FIAU cautious over legal challenges to overweening powers

Malta’s financial intelligence authority (FIAU) is taking a cautious stance over a spate of court decisions that are both overturning its administrative powers to fine rule-breakers, as well as naming and shaming companies falling foul of money laundering laws.

The FIAU has the power to scrutinise as well penalise financial services practitioners, banks, accountants and other asset brokers, which fall foul of the Prevention of Money Laundering Act.

But both this power, and its name-and-shame publication of rule-breakers, is being successfully challenged by the entities it oversees.

The latest decision from the Civil Court, in its Constitutional Jurisdiction, rendered the administrative penalties the FIAU gave Lombard Bank as “null and void” as well as “unconstitutional” for being in breach of Lombard’s right to a fair hearing by an independent and impartial court.

Lombard Bank had been slapped with a €340,058 fine over breaches of money laundering regulations.

The same has happened with Insignia Cards, and Phoenix Payments where fines to the tune of €373,670 and €435,576 respectively were shot down by the courts.

Central to the court decisions is the fact that the FIAU is acting as both investigator and judge, in a process which complainants claim does not give them a fair hearing. As decreed by Mr Justice Lawrence Mintoff in the Insignia case, the FIAU’s powers to act as prosecutor, judge, jury and executioner, breached fair hearing rights.

The FIAU says the matter has yet to be fully resolved at Constitutional level.

“It is pertinent to clarify that since the cases are under appeal the judgments are not yet final and enforceable until a final judgment is handed by the Constitutional Court,” an FIAU spokesperson told MaltaToday.

“The appeals filed stem from the obligation the FIAU and the State Advocate have towards safeguarding Malta’s enforcement framework by imposing effective, proportionate, and dissuasive administrative penalties when breaches of the AML/CFT legislative provisions are identified.

“Therefore in the meantime, the FIAU continues to operate within the parameters of the laws it is governed by and to fulfil its legal responsibilities assigned to it under the Prevention of Money Laundering Act, including its responsibility to ensure that effective, dissuasive and proportionate administrative measures are taken when breaches of money laundering obligations are identified as it did to date and clearly confirmed by the judgement issued by the First Hall, Civil Court in its Constitutional Jurisdiction.”

The main legal argument bolstering these cases is based on a 2018 case filed by the Nationalist Party’s secretary-general against the Electoral Commission, which challenged the regulator’s powers to act as investigator with the power to impose substantial fines on political parties falling foul of the party financing rules.

In that case, the Constitutional Court found that when the nature of the offences was criminal, such ‘charges’ could only be dealt with in a court of law.

Previous decisions by the European Court of Justice on such regulators, which take administrative decisions on matters that are of a criminal nature, have also informed the Maltese courts’ decisions.

The FIAU’s fines, which have included a €1.1 million fine on financial services firm MPM Capital Investments, were said by the courts that these cannot be considered “administrative” fines, despite their power as a deterrent against wrongdoing. In the Insignia case, the court said that the risk was that the FIAU could end up, arbitrarily “imposing an exaggerated and perhaps even unfair administrative penalty in the event of a minor infringement.”