Money laundering investigations are based on FIAU reports, ‘but almost none lead to prosecution’

The gaping lacuna between the investigation and prosecution of money laundering cases by the Maltese authorities was exposed this week by the Council of Europe’s Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (Moneyval).

In fact, this week’s Moneyval report, which provided a scathing indictment on the lack of prosecution for such offences in Malta, was crystal clear about where the buck stops, and where it should actually continue.

Somewhat buried within its 233-page indepth assessment of the Maltese jurisdiction, the report finds that, “The majority of money laundering investigations (by the police) are based on Financial Intelligence Analysis Unit (FIAU) reports, although almost none of those investigations seem to lead to prosecutions (bearing in mind that the police have also the role of prosecution service).

The finding puts paid to much of the criticism the FIAU has borne over the last couple of years, particularly after it was accused of burying Panama Papers-related reports incriminating top government officials such as Minister Konrad Mizzi and Office of the Prime Minister Chief of Staff Keith Schembri.

In fact, Moneyval found, the majority of prosecutions, which still represents a small number – four prosecutions opened per year between 2014 and 2017 – are based on investigations initiated in the absence of a FIAU report.

Malta achieved the following numbers of money laundering convictions over the past five years for natural persons: six convictions (2014), five convictions (2015), four convictions (2016), eight convictions (2017) and three convictions (until November 2018).

The predominant predicate offences for the offences were theft, drug trafficking, fraud, corruption/bribery and misappropriation.

A significant number of ML investigations have originated in the last three years in magisterial inquiries: One in 2016, four in 2017 and eight in 2018.

“Most of these,” Moneyval reported, “are, however, on-going and the assessment team could not be provided with information on possible prosecutions due to the confidentiality of such investigations.”

It reported that the related predicated offences are mostly corruption and fraud, which cases are well known, and only one case is related to drug trafficking.

The Panama Papers FIAU leaks

On the leaks of FIAU documents to the press in the wake of the Panama Papers revelations and ahead of the last general election, most of which had been published by this newspaper, in the national interest, Moneyval acknowledged in black and white that the reports, detailing Schembri’s and Mizzi’s financial machinations, were the real thing despite arguments to the contrary by many a government acolyte.

In its assessment, Moneyval finds: “Certain measures have been taken to prevent the recurrence of previous incidents in 2017, when highly-confidential information was leaked and subsequently published by local and international media.

“The information in question consisted of two reports which had been disseminated by the FIAU to the police for further investigation, and contents from an internal draft analytical report. A compliance report was also leaked.”

But despite new security measures adopted after the leaks, which had allegedly been done by a then-senior member of the FIAU’s staff, Moneyval found that, “considering that these security measures were taken recently, the assessment team was not able to conclude on the effectiveness of the initiatives undertaken by the FIAU to prevent possible new cases of information leakage.”

Such measures include the FIAU obtaining full criminal records of people offered positions within the Unit and as of recently and in addition to the Malta Security Services and criminal conduct related checks, the FIAU has itself started undertaking checks and searches on people even before being offered a position.

These checks are carried out by the managers or the most senior members of the Financial Analysis section and are treated with utmost confidentiality.

The FIAU recently implemented additional scrutiny process for members in very sensitive positions, who are subjected to further tests.

In light of the leaks, and in order to prevent, as far as possible, possible future cases of leakage of information, the FIAU, according to Moneyval, has also acknowledged the importance of investing in hardware and IT systems.

FIAU’s independence

The report also appears to have settled the longstanding accusation that the FIAU is in the pocket of the government of the day, when it reports: “Based on the discussions with the representatives of the FIAU and presented sanitised cases, the assessment team concluded that the FIAU officers perform their functions freely and objectively without undue influence.”

Authorities’ focus on tax collection raises concern

Only in a limited number of cases were the FIAU disseminations to the police used to develop evidence and trace criminal proceeds related to money laundering, the report found.

“The authorities’ focus primarily on tax collection (as opposed to conducting criminal investigation on tax-related matters and parallel financial investigations) excludes the money laundering elements of the cases, which raises concerns on the adequacy of the measures applied by the competent authorities, in the light of conclusions about tax evasion being one of the highest threats in the country.”

Moreover, some concerns were flagged regarding the use of the Suspicious Transaction Reports, mainly from the remote gambling sector concerning nonresidents, “as these cases are not considered sufficiently to identify possible money laundering taking place through Malta.”

There are only few financing of terrorism-related investigations conducted by the police, of which some were still ongoing at the time of the on-site visit.

“Therefore,” Moneyval found, “it is difficult to conclude on the use of financial intelligence by the authorities for the purposes of financing of terrorism investigations.”

The Malta report, it appears, had also been given particular attention, having been reviewed by none other than the International Monetary Fund, the FATF Secretariat Gabor Simonka of the Hungarian FIU, and Katherine Hutchinson of the US Department of the Treasury.