Malta generates too few suspicious transaction reports, Europol says

It is a stark discovery that in a market of over 500 million people, 65% of suspicious transaction reports to European financial investigators come from just two EU member states: the UK and the Netherlands.

Both countries are important financial centres. London and the Netherlands hold a substantial part of the world’s corporate offshore investment from tax havens.

But Europol has expressed doubts on the volume of suspicious transaction reports (STRs) that are emerging from Malta’s considerable financial services sector, given the relative size of activity and company formation on the island.

Malta’s financial intelligence analysis unit (FIAU) is responsible to collect STRs received from banks, financial services practitioners, notaries, insurance firms and even gaming companies. The system is ultimately dependent on private firms alerting the FIAU to possible illegalities related to money laundering or terrorism funding when they process payments or carry out due diligence on clients.

“We see that reporting figures across the EU are not always in line with what one might expect to see, given the extent of the regulated sector in particular jurisdictions. While volumes reported in Italy and France appear to reflect the size of those countries’ regulated sectors, certain other jurisdictions, notably Cyprus and Malta, receive very few reports given the size of their banking sectors and the significance of these jurisdictions in offshore financial services.”

The Europol report deals with the failure of STRs – where millions of such reports are made annually – to lead to further investigation by competent authorities. According to executive director Rob Wainwright, just 10% of STRs lead to further investigations by authorities, and then barely 1% of criminal proceeds are ultimately confiscated.

“These stark findings make it impossible not to question why the success rate of the system is so poor and what can be done about it,” Wainwright said.

However, the data collected by Europol only goes up to 2014.

Indeed in 2016, Malta’s FIAU – whose job it is to sift through the STRs it receives before passing them on to the police for investigation – saw an unprecedented increase in FIAU disclosures, 284 reports over the previous year, bringing the total to 565, a 101% increase.

The 565 STRs included reports on 971 persons, of whom 63% were non-Maltese nationals. “This is representative of the typology the FIAU noted involving Maltese-registered companies that are owned by foreign nationals.”

Fraud featured as the predominant predicated offence (23% of cases), followed by laundering of funds from drug trafficking, bribery and corruption, and human trafficking.

These STRs gave rise to 520 new cases, a 137% increase over 2015, and a further 47 cases following the receipts of information from various other sources, possibly international.

The absolute number of STRs, 344, hailed from credit institutions, a 198% increase filed by domestic banks. The use of accounts held with Maltese banks featured in a number of fraud cases, as well as bribery, corruption, illegal gambling, drug trafficking and other illegalities.

Europol said that the majority of FIUs reported that the most common nationalities of individuals reported in STRs were nationals of their own countries, followed by individuals from neighbouring countries.

But Malta was one of a number of countries that generated STRs with respect to foreign nationals owning non-resident accounts: twice as many STRs concerned accounts held by foreign nationals.

“Cyprus, Luxembourg and Malta all report that UK nationals are common subjects of these reports on non-resident activities. Both Luxembourg and Malta also note that Italians are another common nationality, while in the case of Cyprus, Russia is noted as more significant. More generally, across all EU FIUs, four nationalities were noted as generating comparably higher numbers of STRs: Russian, Chinese, Turkish and Ukrainian.”

Operation Gambling

Europol made special mention of the crackdown on the ’Ndrangheta’s remote gaming operation in Malta, which resulted in the arrest and extradition of several Italian nationals.

Operation Gambling, led by Italian police, led to the arrest of 41 persons in Italy and Malta and the seizure of assets worth €2 billion.

Six of the firms owned by members of the Calabrian criminal organisation were operating out of Malta, and used to launder vast sums of illicit cash through the remote gaming business.

“The case has raised some concerns around the online gambling market and the potential for its abuse by criminal organisations,” Europol noted, saying that due diligence checks resulting from the EU’s fourth anti-Money Laundering Directive will also affect Malta’s remote gaming industry – with over 400 licences granted.

In 2016 the FIAU noted a significant increase in STRS received from remote gaming companies, 172% over 2015 related to foreign persons with limited connections to Malta.

The FIAU said that in 2016 it dealt with 710 cases, 20% of which started back in 2015, and of these cases it concluded 364 with a further 346 cases ongoing. But 39 analytical reports were sent to the police following a determination of reasonable suspicion of money laundering – in other cases the FIAU said it sent intelligence reports to foreign FIUs instead of triggering an investigation in Malta.

In 2016, an increase in penalties meted out by the FIAU saw a total of €126,775 levied over 167 cases – just administrative sanctions of €250 on banks, trustees and fiduciaries, lawyers, accountants, notaries, and financial services brokers.