Malta’s Moneyval verdict

In a report published on Thursday, the Council of Europe’s anti-money laundering body Moneyval called on the Maltese authorities to strengthen their practical application of measures to combat money laundering and the financing of terrorism.

The nuanced words of the Moneyval verdict require a clear translation but you will not find this in many of Malta’s news sources. Instead you will find wall-to-wall coverage of the various official bodies of the Maltese government. These will be attached to the end of this article and we will discuss them later.

Moneyval is an official committee of the Council of Europe. The following is from the CoE’s own website.

The report makes a comprehensive assessment of the effectiveness of Malta’s anti-money laundering and financing of terrorism system and its level of compliance with the recommendations of the Financial Action Task Force.

Moneyval acknowledges that the authorities have demonstrated a broad understanding of the vulnerabilities within the system, but a number of important factors – notably predicate offences, financing of terrorism, legal persons and arrangements, the development of new technologies and the use of cash – appear to be insufficiently analysed or understood.

The Financial Intelligence Analysis Unit is considered to be an important source of financial intelligence for the police in Malta. However, only in a limited number of cases are the disseminations used to develop evidence and trace criminal proceeds related to money laundering and terrorism financing.

The report considers that money laundering is mainly investigated together with the predicate offence on which the investigation is centred. Limited resources, both human and financial, weigh negatively on Malta’s capability to effectively pursue this offence. Investigations and prosecutions do not appear to be in line with the country’s risk profile. The report expresses concerns that law enforcement authorities are currently not in a position to effectively and in a timely manner pursue high-level and complex money laundering cases related to financial, bribery and corruption offences. Fundamental improvements are also needed with regard to the confiscation of proceeds of crime from money laundering and associated predicate offences.

While Malta has a sound legal framework to fight the financing of terrorism, the report notes that few investigations have been conducted so far which have not resulted in any prosecutions or convictions. While noting recent progress, the report concludes that the actions undertaken by the authorities are not fully in line with the country’s exposure to possible terrorism financing risks.

Through a combination of supranational and national mechanisms, Malta ensures the implementation of the United Nations targeted financial sanctions regimes on terrorist financing and the financing of proliferation of weapons of mass destruction without delay. Overall, the authorities could demonstrate a competency in co-ordinating their activities with respect to implementation of various targeted financial sanctions’ regimes.

The report concluded that obligations are being effectively implemented by financial institutions and designated non-financial businesses and professions (DNFBPs) to some extent, with major improvements needed. It considers that the appreciation of money laundering and financing of terrorism risks is varied across the sectors. Banks and casinos demonstrated a good understanding of risks and an adequate application of preventive measures, but some non-bank financial institutions and other DNFBPs were unable to clearly articulate how money laundering might occur within their institution or field of activity. Consequently, a low level of reporting of suspicious transactions remains a concern in some sectors.

Moneyval noted that supervisory authorities do not have adequate resources to conduct risk-based supervision, for the size, complexity and risk profile of the country’s private sector. There are weaknesses identified with respect to the appropriate consideration of the wider money laundering and terrorist financing risks at the market entry stage, the adequacy of fit and proper measures for certain types of DNFBPs and the lack of a coherent and comprehensive graduated risk-based supervisory model. Sanctions for non-compliance with antimoney laundering and countering the financing of terrorism requirements are not considered effective, proportionate and dissuasive.

Malta lacks an in-depth analysis of how all types of legal persons and legal arrangements can be misused for money laundering and financing of terrorism purposes. There are shortcomings in a multipronged approach to obtaining beneficial ownership information. Considering the nature and scale of business undertaken in Malta, the fines for failing to submit beneficial ownership information on legal persons are not effective, dissuasive and proportionate.

Finally, the report notes that Maltese legislation sets out a comprehensive framework for international co-operation, which enables the authorities to provide assistance with a general positive feedback.

Based on the results of its evaluation, Moneyval decided to apply its enhanced follow-up procedure and invited Malta to report back in December

The Financial Intelligence Analysis Unit underscored its independence from the government in its operations as it welcomed the findings of this week’s Council of Europe Moneyval report.

