Malta ‘on the right track’ to get off FATF grey list – FIAU deputy director

Malta will “undoubtedly” meet all the requirements of the action plan and get off the Financial Action Task Force’s (FATF) grey list, FIAU deputy director Alfred Zammit told The Malta Independent on Sunday.

Interviewed by The Malta Independent’s editor-in-chief Neil Camilleri on Indepth, Zammit said getting off the grey list is a matter of time, but good progress has been achieved so far.

Malta was grey-listed by the FATF in June after Malta was deemed to have made insufficient progress in two areas. These are related to information about the Ultimate Beneficiary Owners of companies and on efforts to combat moneylaundering deriving from tax evasion. A few weeks earlier, Moneyval, the Council of Europe’s antimoney laundering body, had given Malta a pass grade, having decided that the country had made progress on several issues flagged in a 2018 review.

In the interview, Zammit speaks about the efforts being made by the Financial Intelligence Analysis Unit, in conjunction with the police and other state authorities. He says: “the FIAU of today is not even comparable to the FIAU of 10 years ago,” having seen investment in human resources and the systems used to identify financial crime.

He also said that the private sector is now more aware about the risks and obligations related to money-laundering, more so after the outreach efforts by the authorities.

Zammit also said that the FATF already gave Malta positive feedback when the authorities reported on their progress last October. Malta is currently in the second four-month round of reporting and is in regular contact with the FATF to update it further on the progress made. He said Malta is on the “right track” to get off the grey list.

Malta will ‘undoubtedly’ meet all the requirements of the action plan and get off the Financial Action Task Force’s grey list, says FIAU deputy director ALFRED ZAMMIT. Interviewed by The Malta Independent’s editor-in-chief Neil Camilleri, Zammit says it’s a matter of time, but good progress has been achieved so far. The interview delves into the efforts being made by the FIAU to address the two areas where the FATF expects to see improvement. What process kicks off once a country is grey-listed? What is assessed from thereon?

Being grey-listed means that the FATF would have, after assessing a country, concluded that some of its anti-money laundering structures need improving. This is not a sanction, but rather the FATF pointing out areas that need strengthening. Once a country is grey-listed, the FATF and the country in question agree on an action plan. From thereon, the country will be in regular contact with the FATF to report on the progress made in these areas. Currently, we are in that process. A lot of work is being done on the ground and there is regular communication between Malta and the FATF.

What areas were highlighted for improvement?

There are two areas. The first is on transparency of legal persons or beneficial ownership. It is important that the authorities know who the people behind a company are and that such information is correct. The authorities need to have this information easily accessible in case an investigation is needed. Basically, the FATF concluded that Malta needed to do more to ensure that information on Maltese companies, specifically on owners, is correct. Where it is not, the expectation is that the authorities take the necessary steps to ensure that the correct information is provided and to take the necessary steps where breaches of the law are found. The second area is on money-laundering related to tax evasion. Money-laundering means money coming from illicit activities. When the FATF saw what the country’s risks are and what measures had been taken until then, it determined that more needed to be done. The FIAU and the police were given action points so that they could do more work on the ground to fight this type of money-laundering.

Beneficial Ownership (BO): How big of a problem is it in Malta and what are the reasons why people would hide their ownership of companies?

Malta already has a number of good processes in place, such as the business registry, which gives details about a company and the people behind it, but we are not perfect. The FATF felt that the number of instances where incorrect BO information is identified is too low, compared to the number of companies we have. They want us to be able to identify more instances of this. It’s not that we are unable to find out who the owners are. In fact, it’s a very rare occurrence that the FIAU and the police are unable to identify BOs, but we are not perfect and more needs to be done in this regard. This is not only about someone trying to hide their ownership. It’s also about having precise information. But there is a risk that the ownership information is incorrect and that an owner might be hiding behind another individual. We are looking out for these by looking at a large number of relationships between companies and service providers in Malta.

Malta had been given a number of warnings on low ML prosecution rates. While prosecutions are a police job, the FATF said it would like to see greater coordination between the police and the FIAU, particularly on the sharing of information. What is being done to address this?

