Looking back at 2021 | One shade of grey

On 23 June 2021, Malta became the first European Union member state to be grey-listed by the international Financial Action Task Force. 

39 members of the FATF decided Malta’s fate, in a consensus that was marked by stiff resistance from the United States, the United Kingdom and Germany. 

But the decision comes at the tail-end of years in which Malta’s Labour administration presided over a weakening of anti-money laundering rules: from the sale of citizeship to high net-worth individuals, criticised by the European Commission; to the harsh light on its Financial Intelligence Analysis Unit and inaction on the Panama Papers when the prime minister’s right-hand man was revealed to have set up a secret offshore firm, Malta was never too far off from international scrutiny. 

Under the German Presidency of Marcus Pleyer, delegates representing 205 members of the FATF global network and observer organisations including the International Monetary Fund, the United Nations and the Egmont Group of Financial Intelligence Units took part in the virtual meeting of the FATF Plenary. 

During five days, they discussed key issues to strengthen global action against the financial flows that fuel crime and terrorism. 

The organisation, which serves as a watchdog against money laundering and terrorist financing, was then run by the German presidency. 

Storm brewing 

The FATF decision came only a couple of months after Malta passed its Moneyval test following a series of reforms that beefed up the country's anti-money laundering regime. 

On 29 April, the Council of Europe's anti-money laundering committee voted in favour of a final report on Malta's AML and terrorism-financing safeguards during a plenary session held in Strasbourg. 

The report commended Malta on its efforts to address financial crime shortcomings.  

The Maltese government had received the conclusions from the Moneyval group to the draft Enhanced Follow-Up Report, a crucial document for the future of Malta’s banking and financial services industry. 

Malta had initially failed a first assessment from Moneyval in 2019, after which the government was given a year to patch up any legislative gaps in terms of money laundering and terrorist-financing. 

In March this year, Robert Abela warned the financial services sector that Malta was in a crucial stage relating to the Moneyval assessment.  

Passing the Moneyval test was considered to be a major step forward in securing a positive FATF outcome. 

Reforms within the police force had seen the creation of a more robust financial crimes unit that led to high profile prosecutions on money laundering and other financial crimes. 

This was an important development since one of the major complaints flagged by Moneyval had been a lack of prosecutions by the police despite red flags noted by regulatory agencies like the Financial Intelligence Analysis Unit and the Malta Financial Services Authority. 

The FIAU and the MFSA also underwent transformation with more resources being directed  their way. 

Pressure had been mounting on Malta the preceeding months with cabinet ministers speaking in confidence to journalists about pressure from the American government over the country’s fights against money laundering, in a bid to extract security concessions from the island-nation. 

While the US only has observer status at the Council of Europe’s Moneyval monitoring body on compliance with international standards on money laundering, it retains clout inside the international FATF, where the Moneyval assessment will be reviewed. 

According to information gathered by MaltaToday, the US government was interested in getting the green light from Malta for a Status of Forces Agreement, as well as winning closer cooperation on intelligence to tackle the problem of arms and drug trafficking at Hurd’s Bank, a security challenge that is high on the American agenda for Malta. 

The US considered the SOFA deal crucial towards enhanced interception of the smuggling routes around Hurd’s Bank, an offshore bank to Malta’s east that is used to bypass US sanctions on illegal transhipments. 

The Americans were said to be insisting on “concurrent jurisdiction”, that is a system where both American and Maltese courts have jurisdiction. But the Maltese were jittery about the demand, a situation that would lead to both parties quibbling over having any prospective criminal case heard in the court they perceived to be most favourable to them. 

The US had actively encouraged Maltese requests for United Nations Security Council sanctions against fuel smugglers which also used the national oil storage tanks to store smuggled Libyan fuel; but while sanctions enforcing Libyan embargo rules would grant the US a route to easily board ships it suspected of carrying smuggled oil and weapons, a SOFA would mean having American naval muscle in its backyard to deal with such situations. 

Apart from winning greater US monitoring on Hurd’s Bank, the Americans were demanding that the Chinese embassy in Pembroke be, literally, cut down to size. 