The FIAU highlighted how, as part of its European Banking Authority action plan, a full 90 per cent of the recommendations made by the Council of Europe body aimed at bolstering Malta’s anti-money laundering compliance had been fully implemented by March 2019.

The report, however, calls on the FIAU to improve its analytical processes, an area where the FIAU is investing in terms of analytical information technology.

As far as the action plan, implemented in close cooperation with the European Commission and the EBA, is concerned, Moneyval acknowledged significant steps along such lines. These include, among others:

• A sector-specific Risk Evaluation Questionnaire to enhance the FIAU’s understanding of money laundering and terrorism financing risks posed by different sectors and individuals, through the deployment of its automated CASPAR system;

• A new risk-based supervisory approach to ensure the FIAU to ensure its conducts a level of supervision commensurate with the size, complexity and risk profiles of people in its jurisdiction;

• A strengthening of its enforcement and governance framework by enhancing the procedures of its Compliance Monitoring Committee to create more transparency and accountability in its decision-making;

• Providing additional sanctioning tools to enforce the domestic anti-money laundering and terrorism funding framework in a more effective manner, including the implementation of remedial action to ensure the private sector’s adherence with its compliance obligations and;

• The setting up of a strategy, policy and quality assurance function. The FIAU’s analysis section was also lauded for its timely and effective cooperation with its international counterparts.

These efforts, the FIAU said, are complemented by a restructuring plan agreed upon with the government in 2018, which will see the unit’s staff grow ‘exponentially’ to a 138-strong workforce, complemented by new automated IT tools to render workflows more effective.

FIAU director Kenneth Farrugia commented: “The FIAU values this independent and technical Moneyval assessment. The FIAU’s staff has proactively engaged and supported evaluators through the entire process. We appreciate the positive outcomes and take heed of all recommendations.

“Once again, we vouch for our commitment to ensure a timely implementation of any outstanding Moneyval recommendations, as we did in relation to the EBA and European Commission recommendations.

“All these efforts are ultimately aimed at making the FIAU more effective in combating money laundering and the funding of terrorism.”

On its part, the financial services watchdog (MFSA) said that most recommendations made in the Moneyval report issued earlier this week have already been implemented or are work in progress.

“Aware of the increased sophistication of money laundering, the MFSA has in the past months invested significantly in enhancing its capacity in anti-money laundering standards, resources and procedures, drawing on extensive consultations with national and international organisations and experts. Following this consultation exercise, the MFSA launched its AML/CFT strategy in February 2019.”

The MFSA said that among the key changes implemented over the past twelve months, it has:

Established a dedicated Financial Crime Compliance (FCC) function to better reflect the strategic importance of AML/CFT supervision as an intrinsic part of the MFSA’s prudential and conduct oversight. The setup was strengthened further through the engagement of a team of international experts, enabling the MFSA to achieve an unprecedented level of depth and quality in its joint inspections of licence holders, working closely with the FIAU to increase the quality and intensity of its investigations. The additional resources have resulted in a substantial increase in the number of inspections carried out.

Introduced more in-depth and extensive AML/CFT checks throughout the supervisory lifecycle process – in particular the authorisation process has been made more stringent, with a focus on the shareholding structure, governance framework (including key functions), internal controls and business models presented. As a result of these rigorous checks, the number of applications refused in the first half of 2019 increased to 25 per cent from the 10 per cent pushed back in 2017.

Published guidance with respect to ‘fit and proper’ procedures to be applied at all stages of on-boarding processes, setting out due diligence expectations for licence applicants.

Addressed the recommendations in the Moneyval report, relating to the Register of Trust Ultimate Beneficiary Owners by fully implementing the National Strategic Action Plan requirements on beneficial ownership information on trusts. This included the setting up of a register of beneficial owners of trusts which will be extended to all trusts by 1 January 2020.

Do these assurances reassure you?

And more importantly, will they reassure the Moneyval members and the Council of Europe? One notes that at various times in the past the government reacted to the leaking of the draft report by arguing this was not the finished report. Now that the report has been finalized and it is not really that different, will these blanket assurances satisfy the Maltese public?