MPs need to step up if they are serious about fighting financial crime

The fight against financial crime is not an easy one given its cross-border nature and the complexities it involves. To counter this, legislators have over time granted supervisory and investigative authorities the tools to not only minimise the risk of money laundering but also to dissuade individuals and companies from going down the road of illegality. 

However, unfortunately, for the past couple of years we have been witnessing a saga through which hefty penalties issued by the Financial Investigations and Analysis Unit (FIAU) are being struck down by the Constitutional Court. The FIAU is Malta’s anti-money laundering watchdog. 

Companies have been filing human rights cases on the basis that penalties are so high that they amount to criminal sanctions and thus the manner by which they are issued breaches their right to a fair hearing. 

The Constitutional Court on several occasions has agreed with this argument, striking down the original fine and applying in most cases a 90% discount on penalties. This has undercut the FIAU’s ability to act as an effective money laundering watchdog. 

It must be said that the current regime of penalties, which equates to 10% of a company’s turnover, was introduced in the wake of the Pilatus Bank debacle. Malta came under heavy fire from foreign institutions for having a weak financial services regulatory regime. 

Subsequently, through extensive consultations with the European Banking Authority, the European Commission, Moneyval and FATF, the supervisory and regulatory regime was revised to ensure Malta can be more effective in its fight against financial crime. 

The new penalties reflected the recommendation that they should be ‘proportional and dissuasive’. 

However, this regime is now undermined as a result of repeated legal challenges that have seen companies win constitutional cases that effectively slashed the penalties to a pittance. 

According to the Malta Financial Services Authority CEO Kenneth Farrugia, the situation is leading to some companies adopting a cavalier attitude with regulators in the knowledge that hefty penalties will be struck down by the courts. 

And the situation is not limited to regulators like the MFSA and the FIAU. Only last week, the court struck down a penalty levied on a passenger who travelled through customs at the airport without declaring cash in excess of €10,000. 

A few years back, the court also struck down the Electoral Commission’s ability to investigate and fine political parties over failures to file their accounts. This has left the commission powerless to act when wrongdoing is flagged. 

Whereas the latter case is a purely domestic matter, the cases involving financial services regulators have cross-border implications and may impinge on Malta’s good standing as a jurisdiction. 

It is within this context that legislators have to step up to the plate and make the necessary legal changes to ensure that regulators can carry out their duty in an efficient, expeditious, fair, proportional and dissuasive manner. 

Unless the law is changed, Malta risks returning back to the FATF greylist over its weak enforcement regime and this is not a prospect anyone would relish. 

The law has to change to reflect the decrees of the Constitutional Court – Malta’s judicial set up requires that people are afforded the right to a fair hearing, which includes the ability to defend yourself from accusations that are known to you and the right to appeal – but at the same time ensure the regulators can work effectively in their fight against financial crime. 

The status quo benefits only those who have criminal intent or are adamant in playing a high-stakes game with all the risks it entails in full knowledge that a crackdown by the authorities is unlikely to be damaging if things go south. 

Financial crime requires specific legal and administrative tools to be fought, otherwise the State would be giving the criminals and terrorists a blank cheque to do as they please. 

It may be difficult to reconcile the human rights approach with a regime that grants special powers to certain authorities, however it is not something impossible to achieve. After all, several countries have enacted special laws to counter terrorism over the past two decades and there is no reason why financial crime should not be treated in the same manner. 

Government has a duty to sit down with the Opposition and chart a way out of the current impasse that respects Malta’s legal set up while giving entities like the FIAU and the MFSA the tools to be effective watchdogs.