The grey list and the election: Abela's choices

Grey is the colour Malta will want to avoid later on today as the Financial Action Task Force decides the country’s fate.

Malta risks being placed on the international grey list of jurisdictions that require enhanced monitoring of their anti-money laundering.

This is one list the country would want to avoid because of the potential impact this could have on the financial services sector.

Government, its regulatory institutions and financial services practitioners believe it would be unfair for Malta to be placed on the grey list, given that it passed the technical compliance test undertaken by Moneyval, a Council of Europe body.

A daunting task

But the fear among senior government sources and others within the regulatory regimes is that the final decision will be “political” and not of a technical nature.

FATF has 37 member states and two institutions that will vote on the recommendation put forward by the secretariat.

The result is not decided by a simple majority and any three member states can block the vote. This is why Malta faces a daunting task.

Sources have indicated that Germany, which also holds the presidency of the FATF, the UK and the US want Malta on the grey list and that will be enough to sway the vote, irrespective of whether the rest vote against.

Being on the grey list is not the end of the world but the country will find that things will suddenly become more complicated on the international stage.

Financial services, banking and the gaming sectors will be the ones to face the brunt of enhanced international scrutiny and due diligence.

Economic recovery after COVID-19 may become more complex than previously thought, as a result.

Within this context, FATF’s decision may also have political ramifications that cannot be underestimated.

A problematic inheritance

For the past 18 months, Robert Abela’s government has been on a reformist spree to clean up the mess his predecessor left in the field of money laundering.

People close to power like Konrad Mizzi and Keith Schembri, who escaped unscathed from the Panama Papers scandal in 2016, were pushed away with a barge pole.

Schembri has also been charged, along with several others, including accountants Brian Tonna and Karl Cini, with money laundering, fraud and corruption.

The police were given a new lease of life with the appointment of Angelo Gafa as commissioner and regulators like the Malta Financial Services Authority and the Financial Intelligence Analysis Unit have been beefed up.

Prosecutions for money laundering have also increased.

Abela may pride himself in turning around a very problematic inheritance into an opportunity to do things right.

But failure to remain off the grey list and its impact on certain economic sectors may require the Prime Minister to look beyond the legalese.

The Prime Minister may try to slate the Opposition by accusing them of not putting the national interest at heart in the face of international pressure. He may also try and stamp his feet within the EU – a move that will earn him brownie points in Malta but which may alienate European allies.

Abela may also feel empowered to ask for higher standards from his own MPs and ministers.

A new mandate

But beyond this Abela will have to give serious consideration to the fact that he may require a new and clear mandate to straighten things out.

A debacle at FATF can provide the right pretext for an early general election in which Abela will want to show he is his own man. He will want to show that he is able to take the Labour dream forward without the excesses and illegalities that were allowed to permeate under his predecessor.

The problem with such a consideration is timing.

The earliest an election can be held, given the timeframes laid out by the Constitution and the practice to hold elections on a Saturday, is 31 July.

This would mean an election campaign in the summer when people are more intent on relaxing, holidaying and hopefully enjoying the newfound freedom after COVID.

Abela will not want to disrupt the summer and the feel-good factor it may bring with it if the COVID pandemic remains under control.

The next plausible option will be October, giving Abela time to take stock of the FATF decision and map out a way forward to get off the grey list as quickly as possible.

A budget complication

The only complication will be the timing of the budget. An October election can disrupt the Finance Minister’s plans for Budget 2022.

It is unlikely that Abela will want to forfeit the budget for an election.

The last time an October election was held was in 1996, when Eddie Fenech Adami called a snap election because the country’s finances had taken a turn for the worse and the budget would have exposed the problematic reality.

Abela would want to avoid the odious comparisons with 1996, when his own father was deputy leader of the Labour Party that was elected to power to find a gaping hole in the country’s finances.

This means that Abela’s best option for an election this year will necessitate the budget to be held in September. But any such move will be a clear signal to his political rivals of his intention.

The next and possibly most plausible option is March 2022.

This date will give the Prime Minister the chance to present a budget, lay out his plan to get off the grey list, assert himself more and have a clear view of how the COVID pandemic will transform.

Abela will have to endure nine months of criticism and pressure over the FATF decision to grey list the country. He will also have to deal with the repercussions on the financial services industry.

But the length of time can also give Abela an opportunity to continue straightening things out and distinguish himself and his government from its predecessor.

‘I told you so’

In all this, the Labour leader does have the advantage of survey numbers that continue to give him strong support and an Opposition that remains in tatters, unable to rally enthusiasm about anything.

How long this advantage will last depends in part on the Nationalist Party’s ability to change, rope in new faces and present itself as an alternative government. The prospects so far, do not appear too good.

However, the PN will have to choose its words carefully, if Malta does make it to the grey list.

Adopting an ‘I told you so’ attitude without a modicum of criticism towards the international big brother politics at play will only reinforce Labour’s message that the PN is only interested in harming Malta’s reputation abroad to gain power.

All the math and political analysis to choose the best timing for an election will only kick in if FATF chooses the unpalatable option to grey list Malta.

But with the election being the Prime Minister’s sole prerogative, any date from July 2021 to September 2022 could be an option.

Abela may yet decide to sit back and take Labour to its full term despite the looming prospect of grey clouds on the horizon.

And if Malta avoids the grey list this afternoon, it will be a different story altogether for Abela and his government. But that will be something to write about on another occasion.

READ MORE: D-Day for Malta: Decision on grey list to be taken today by FATF