A dark cloud obscures a sunny horizon
It is certainly a dark cloud that is harming our reputation as a financial domicile.
Everyone hopes that this cloud will disperse and the sun will shine once more. Realistically, we know that living on hope is a risky habit so let us deal with the problem directly and start a root and branch reform of our regulatory bodies.
For some years there have been suggestions pointing to a reform of FIAU and MFSA. While other EU countries have not escaped the incidence of financial tax scandals, in Malta we pride ourselves that the regulatory net has always been effective to keep out the bad wolf. Recent events have proved this to be over ambitious. The reputational damage created by the closure of three local banks has taken its toll on public opinion and we are still feeling the cold blast of negative publicity following the disclosure of three Panama companies opened by Nexia BT destined for top members of Cabinet.
The slate must be wiped clean.
We cannot afford to continue tarnishing our international reputation and undermine national institutions meticulously built over the years. Last year, the country went through an emotional chapter exacerbated by the assassination of a journalist who was active 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 like a rubber band. The latter should not be pushed beyond its safety limit.
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 country. Needless to say, any country must seek longterm solutions on political jockeying. One swallow does not make a summer yet, last year Guy Verhofstadt, leader of the Alliance of Liberals and Democrats for Europe, said on Twitter that in Malta corruption seems to be widespread and has become a profitable business model. Can this be a fair comment?
It certainly makes the brief of Malta Enterprise to attract new business more tenuous. It is high time that we rebut this haemorrhage of unfair criticism branding us as a centre for corruption, a Mecca for Mafia gambling thugs, money laundering and a tax haven. We are not perfect but a sense of proportion is warranted. This reminds us of press reports of alleged money laundering by a shareholder of SATA Bank. It was discovered following an inspection ordered by MFSA – it triggered the sudden closure of the bank and unilaterally appointed EY as administrators. The bank is solvent with over €300 million in assets yet its closure saw thousands of depositors refused access to their funds. It was a bolt out of the blue.
Another shock revelation concerns the Opposition leader who years ago, before entering politics, had a Jersey bank account allegedly holding illicit gains from a Soho brothel on behalf of a client.
This caused an outcry but seeing this in perspective, one concludes that it pales in significance when compared to LuxLeaks report –where multinationals signed covert tax deals with the Luxembourg finance minister (currently President of the EU) saving billions in taxes. Another scary story involved tax evasion by US multinational Amazon. It has been ordered to repay €250 million 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 four times less tax than local rivals do.
The Commission said 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 from 2006 to 2014. Not surprisingly, Amazon rejected the findings of the investigation. More recently, the CumEx scandal revealed how an organised group of bankers had stolen over €55 billion from the public funds of several member states, notably France and Germany, over the past 15 years through the socalled Cum-Ex deals. The story goes that 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 which allowed two parties to simultaneously claim ownership of the same shares. This involved banks and stockbrokers rap- idly traded 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. This scheme of “dual ownership” allowed both parties to then claim tax rebates even though both were not entitled to them. With the process having gone undetected for years, billions in tax went uncollected by the German state, mostly in the form of rebates which should never have been paid out at all. When writing about tax scandals, it does not rain it pours.
The European Commission announced its imposition of unpaid tax in Ireland by Apple Inc. amounting to €13 billion. Contrary to what happens in Malta, there were no massive street demonstrations in Dublin to protest against tax evasion and corruption. There were no Irish MEPs in Brussels who cried wolf and maligned Dublin as a leading financial centre. Not only did the Irish refrain from denigrating their own country, but also in a move to maintain Ireland’s reputation as a low-tax country for multinationals, its finance minister introduced a “knowledge development” box to encourage corporations to conduct research and development and awarded generous tax breaks.
Having mentioned some of the more glaring peccadillos of competing financial centres, one cannot but reflect that Malta has over the years built a good reputation. We all agree that we have to fight corruption and abuse of power. Perhaps a good start is to reform our regulatory arsenal. To do this, the media has to unite and remove political blinkers to portray a more balanced view when discovering a bad apple in the barrel.
It is a pity that having reached and exceeded full employment, and even registered a modest annual surplus, bloggers are reluctant to forgo tribal loyalties and pull on the same end of the rope to progress. At a time, when government is spending good money organizing mega conferences in an effort to transform Malta into a blockchain island, we need all the positive compliments we can garner from the international media.
On a positive note, we thank heavens for what we have achieved so far. Since Independence, governments in office have succeeded in regenerating the island’s economic pillars and it now boasts a balanced budget and full employment. United in our resolve to fight sleaze, we can look forward to a happy Christmas and a prosperous New Year.