Sanctions expert: 'Malta is guilty until it proves itself innocent'

On the international stage, Malta is guilty until it proves itself innocent. But Tom Keatinge, Director of the Centre for Financial Crime and Security Studies at RUSI, says fellow Member States can learn a thing or two from Malta on its sanctions policies.

Keatinge, who was in Malta for workshops on sanctions, said he was impressed by the coordination and community in Malta on sanctions, which is a far cry to the impression many abroad have of Malta’s sanctions approach.

“When I told people I’m going to Malta for a few days to talk about sanctions, they were like, ‘Oh, good luck there’. Malta is one of those places that is guilty until it proves itself innocent. People are quick to judge Malta and Cyprus, but I can tell you that I’ve been to Cyprus and I’ve been to Malta and it’s completely different when it comes to sanctions,” Keatinge said.

Despite the reputation abroad, Keatinge felt that Malta could actually teach other Member States on certain best practices regarding sanctions. “I mean, obviously Malta has challenges. It might be good at policy, but I think enforcement, not only on sanctions… Malta doesn’t have a good track record of investigating, arresting and putting the bad guys in prison.”

Tom Keatinge, Director of the Centre for Financial Crime and Security Studies at RUSI

Keatinge also said he was impressed by a point raised by professionals locally: that Malta was the European country most impacted by sanctions on Libya in 2011.

“Often when we talk about sanctions they’ll say it’s just messaging, that there’s no real connection between Syria and the EU, so the sanctions are just about communicating that we disapprove of what’s going on,” he said. “What I hadn’t appreciated before this visit was that for Malta, Libya was also a kind of integration moment. When the sanctions were imposed there, it had a material impact on Malta, it wasn’t just a message.”

“I will go back to the airport with a positive view. And next time I’m in Brussels I will communicate that positive view. Definitely.”

Preventing sanctions circumvention

Sanctions circumvention refers to the actions taken by individuals, organisations, or governments to evade or bypass economic sanctions imposed by one country or a group of countries against another. These sanctions are typically put in place to influence the behaviour of the targeted country or to punish it for certain actions, such as violating international law or human rights abuses.

But Keatinge admits that sanctions circumvention cannot be prevented entirely. Rather, Member States can work to make circumvention more difficult.

“And that falls into two parts. The more high-profile part, which is being done by the European Commission, by the UK, by the US, is going and visiting countries and making them aware. [...] You make it clear that this is what’s happening, and you ask for them to stop.”

However, Keatinge suggests that Member States should also be clearer in their home countries.

“You’ve got industries in your country which are producing critical items for the Russian military? Then you need to make it crystal clear that a spectacular increase in exports to Kazakhstan is not the reason for everyone to get a bonus. It’s a reason for everyone to go ‘What is going on here?’. And I don’t think we have necessarily created an environment to develop that sort of attitude.”

Keatinge said this is a particular challenge in the corporate world, as opposed to sectors like finance and compliance that have been subject to more stringent rules along the years.

“The banking sector and those other regulated entities have a history of being nervous and having to worry about compliance and, you know, identifying suspicious activity and sending reports to the financial intelligence unit, all that sort of stuff, right. It’s in their DNA now, after many years of being beaten up about it.”

“On the corporate side, it’s not in their DNA at all. Their DNA says: sell more. So I do think that governments need to really work hard to get the corporate sector to realise that not all trade is good trade. And they need to be thinking about the nature of the trade they’re doing in more detail than they are currently.”

Keatinge also said that it’s good for Member States to make examples of some companies. “I was a banker for 20 years, and I know that when one of my competitors got whacked by the US Department of Justice, or the US Treasury, we were like, whoa, OK, that was close. That could be us next time. So I do think we need some examples made.”

The changing faces of third countries

The use of "third countries" in sanctions circumvention refers to leveraging nations that are not directly involved in the sanctions regime to facilitate trade or financial transactions between the sanctioned entity and other parties. Third countries may act as intermediaries, providing a loophole for bypassing sanctions restrictions.

Keatinge referred to three categories of third countries being used to circumvent sanctions. “You’ve got the third countries that are rogue states, so North Korea, Iran, Belarus as well, who don’t give a shit, right? They are actively supporting Russia. Then you have the third countries who, for a variety of reasons, don’t want to align with either Ukraine and its allies or Russia.”

“And then the third group, and I think this is a group that we’ll hear much more about as this year goes on, are the countries that are not necessarily circumvention countries but actually production centres themselves. We’re talking about goods going from Malaysia to Hong Kong to Russia, and of course those are beyond the reach of the EU.”

Keatinge suggests that there will be more focus on this third category throughout the year. “Let’s say a Malaysian bank is processing transactions for trade that goes to Hong Kong and then that trade goes on to Russia. The US will come after that Malaysian bank, even though the trade does not touch the EU or the US. The US can get a bank anywhere in the world because it’s probably using the US dollar, and as soon as you use the US dollar, you are deemed to be connected to the US.”

Sanctions monitoring as important as ever

While there have been repeated attempts to sanction Russia, and many attempts from Russia to circumvent those sanctions, Keatinge insisted that there is no reason to give up.

“What we did after 2014 was we did a load of sanctions on Russia and then we thought ‘Oh, we’ve done sanctions on Russia. Let’s go home’. And essentially, you know, the sanctions were targeting one thing, and that moved, and our sanctions were then basically targeting a blank space. And we didn’t shift to respond to what Russia was doing,” he said.

“At the end of the day, Russia has agency, so Russia will react to sanctions we put in place. And we need to constantly track what’s going on to ensure that whatever steps they take in response to Package 14, if they respond to that then Package 15 has to respond to that. It’s just going to be a constant game of ping pong, and we just need to keep focus on that.”

Keatinge said that, if Ukraine is to win the war against Russia, its allies will have to remain focused and keep adjusting to ensure that sanctions are disrupting Russia.

“This means having a permanent unit focused on Russian sanctions, that’s going to track how Russia responds to the sanctions we’ve put on it, because otherwise a year from now they’ll set up an entirely parallel economy. The sanctions will be targeted at an empty space.”