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When crime pays

Joseph Muscat Nexia BT - DOI Omar Camilleri
Prime Minister Joseph Muscat officially inaugurated Brian Tonna's (left) Nexia BT offices in June 2013. Photo: DOI / Omar Camilleri

Justice Minister Owen Bonnici put to lie Finance Minister Edward Scicluna’s claims that the Maltese government is committed to fighting money laundering and terrorist financing when he said in Parliament last week that an asset recovery office – dedicated to the tracing and seizing of the proceeds of crime – only started operating last August.

A government that is serious about fighting crime should spare no resources in tackling money laundering, especially when faced with a string of money laundering allegations that have hit the top level of government and sullied the country’s reputation.

Control of money laundering curbs all forms of serious crime. If a criminal cannot launder his money, he cannot enjoy his illicit gains which would make crime pointless.

Last February, former FIAU chief Manfred Galdes had warned that although the process of setting up the office was initiated in 2015, the office was not operational. He said Malta was sending the message that serious financial crimes goes unpunished.

He also said that the extent of anti-money laundering supervision was still relatively low in proportion to the financial sector’s size.

This was confirmed by the the National Risk Assessment (NRA) published recently. The NRA identifies and assesses Malta’s threats and vulnerabilities to money laundering and terrorist financing with the input of various stakeholders that include policymakers, law enforcement authorities, the Attorney General, law courts and representatives of the private sector.

Overall, the report rates the risk level for Malta with regard to money laundering and terrorist financing Malta as ‘medium to high’.

The most marked reason given is the obvious lack of resources: “limited capabilities (lack of resources, scarcity of expertise, and limited use of adequate IT tools)”.

In all the sectors the report tackles, the amount of supervision and monitoring is scanty, especially considering the size of the relevant industries and their inherent risks.

The number of inspections on all banks in 2016? Thirty-seven.

The number of inspections on companies in the securities sector in the first three quarters of 2017? Nineteen. There are around 450 licensed companies.

Trusts are known to be used to obscure beneficial ownership and complicate the tracing of proceeds of crime. The sector is particularly large and handles a high volume of international business. Yet, only 27 on-site inspections were conducted last year.

In June 2017, 275 remote gaming companies were operating in Malta. Remote gaming is extremely vulnerable to money laundering due to the high number of customers, high volume of transactions – GGR (Gross Gaming Revenue – the amount players wager minus the amount they win) reaches close to €3 billion.

The non-face-to-face nature of the business, the high percentage of non-resident customers and the use of prepaid cards that are not linked to a bank account increase risk. Yet gaming companies only became ‘subject persons’ last January. although gaming companies licensed by the Malta Gaming Authority were required to have an anti-money laundering policy and procedures prior to January 2018.

Subject persons are those entities that are required to have in place anti-money laundering procedures and controls, such as banks, estate agents, legal and accountancy professionals and casinos because their activity carries a high risk of money laundering.

The report also points out that that Malta is a cash intensive society. Cash transactions are hard to audit. An ECB study in 2016 showed that 92% of all transactions in Malta were made in cash. These account for 74% of the total value of transactions in the Maltese economy that year.

In some other countries the law prohibits cash transactions above a certain value. Cash payments (including VAT) for the purchase of products and services in Greece are only permissible up to €1,500. Beyond that limit, payments should be done via bank accounts, cheques or credit/debit card. There is no reason why Malta cannot implement such a measure.

The document describes cryptocurrency and cryptocurrency exchanges as a worrying, emerging threat. “Virtual currencies [are] one of the key emerging risks to money laundering, terrorist financing, tax evasion and fraud,” according to the NRA.

Yet, remarkably, these companies will not be considered as ‘subject persons’ for the next 12 months. So, for a year, these companies will not have to implement anti money laundering procedures and controls to which they should be subjected.

It came as no surprise that during a high level conference hundreds of delegates from the financial sector from countries all over the world were told to “steer clear of Malta”.

Malta now has a negative reputation in the financial sector that must be addressed, but this will not happen unless the government shows a serious commitment to fighting money laundering and terrorist financing. Otherwise, crime will continue to pay.

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