2020 – A year of challenges

2019 was a year that saw a dark cloud tarnishing our reputation as a financial domicile. Party apologists hope that this cloud will float away next year and let in the sunshine. Realistically, however, we know that living on hope is a risky habit, so let

At a time when the property market is showing signs of a slow-down, some speculators may find 2020 a bumpy year in which over-priced luxury apartments will not sell. For some years there have been suggestions pointing to a reform of the FIAU, the MFSA, the Police and P.A. While other EU countries have not escaped incidents of institutional scandals, Malta was truly shocked by the murder, two years ago, of a leading journalist. Allegations that the murder plot was linked to top political members at Castille has shaken our faith in police prowess and the Justice Ministry, with people asking if they are fully geared to protect us.

Traditionally, we had faith that they would effectively keep out the big, bad wolf. Recent events – culminating in the resignations of three top Ministers, including Prime Minister Joseph Muscat – has rocked the boat and left everyone gasping and wondering what to expect next year. The arrest of the wealthiest businessman on suspicion of complicity in the murder is giving the plot an evil twist: as the saying goes: it does not rain – it pours.

The reputational damage is exacerbated by the forced closure of three small, private local banks: Nemea, Satabank and the Iranian-owned bank, Pilatus. The recent reprimand of Bank of Valetta by the ECB over AML and governance issues sent out shock-waves, since this bank is run by a chairman appointed by the government – which is its largest shareholder. All these factors have taken their toll on public opinion, while we are still feeling the cold blast of negative publicity following the disclosure of Panama companies in 2015 registered by Nexia BT (representing Monaco Fonseca) destined for top members of the Cabinet.

Next year we can expect a concerted effort on the part of constituted bodies urging the new Prime Minister to wipe the slate clean and administer surgery – not palliatives. Angry protest groups took to the streets in the run-up to Christmas – baying for justice. The macabre assassination of Daphne Caruana Galizia is an attack on democracy, as she wielded a poison pen in a regular blog that specialised in exposing financial crime and corruption in high places. In a democracy, we respect freedom of speech and the rule of law, but such rights can be abused and stretched absurdly like a rubber band.

As always, the common good must prevail over partisan pique which, if used and abused, can ruin the sense of fairness and the ethical core of this island. Needless to say, any country must seek long-term solutions over political jockeying. Recently, Guy Verhofstadt – leader of the Alliance of Liberals and Democrats for Europe – said on Twitter that corruption in Malta seems to be widespread and has become a profitable business model.

Such remarks do not help Malta Enterprise or FinanceMalta in their drive to attract new business. It is high time that, next year, we instigate serious reforms to rebut this haemorrhage of criticism branding us as a centre for corruption, a Mecca for Mafia gambling thugs, money-laundering and a dubious tax haven. For instance, let us mention the sad story of alleged money-laundering by a major shareholder of Sata Bank that triggered the sudden closure of the bank and the MFSA having to engage EY as administrators. The bank is solvent, with over €300 million in assets, but its abrupt closure saw thousands of bona fide depositors losing access to their funds. The EY team took months to sift through the paperwork and only released deposits when they were sure of untainted provenance: it was a bolt from the blue.

This closure ruffled feathers locally but, putting it in perspective, one concludes that it pales into insignificance compared to the Luxileaks report regarding multinationals signing covert tax deals with the Luxembourg Finance Ministry, thus saving billions in taxes.

Another scary story involved tax evasion on the part of a US multinational- Amazon. It has been ordered to repay €250m in illegal state aid to Luxembourg, as EU authorities continue their campaign against sweetheart deals that help big corporations evade taxes. Luxembourg’s ‘illegal tax advantages to Amazon’ had allowed almost three-quarters of the company’s profits to go untaxed, allowing it to pay only a quarter of the tax paid by local rivals.

The Commission said that Amazon had benefited from an illegal tax deal granted by the Luxembourg authorities that allowed the company to artificially reduce its tax bill by €250m between 2006 and 2014. Not surprisingly, Amazon rejected the findings of the investigation.

More recently, the “Cum-Ex” scandal revealed how an organised group of bankers had appropriated over €55 billion from the public funds of several EU Member States, notably France and Germany, over the past 15 years through the socalled ‘Cum-Ex deals’. Put simply, the inspections revealed how bankers, lawyers and other intermediaries were trading shares and receiving reimbursements for tax that had never been paid.

The scandal came to light in 2016, when it emerged that several German banks had exploited a legal loophole that allowed two parties to simultaneously claim ownership of the same shares. This involved banks and stockbrokers rapidly trading shares with (“cum”) and without (“ex”) dividend rights, with the aim of being able to conceal the identity of the actual owner and allow both parties to claim tax rebates on capital gains tax that had only been paid once. Having mentioned some of the more glaring peccadilloes of competing financial centres, one cannot but admit that, over the years, Malta has painstakingly built a good reputation.

The water turned murky by the recent revelations of the slain journalist, Daphne Caruana Galizia. We must show contrition and apply surgery to sever any cancerous growth in our body politic and other state institutions. Typically, we find a number of stiff recommendations in a recent Moneyval inspection. Perhaps a good place to start is to reform our regulatory arsenal by recruiting new chiefs – which is not so easy as the incumbents prefer to maintain the status quo.

Ideally, the media has to unite and remove any political blinkers in an effort to portray more balanced judgement when discovering a bad apple in the barrel. It is a pity that, having reached full employment and even registered a modest annual surplus, party sympathisers are reluctant to forgo tribal loyalties and prune the orchard of its decayed branches.

On a positive note, however, we thank heaven for what we have achieved so far. Since Independence, governments in office have succeeded in strengthening the pillars of the economy. United in our resolve to fight sleaze, we can look forward to a prosperous New Year.