The Chinese embassy wants to rebuild its headquarters here on a 19,000 square metre plot in Pembroke. The Chinese government had purchased the land from the Maltese government for €7.8 million in 2015 after the decision was approved by both sides of parliament. The Chinese had first approached the Nationalist administration about the desired land back in 2007, requesting a 10,000sq.m are of land. Since then, the size almost doubled. 

The US embassy was also reported to be leaning on the Maltese government to achieve a favourable resolution to the Steward Hospitals impasse. 

Steward Healthcare founder and boss Ralph de la Torre had already locked horns with Prime Minister Robert Abela and health minister and deputy PM Chris Fearne over the future of the hospitals’ project and an agreement signed with former minister Konrad Mizzi. 

Steward had a memorandum of understanding that was expected to be followed up by a new contract in 2019, but was never formally signed because of the political crisis that saw Muscat resign. 

De la Torre was accompanied by a representative of the United States embassy in talks with Abela and Fearne in 2020. 

The American healthcare company, which stepped in to buy the mysterious Vitals Global Healthcare in December 2017, insisted on a new contract that gave them more money to run the three state hospitals – up to €120 million annually – and wider berth on default clauses. They had already won concessions from Muscat to ensure Steward gets extra finance to continue operations while in Malta. 

The Maltese were already exposed to a new kind of risk on the Steward hospitals’ concession: information received by a magistrate carrying out an inquiry into the controversial public-private partnership, revealed an “escape clause” that would turn any termination of the Steward concession into a government default. The agreement was signed by Mizzi and Steward so that should the hospitals’ concession be terminated by a court of law – for whatever reason, and even if Steward is in breach of contract – such an event would be a government default. That would mean that all debts incurred by Steward would be passed on to the government, with the American company still remaining liable for a €100 million contractual pay-out for its equity. 

One minister who spoke to MaltaToday referred to the influence of the US embassy as being “impossible to ignore”. 

“The Caruana Galizia assassination is intimately connected to shortcomings on rule of law, which is itself tied to our Moneyval performance on money laundering. The fact that someone like Yorgen Fenech is charged with the murder, throws light on the Electrogas power plant as well.” 

Financial services practioners confident of quick resolution 

In the wake of the FATF’s decision to place Malta on its grey list, the Institute of Financial Services Practitioners said it was confident that, with a concerted effort, the country can reach the effectiveness outcomes sought within a short period. 

The IFSP said that the substantial progress made by Malta over the past years to address shortcomings in its anti-money laundering regime had been recognised by the Financial Action Task Force (FATF). 

“It is regrettable that, despite the significant progress reported by MONEYVAL, the FATF has placed the jurisdiction under increased monitoring, also known as the Grey List,” it said. 

“Unlike a number of other countries (including some EU Member States and other large countries) Malta does not have any “non-compliant” or “partially compliant” grades and has therefore fared better when viewed through the lens of the FATF’s own risk-scoring matrix.” 

The institute said that Malta had made big strides forward in its fight against money laundering and financing of terrorism, so much so that it was now either largely compliant or fully compliant with all 40 of the FATF recommendations. 

“The financial services industry is proud to have been part of the process to raise the bar in AML and CFT compliance and that its cooperation with the authorities over the past months has led to this significant progress,” it said. 

Employers 

A survey carried out by the Malta Employers' Association into the perceptions of businesses about Malta's FATF greylisting found that almost 90% of Maltese employers fear this will leave a negative impact on the Maltese economy. 

The survey revealed that 88% of respondents believe that the FATF greylisting will negatively impact the Maltese economy, with 64% anticipating strong repercussions. 

71% of companies anticipate that the greylisting will affect their business directly, and 63% of respondents reported that the greylisting will be affecting them within the coming six months. 

Companies in financial services, igaming and other services are expecting stronger repercussions than manufacturing, wholesale and retail, and tourism. 

Businesses were also concerned about rising compliance costs, with some companies having resorted to employing additional personnel to deal with the bureaucracy of added compliance. 

The survey results concluded that the main reasons attributed to the grey listing were money laundering activities, a defective rule of law and justice system, institutional corruption, lack of transparency and weak institutions. 

The most salient recommendation submitted by respondents was the need for an effective and efficient justice system; the prosecution of corrupt politicians, PEPs and business people; the resignation of implicated politicians and the implementation of Moneyval/FATF recommendations.