PANA Committee not the only ones to put Malta’s financial services industry and enforcement under the microscope

The EU Parliament’s PANA Committee will not be the only ones looking into the bones of contention of Malta’s financial services industry and financial regulations, with a Council of Europe monitoring body expected to conduct an evaluation in 2018.

MONEYVAL – the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism – is a permanent monitoring body of the Council of Europe. The upcoming evaluation will form part of the 5th cycle of country evaluations. Its last evaluation on Malta’s system and laws took place in 2012, with a follow-up having taken place in 2015.

As a result of the 2012 evaluation process in Malta, 25 Financial Action Task Force (FATF) Recommendations were evaluated as “compliant”, 15 as “largely compliant”, nine as only “partially compliant” while none were deemed as “non-compliant”. Follow-up reports detailed how Malta has taken measures to address many of the partially compliant issues found through their 2012 evaluation.

Asked whether they look into financial services industries during their evaluations, MONEYVAL told The Malta Independent that the Financial Action Task

Force (FATF) methodology that MONEYVAL applies looks very closely at how the financial services industry applies antimoney laundering and counterterrorism financing (AML/CFT) Standards.

“In particular, the evaluation focuses on how well the financial sector (including banks, insurance companies and the securities sector) and the non-financial sector (including trust and corporate service providers (TCSPs), lawyers and accountants) apply customer due diligence measures (including with regard to politically exposed persons), record keeping and reporting of suspicious transactions. When assessing these requirements, consideration is given to the materiality of each sub-sector within the country and the specific money laundering and terrorism financing risks that the country faces.”

MONEYVAL described itself as one of nine FATF-style regional bodies and thus part of the global network of AML/CFT evaluation bodies which apply the same standards and rules set by the FATF.

On the basis of the ratings of MONEYVAL reports, its members may be subjected to the FATF’s International Co-operation Review Group (ICRG) process. All MONEYVAL jurisdictions identified for review by the ICRG are referred to the ‘European/Eurasian Review Group’ (ERRG) which is co-chaired by both a Financial Action Task Force and a MONEYVAL representative. As a consequence of the International Co-operation Review Group process, the FATF identifies as ‘high risk and noncooperative countries’, jurisdictions with strategic anti-money laundering and counter terrorism financing deficiencies.” MONEYVAL does not only look at the letter of the law. “Indeed, the focus of MONEYVAL’s evaluations is on the effective implementation of anti-money laundering/counter financing of terrorism standards by its members. These standards that MONEYVAL applies are the 2012 FATF Recommendations, and evaluations are conducted in accordance with the FATF’s 2013 Methodology. The 2013 Methodology is designed to move away from a simple assessment of the laws in place and places emphasis primarily on the effectiveness of a country’s anti-money laundering and counter terrorism financing regime.

“By way of example, the focus is not on whether the money laundering offence in the criminal code of a country is in line with international standards, but whether the country has been effective in investigating, prosecuting and convicting persons who have committed money laundering offences.”

The past few years have seen a number of leaks take the world by storm, such as the Panama Papers, SwissLeaks and Lux Leaks. Asked whether this has changed the way assessments are handled, MONEYVAL said this was not the case.

“The manner in which assessments are handled has not changed following the revelations mentioned in your question. However, it is to be borne in mind that the methodology for conducting evaluations has changed significantly since 2013. MONEYVAL has been using this revised methodology since 2015, when it started the 5th cycle of evaluations. It is pertinent to point out that, under the revised Methodology, the evaluation starts off with a scoping exercise, which is intended to assist the evaluation team in identifying areas of higher risk and materiality within the evaluated country.

“These areas receive more attention during the on-site visit. For instance, if a country has an important trust and corporate service provider or online gambling sector, the evaluation team will want to meet a number of representatives from the sector individually to gauge the level of compliance by the sector. Information from certain ‘leaks’ which have received significant media attention are also considered in this scoping exercise.”

Asked whether there is any particular issue they would want to investigate in Malta, the body said that the particular issues on which the evaluation team may particularly focus are yet to be determined. “Those issues are usually decided only a few weeks before the on-site visit takes place, in order to be able to take into account the most recent developments in that country. The evaluation is guided by the risks, materiality and context of the country. MONEYVAL usually also takes into consideration recommendations from its previous reports and whether or not these have been implemented by the country in the interim period.”

Turning to the idea of companies in secretive jurisdictions being listed as shareholders in EU companies, MONEYVAL argued that is a monitoring mechanism and, as such, it does not pronounce itself on policy-related issues.

“There have been many studies which indicate that the use of corporate vehicles based in jurisdictions which apply secrecy significantly increases money laundering and financing of terrorism risks. In the course of an evaluation, MONEYVAL assesses countries’ compliance with FATF Recommendation 24 and the level of effectiveness achieved under Immediate Outcome 5 (both of which deal with the transparency of legal persons).”

FATF Recommendation 24 and immediate Outcome 5 deal with the need for countries to ensure that there is adequate, accurate and timely information on the beneficial ownership and control of legal persons that can be obtained or accessed in a timely fashion by competent authorities, with a particular focus on legal persons able to issue bearer shares, or the use of nominee directors or shareholders, and that effective measures are taken to ensure that these are not misused for money laundering or terrorist financing.

MONEYVAL also said that the large majority of countries assessed by MONEYVAL under the 5th cycle (this cycle) have received poor ratings for Immediate Outcome 5, “which is an indication that the effective implementation of transparency requirements for legal persons still poses a challenge for many countries.”