Malta is a world leader in setting standards for others to follow.

Okay, yes, the effect is indirect. New standards are being set in order to close the loopholes Malta keeps trying to exploit. But the country is still a proud catalyst for change. No one’s better at finding a way to evade a rule while claiming to follow it in good faith.

The Ministers of the Financial Action Task Force held their biennial meeting last week, where they took stock of the results of the 4th round of mutual evaluations. You know, the round Malta failed despite frantic last minute lobbying by the government in the hopes of avoiding the grey list.

We know how well that went. But don’t wurr-ry, sources inside the government expressed their optimism earlier this month that Malta will be off the list of shame and back in good standing as early as June.

They were trying to put a positive spin on the latest visit of FATF assessors, but the results of the organisation’s biennial meeting just dumped a big bucket of ice cold water on the smouldering embers of Clyde Caruana’s pipe dream.

The Methodology and Procedures for the 5th round of evaluations seem like they were written with Malta in mind.

“The next round of mutual evaluations will place an even greater focus on effectiveness,” the report said, “to ensure that countries are implementing and making use of the laws, regulations and policies that are being passed.”

Passing a pile of laws on paper while doing absolutely nothing in practice helped Malta scrape by the GRECO evaluation, but it didn’t pull the wool over the FATF’s eyes — and those eyes just got beadier.

“No problem,” you might be thinking. “We’ll just throw a few small fry under the bus and the top dogs can continue to enjoy the utter impunity that made Joseph Muscat the OCCRP’s Person of the Year in Organized Crime and Corruption.”

Unfortunately, the evaluators thought of that, too. As former US President George W. Bush famously said, “Fool me once, shame on…shame on you. Fool me… you can’t get fooled again.”

The 5th round assessors are being explicitly told to “focus on the areas where the risks are highest, not just lower-risk areas where it is comparatively easier to launch investigations and secure convictions.”

In case you missed it… FATF Ministers have agreed on strategic priorities to strengthen global implementation of the FATF Standards to help stop the illicit financial flows that fuel crime, terrorism & corruption. Read the full Ministerial Declaration ➡️ https://t.co/XrNhMQeljm pic.twitter.com/MdAEDilT7k

— FATF (@FATFNews) April 26, 2022

In case it wasn’t clear enough for Malta, the Methodology stressed that the 5th round will be “results-oriented, focusing on specific actions”.

That’s bad news for Prime Minister Robert Abela, who will be forced to choose between the financial future of his spiralling economy and protecting the beneficiaries of a laundry list of scandals from criminal prosecution.

His options for finding another, more legitimate, source of national revenue are getting slimmer by the day.

I wouldn’t bet the farm on financial services. The EU has its eyes on tax havens, and tax harmonization will remove Malta’s only competitive advantage. Add that to the intense oversight being applied to Maltese banks and to normal law abiding Maltese customers and it’s difficult to see why any business would want to base here.

Passport peddling is on the way out too, regardless of how desperately the government tries to cling to it. Infringement proceedings will take time, so there’s still money on the table. But a Maltese passport is now a red flag for increased scrutiny.

Even cheap tourism, long a dependable source of revenue, isn’t bouncing back from the two year pandemic. Tourists are eager to travel again, but they aren’t keen to spend time packed in dense crowds. And thanks to a looming global recession, they’re also increasingly pinched financially. It’s a buyer’s market where pristine destinations are competing for business with less crowded beaches and less construction cranes per square metre than poor beleaguered Malta.

Other destinations will likely have better flight options too, now that Air Malta is on its last wing and another round of State aid is unlikely to be approved.

There’s a lot of money going out, and a lot less money coming in.

The national debt is growing faster than a pimple on the bum of a fat man in summer, and the deficit is now ‘Best in Europe’. Wait, sorry, that’s Highest in Europe, and dangerously close to setting off EU alarm bells and triggering forced austerity.

The picture is worse than it looks on paper because bloated public sector employment leads to a slight inflation of GDP. While hiring hundreds of unqualified people for make-belief non-jobs does lower unemployment figures, it undercuts actual growth by robbing the public sector of potential employees and haemorrhaging taxpayer funds.

The Central Bank’s latest 2022 projections forecast 6% growth in Malta’s GDP, but a 6.2% deficit. This can be stable long term, assuming two things: the government acts aggressively to reduce deficit levels, and the economy recovers and grows as expected.

What if those two things don’t happen? According to the Central Bank, “the possibility of ‘explosive’ debt growth would present itself.”

Given the shocking level of pre-election public sector hiring and Abela’s bloated €100 million Cabinet, the odds of this government reining in spending are slim.

I hope they aren’t counting on economic growth to sort it out. The latest FATF evaluation criteria made it clear that Malta’s period in the global financial wilderness is only beginning.