On 23 June 2021, Malta became the first member state of the European Union to be blacklisted by the International Financial Action Task Force.
39 FATF members decided the fate of Malta, in a consensus that was marked by tough resistance from the United States, the United Kingdom and Germany.
But the decision comes at the end of the years in which Malta’s Labor administration has presided over a weakening of anti-money laundering rules: from the sale of citizenship to high net worth individuals, criticized by the European Commission; to the harsh light on its Financial Intelligence Analysis Unit and the inaction on the Panama Papers when the right hand of the prime minister was revealed to have set up a secret offshore firm, Malta was never far away too much from international scrutiny.
Under the German Presidency of Marcus Pleyer, delegates representing 205 members of the FATF’s global network and observer organizations including the International Monetary Fund, the United Nations and the Egmont Group of Financial Intelligence Units took part in the virtual meeting of the FATF Plenary.
Over the course of five days, key issues were discussed to strengthen global action against financial flows that trigger crime and terrorism.
The organization, which serves as a watchdog against money laundering and terrorist financing, was then run by the German presidency.
The FATF decision came just months after Malta passed its Moneyval test following a series of reforms that strengthened the country’s anti-money laundering regime.
On 29 April, the Council of Europe’s anti-money laundering committee voted in favor of a final report on the safeguards of the AML and Malta’s terrorist financing during a plenary session held in Strasbourg.
The report praised Malta for its efforts to address the shortcomings of financial crime.
The Maltese government had received the conclusions from the Moneyval group for the draft Enhanced Follow-Up Report, a crucial document for the future of Malta’s banking and financial services industry.
Malta had initially failed in its first assessment by Moneyval in 2019, after which the government was given a year to address any legislative loopholes in terms of money laundering and terrorist financing.
In March this year, Robert Abela warned the financial services sector that Malta was at a crucial stage in the valuation of Moneyval.
The Moneyval test step was considered a major step forward in ensuring a positive FATF result.
Reforms within the police force have seen the creation of a more robust financial crime unit leading to high-profile prosecutions of money laundering and other financial crimes.
This was an important development as one of Moneyval’s main complaints was the lack of prosecutions by the police despite the red flags noticed by regulatory agencies such as the Financial Intelligence Analysis Unit and the Malta Financial Services Authority.
The FIAU and the MFSA have also undergone a transformation with more resources being directed in their path.
Pressure has been mounting on Malta in previous months with cabinet ministers speaking confidently to reporters about pressure from the US government on the country’s fight against money laundering, in an effort to extract security concessions from the island-nation.
While the United States has only observer status in the Council of Europe’s Moneyval monitoring body on compliance with international money laundering standards, it maintains influence within the international FATF, where the Moneyval valuation will be reviewed.
According to information gathered by MaltaToday, the US government was interested in getting the green light from Malta for a Force Status Agreement, as well as winning closer cooperation on intelligence to deal with it. the problem of arms and drug trafficking at Hurd’s Bank, a security challenge. which is high on the American agenda for Malta.
The United States has considered the SOFA agreement crucial to enhanced interception of smuggling routes around Hurd’s Bank, an offshore bank east of Malta that is used to circumvent US sanctions on illegal transhipments.
It has been said that the Americans are insisting on “concurrent jurisdiction”, ie a system where both the American and Maltese courts have jurisdiction. But the Maltese were skeptical about the request, a situation that led to both parties arguing that a prospective criminal case should be heard in court which they felt was most favorable to them.
The United States has been actively responding to Maltese demands for UN Security Council sanctions against fuel smugglers who have also used national oil storage tanks to store Libyan smuggled fuel; but while sanctions enforcing Libyan embargo rules give the United States a route to easily board ships suspected of carrying oil and contraband weapons, SOFA would mean having American naval muscles in its backyard. to deal with such situations.
In addition to winning greater US oversight over Hurd’s Bank, the Americans were calling for the Chinese embassy in Pembroke to be reduced, literally, to size.
