FIAU refused referral to EU Court over fines Maltese courts refuse to uphold

The Constitutional Court has turned down a request by the Maltese financial intelligence agency to petition the European Court of Justice for guidance on the interpretation of EU law inside the Maltese courts.

Malta’s anti-money laundering watchdog, the FIAU, has been dealt dozens of court judgements by the superior courts which have declared its fines and sanctions policy to be “completely illegal” because supervised entities have no fair right of hearing.

The FIAU is contesting a decision in which the courts ruled its €435,000 fine for Phoenix Payments was unconstitutional.

But the Constitutional Court decreed there was need for an interpretation of EU Treaties for it to decide the FIAU’s appeal. “The issue in this case is the applicability and interpretation of Article 39 of the Constitution of Malta, given the choice made by the Maltese State,” said the Constitutional Court, presided by Chief Justice Mark Chetcuti.

Article 39 provides that everyone charged with a criminal offence must be given a fair trial by an ‘independent and impartial tribunal established by law’.

The FIAU, as a government agency, insists it is empowered to supervise compliance by persons subject to anti-money laundering laws, with the power to impose administrative penalties on subject persons.

It insisted with the Constitutional Court that it is empowered by a European Union Directive of 2015, which states that member states can lay down such rules as required for their competent authorities to impose sanctions. The FIAU insisted the Directive allows it to exercise its powers to sanction those in breach of money-laundering rules.

The FIAU wanted the ECJ to clarify whether Directive 2015/849 allowed it to impose administrative measures and sanctions “which may be classified as criminal although they are not a result of criminal law as normally understood” and whether Article 39 of the Constitution of Malta might “undermine the primacy, unity and effectiveness of EU law”.

But the request was turned down by the Constitutional Court: “By law the Maltese State opted for administrative sanctions to be imposed by the FIAU. It is the sanctions being imposed by the FIAU that are giving rise to various cases in which the persons subject are complaining that a breach of Art. 39 of the Constitution has occurred.”

Phoenix Payments case

The FIAU is appealing a judge’s ruling that its administrative penalties are unconstitutional and in breach of the rights of subject persons to be tried by an independent court.

The landmark judgment was handed down in a case brought by payment processing company Phoenix Payments against the FIAU’s power to act as investigator, prosecutor and judge when it slapped it with a €435,000 fine in 2021.

The Court ruled that the FIAU did not classify as a court as prescribed by law, and that its power to impose administrative penalties on the basis of the Prevention of Money Laundering Act, was unconstitutional and therefore in breach of the European Convention of Human Rights.

According to this law, the FIAU may impose administrative penalties not exceeding €5 million.

In another judgement, Mr Justice Toni Abela said the FIAU’s onerous fines were punitive and “quasi-criminal”, and therefore should be issued by a court or juridical body that gives such companies the basic right of being tried by an independent and autonomous tribunal.

Mr Justice Abela said the FIAU’s punishments were “completely illegal because they are not sanctioned by any law and the law reigns over everyone.”

The FIAU’s own policy, as stated by an internal document it presented in another case concerning a challenge to its compliance measures, is that fines “should be punitive and act as a deterrent to non-compliance” where subject-persons would consider these penalties as a ‘mere cost of doing business’ but significant enough to impact on the annual income.”

However, Mr Justice Abela said the FIAU’s fines were so punitive that they force the appellant companies to wind up operations.

The judge said punitive fines could only be issued by bodies that offered the necessary legal protections and that those who did not, would not find the court as their defence, and described the FIAU’s sanctions policy, through which the fines are calculated, as “convoluted, opaque and byzantine”.