneyval, the anti-money laundering body of the Council of Europe, is entrusted with the task of assessing compliance with the principal international standards to counter money laundering and the financing of terrorism, as well as the effectiveness of their implementation. It also makes recommendations to national authorities in respect of improvements considered necessary to their systems.
Malta’s anti-financial crime processes have been under scrutiny for a few years. The perception that Malta’s favourable tax regime is attracting some operators in financial services and iGaming that are using their local set-ups to launder money is widespread. Illegal trading in oil in war-torn Libya, as well as the sale of arms to terrorists by entities operating in Malta, were other allegations that cast a cloud on the effectiveness of the country’s anti-money laundering processes.
It would be a mistake to brush off these perceptions as unfair speculation by countries that are jealous of Malta’s economic success in the last few years. When the European Banking Association investigated Pilatus Bank, it concluded in no uncertain terms that banking regulation and supervision were not being taken seriously enough by local regulators.
Moneyval is expected to decide on whether to place Malta on the grey list of counties whose anti-money laundering processes are considered as not sufficiently robust. The government has until October to address anti-money laundering shortcomings if it is to avoid becoming the first EU country to be placed on this notorious list. The greylisting of Malta would be the most severe blow to the country’s reputation and economic model.
Malta has already been given a three-month extension to put its house in order due to Covid-19. There is, however, still some unfinished business in the implementation of reforms.
The government has denied our report that it is considering asking for an extension of the “enhanced follow-up procedure”. If this signifies that the necessary reforms will have been completed by October, it is good news.
If the Financial Action Task Force, Moneyval’s international brother, was to include Malta in the grey list next February, it would be because of Malta’s insufficient progress in strengthening the anti-financial crime framework.
A period of initial official government denial of the seriousness of the country’s reputational problems was followed by an inadequate sense of urgency to implement reforms. This weak strategy could cost Malta dearly as international investors are likely to shy away from putting their money in greylisted countries.
It would not just be financial services and iGaming operations that would be affected if direct foreign investment dries up in these sectors. Ancillary services like the letting market and catering establishments would be among those to suffer if these sectors shrink.
Failure to tackle the reputational problem by taking early action against politicians who were exposed as having bank accounts in Panama has put Malta under the spotlight of Moneyval. No one can blame international anti-financial crime watchdogs for tackling with a steely determination the risks of money laundering in all jurisdictions.
Putting our house in order to combat financial crime may result in some operators deciding to relocate to other jurisdictions more lenient with enforcing international anti-money laundering standards. But Malta cannot expect special treatment in a context where some countries already consider it a less than reputable jurisdiction in the EU.
The long-term benefits of implementing robust anti-money laundering processes outweigh the short-term costs to the country.