The Chinese embassy wants to rebuild its 19,000-square-meter headquarters in Pembroke. The Chinese government had bought the land from the Maltese government for € 7.8 million in 2015 after the decision was approved by both sides of parliament. The Chinese first approached the Nationalist administration about the desired land back in 2007, demanding 10,000sq.m of land. Since then, the size has almost doubled.
The US embassy was also reported to be relying on the Maltese government to reach a favorable resolution to the impasse at Steward Hospitals.
Steward Healthcare founder and head Ralph de la Torre has already been in talks with Prime Minister Robert Abela and Health Minister and MP Chris Fearne about the future of the hospital project and agreement signed with former minister Konrad Mizzi.
Steward had a memorandum of understanding that was expected to be followed by a new contract in 2019, but was never formally signed due to the political crisis that saw Muscat resign.
De la Torre was accompanied by a representative of the US embassy in talks with Abela and Fearne in 2020.
The US healthcare company, which bought the mysterious Vitals Global Healthcare in December 2017, has insisted on a new contract giving them more money to run the three state hospitals – up to € 120 million a year – and broader binding on default clauses. They had already won concessions from Muscat to ensure that Steward would receive extra funding to continue operations while in Malta.
The Maltese were already exposed to a new type of risk on the Steward hospital concession: information received from a magistrate investigating the controversial public-private partnership, revealed an “escape clause” circumventing any termination of Steward’s grant. in government default. The agreement was signed by Mizzi and Steward so that if the hospital concession is terminated by a court – for any reason, and even if Steward is in breach of contract – such an event would be a government default. This would mean that all of Steward’s debts would go to the government, with the US company remaining liable for a contractual payment of € 100 million for its equity.
A minister who spoke to MaltaToday referred to the influence of the US embassy as “impossible to ignore”.
“The assassination of Caruana Galizia is closely linked to shortcomings in the rule of law, which in turn is linked to our money laundering performance of Moneyval. The fact that someone like Yorgen Fenech is being charged with murder also sheds light on the Electrogas power plant. ”
Fast-settling confident financial services practitioners
In light of the FATF’s decision to put Malta on its gray list, the Financial Services Practice Institute said it was confident that, with a concerted effort, the country could meet the results of effectiveness sought in the short term.
The IFSP said that the substantial progress that Malta has made in recent years in addressing the shortcomings of its anti-money laundering regime has been recognized by the Financial Action Task Force (FATF).
“It is unfortunate that, despite the significant progress reported by MONEYVAL, the FATF has placed jurisdiction under greater scrutiny, also known as the Gray List,” she said.
Unlike many other countries (including some EU Member States and other large countries) Malta has no “non-compliant” or “partially compliant” grades and has therefore fared better when considered by the EU. FATF’s own risk lens – scoring matrix. ”
The institute said that Malta has made great strides in its fight against money laundering and terrorist financing, so much so that it is now either largely or fully in line with the 40 FATF recommendation.
“The financial services industry is proud to have been part of the process of raising the level of AML and CFT compliance and that its cooperation with the authorities over the last few months has led to this significant progress. , “she said.
A survey conducted by the Malta Employers’ Association on business perceptions of Malta’s FATF greylisting found that almost 90% of Maltese employers fear that this will have a negative impact on the Maltese economy.
The survey showed that 88% of respondents believe that the FATF greylisting will have a negative impact on the Maltese economy, with 64% anticipating strong repercussions.
71% of companies anticipate that greylisting will directly affect their business, and 63% of respondents reported that greylisting will be affecting them in the next six months.
Companies in financial services, igaming and other services are expecting stronger repercussions from manufacturing, wholesale and retail, and tourism.
Businesses were also concerned about rising compliance costs, with some companies resorting to hiring additional staff to deal with the increased compliance paperwork.
The results of the survey concluded that the main reasons attributed to the gray list were money laundering activities, flawed rule of law and justice system, institutional corruption, lack of transparency and weak institutions.
The most important recommendation put forward by respondents was the need for an effective and efficient justice system; the prosecution of corrupt politicians, PEPs and business people; the resignation of the politicians involved and the implementation of the Moneyval / FATF recommendations.