GUEST POST: Everything The FATF Greylisting Implies, Rather Than What It Says

On 25th June 2021, the Financial Actions Task Force (FATF) placed an EU jurisdiction – Malta – for the first time ever on its grey-list, joining the league with some other odd twenty third world countries, amongst which Yemen, Syria and Myanmar.

The FATF Statement on Malta’s greylisting means that Malta has now been put on enhanced monitoring and will have to make a high-level commitment to an Action Plan set by FATF.

In the meantime, applying conventional interpretation rules of Malta’s new status, other jurisdictions will be considering Malta as a non-reputable jurisdiction. 

This is exactly what the definition section of Malta’s Prevention of Money Laundering and Financing of Terrorism Regulations state, naturally following the European Union Directives in relation to same. 

Other jurisdictions necessarily have to exercise enhanced due diligence in relation to all their customer requests for the execution of banking transactions involving Malta, whether in respect of  foreign direct investment, international trading, all online gaming banking operations, right up to domestic transactions.

In the official communications that outline the FATF’s motivation for the grey-listing of Malta, the following emerge as the reasons:

• a lax attitude towards rampant tax evasion;
• lack of risk-based and analytical financial intelligence to resource the police and prosecutors to investigate and charge complex money laundering, including tax evasion;
• lapses in ensuring that beneficial ownership of entities, covering not only the obvious case of companies, but all sorts of vehicles including obscure NGOs.

The aforesaid is what it stated. 

What is implied by FATF’s greylisting – rather than what is expressly communicated – is that the FATF, an organisation incepted and controlled by the OECD and the US in primis, shall pursue Malta’s international financial services niche. 

The drive against tax evasion is understood by FATF to lie in the Maltese tax regime applicable to non-resident owned Maltese companies rather than a pursuit of what the village tradesman or the professional class declare in tax. 

The OECD has long ago embarked on a crusade against what it considers harmful tax competition by financial centres such as Ireland, Luxembourg and Malta. The previous two are careful to lead a low profile; Malta has been in the international news for the wrong reasons far too often and has rendered itself vulnerable.

Slowly but surely the OECD has made great strides with a view to increased transparency and administrative exchange of information, culminating in the Common Reporting Standards which is accepted world-wide, including Malta. 

It is also in this light that a recent in-principle agreement spearheaded by OECD and now accepted by 130 countries to ensure that multinationals pay their fair tax wherever they operate with a minimum global tax of 15%

The EU accepted back in 2004 our international tax regime, perhaps begrudgingly, in its earnestness to have Malta in the EU fold, a stance some may have regretted.

As Alfred Sant correctly said in a Sunday newspaper opinion piece, “at the European Parliament, the majority opinion is now that Malta is a tax haven”, continuing and erring in a big way that this has nothing to do with Joseph Muscat and his works.

Since 2004, the EU has often attempted to introduce a harmonised direct taxation system which Malta has so far successfully resisted. It will now be much more difficult. 

Malta’s ally in this respect, the UK, is no longer in the EU.And whilst Malta could in theory threaten its veto power in the realm of taxation, Malta has no say on how long FATF will retain in the purgatory of grey-listing. 

As we have witnessed, the European institutions such as the Council of Europe’s Moneyval are more docile and manageable than the faceless and secretive US-dominated FATF.

What Malta considers to be legal and legitimate tax planning may be considered as illegal tax evasion by other countries, a predicate crime under money laundering legislation. 

The author sees Malta being in a very weak bargaining position and is of the opinion that its current international tax regime will have to be highly reformed and diluted. It is against this backdrop that the Prime Minister’s address last week to the social partners must be interpreted when he said that government will now focus its efforts to target tax dodgers, money launderers and the professional who facilitate them. 

Malta’s action plan, the Prime Minister said, would see the government clamp down on corporate service providers that set up obscure financial holdings used to avoid taxes and launder money. 

The Prime Minister was trying to spill the bad news as to the consequences of grey-listing but few seem to have noticed what he really meant. 

Alfred Sant was perhaps more direct in his opinion piece: “what worries me is the rather short-sighted assessment of (greylisting) being made on all sides; we need to review the whole scope and future of financial services in our economy, to which add internet gaming and the passport for investments scheme”.

And all this, say I, for the want of looking at the elephant in the room in the wake of the Panama adventures of a Minister and Chief of Staff, even if Malta and its economy had to be be the sacrificial lamb.

Our passport scheme, known as Citizenship by Investment, will, in the author’s opinion, have to go. 

In this respect, thank God for the scheme’s disposal in the dust-bin of history. Citizenship should not be for sale. Our prestige and national pride and our EU passport should not be for sale.  Money does not justify the state prostituting itself.

But the scaling down of our international opportunities in fund management, banking, insurance and international trading – already at a standstill since a few years – will be hard felt by our country, to the detriment of the career aspirations of our upcoming young people. 

The irony of it is that which brought Malta and the international tax regime is not so much the fault of disgraced professionals working in this industry as much as the abdication of the necessary and timely policing by the regulators and powers that be, more intent in earlier years in being HMV in harmful pursuits such as the empty vessel of Malta being the Blockchain Island and pretending to demonstrate to the whole world how to regulate cryptos.

The leitmotif of Malta’s greylisting is the lack of enforcement of Malta’s state of the art legislation. 

There has been some improvement in this respect in the last few years, but rather than enforcement across the board, we have rather had selective enforcement, with the culprits being the politically less important (or rather less protected) subjects. The common subjects! The dispensable!

This attitude, sometimes of two steps forwards and one back, does not demonstrate faith and confidence in our international partners.

Consistency in application of laws without looking at the face of whoever committed the crime ought to be the only way forward.

This of course cannot be achieved for so long as the top echelons of police authorities are politically-appointed, necessarily subservient to the government of the day when we come to crucial matters. The Government of the day must detach itself completely from this sort of control.

Besides strengthening the Police command in this manner, Malta needs a dedicated team of investigative Magistrates that can and will commence investigations as necessary ex ufficio, as happens in nearby Italy and France.

Magisterial enquiries should not need to be referred to it by the Police when these so often have looked the other way, with the most notorious case being the Pilatus Chairman siphoning off the crucial documents right in front of our eyes.

Take the recent raft of arrests and accusations that have landed so many people in custody concerning the Allied newspapers corruption and citizenship scheme graft: had it not been for the initiative of the then Opposition leader producing a raft of “empty boxfiles”, and a Magistrate who – taken up also with hundreds of cases in its judicial role –  took his time of the best of close to four years to come up with his conclusions, not even this first credible step in money laundering prosecutions would have taken place.

How does it look now? 

Post-greylisting, the Government has said all the right things. But action speaks louder than speech. And two recent Government initiatives do not give much room for optimism.

The first is what appears to be an obscure resignation/removal of a respected Commissioner for Voluntary Organisations for what appears to be an annoying request of his for investigations into the underlying affairs of some VOs. 

The other more sinister move is the nomination of a previous Minister to High Commissioner in the UK. Nothing wrong on the surface. 

Until one discovers that this nomination reached the news two days after the FIAU grey listing and that this previous Minister happened to have accumulated the sum of €500,000 cash in hand only for such sum to surface as a bank deposit in Malta’s largest bank the following year.

This of course does not mean that any illegitimate activity necessarily took place, but how this is perceived in Whitehall and other diplomatic capitals of the countries that matter is an altogether different thing.

Going forward Malta must earn its respect on the international scene by doing the right things at all time; loud protesting and threats of veto voting will get us nowhere.

Paul Bonello is the Managing Director of Finco Treasury Management Ltd, licensed investment services provider and stockbroker.

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