A dark cloud ob­scures a sunny hori­zon

It is cer­tainly a dark cloud that is harm­ing our rep­u­ta­tion as a fi­nan­cial domi­cile.

The Malta Independent on Sunday - - BUSINESS & FINANCE - Ge­orge M. Man­gion

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.

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