The FATF said it wants to see the police make better use of the information we give them. The police are responsible for criminal investigations, but the FIAU has an important role in receiving information, including from foreign agencies, analysing it, seeing if there is a suspicion of money-laundering and then handing that information to the police. We work very closely with the police and coordinate daily. Coordination is very important and we must always be prepared to provide any additional information the police may request.

Money-laundering prosecutions have certainly increased, but have they increased enough?

This is not a question of numbers. What is important is that the country shows the FATF that the institutions are working effectively as they should. The FATF will never give you a quota of prosecutions you need to reach. I think the progress that is being made shows that this is the case and that we’re on the right track.

What is money-laundering related to tax evasion? How widespread is it in Malta and what is being done to address it?

There are several illicit activities that can generate money that is then laundered and tax evasion is one of them. It could be carried out by Maltese individuals who are evading tax but there is also the risk that Malta is used by foreigners to launder money coming from abroad. One way of fighting it is by ensuring that the efforts made by the authorities are in line with the country’s risk. Other entities are involved in this field, such as the police and the tax authorities. One of the things the FATF said is that we need to be clearer on the way we all work together. We receive a lot of reports from banks on suspicion of money-laundering from tax evasion and we coordinate with these authorities, including through operational meetings, where we discuss these cases and how to process them. This has been happening for several months. There have already been several prosecutions, so we are seeing the result of this enhanced coordination between the authorities.

How are we addressing the action plan in a tangible way? Are we talking investment in people, training and equipment?

A bit of everything – both the FIAU and the police have engaged more human resources, but also systems. Over the last couple of years, we invested in systems that help us access and analyse information more quickly. This includes, for example, the

Centralised Bank Account Register (CBAR), which lets us check in a matter of minutes, whether a person has a bank account in Malta, and without the need to request that information from the banks, which is time-consuming. Receiving Suspicious Transaction reports is also important, so we organised training sessions for the private sector to inform them on how to report suspicious activity to the FIAU. We also worked with the private sector and the representative bodies to help them identify red flags and guide them on whether a case merits filing a report with the FIAU. Currently, we are also working on a country risk assessment, something which had not been done in years. This helps us to not only get a picture of how much the country is exposed to risks of money-laundering from tax evasion but also on how to mitigate these risks.

Is the private sector now more aware of the importance of understanding ML risks?

Yes, without a doubt. In fact, this was one of the criteria the FATF assessed the country on and it gave us a green light. There is much more awareness now on moneylaundering and the financing of terrorism, the risks and the obligations. This is also reflected in the number of STRs we receive. This year so far, we have received over 6,000 reports, which is more than double the amount of three years ago. Furthermore, several companies have audited themselves and invested more to mitigate their ML risks. Others have engaged consultants to strengthen their systems. There is far more awareness and understanding.

Malta was grey-listed in June. In October, the FATF carried out an assessment and noted that progress had already been made, including on effective measures taken against lawbreaking companies. What kind of enforcement is being made and what kind of sanctions are being meted out?

We carry out what we call examinations, where we visit entities to see if they are adhering to their obligations. Not every examination leads to sanctions or penalties. In some cases, we find that everything is in order, which is good too, because it helps us understand what the level of compliance is. But when we find shortcomings, we act. If the shortcomings are few and not very serious, we might ask the company to remedy the situation. In more serious cases, we might need to take action and issue a fine.

Some people say that these regulations and enforcement are too much and that it’s only being done to ‘please’ the FATF. Is this criticism justified or is this simply the way things should be?

Globally, there is now much more attention on the subject. Moneylaundering is a global problem and standards and expectations are increasing around the world. It is important that the country always does its best to fight crime and to protect its reputation. This cannot be just a temporary thing and it is important that these processes remain in place and that we continue focusing on these areas. We have always done this work but we have recently stepped up our efforts because we now have more resources. The FIAU of today is not even comparable to the FIAU of 10 years ago. We can say the same for other authorities, like the Police, the Malta Gaming Authority and the Malta Financial Services Authority. All countries are strengthening their resources in this regard. When we speak about bureaucracy, we must keep in mind that these regulations are there to protect legitimate businesses. The authorities work in a risk-based approach so dealing with high-risk clients require a more cautious approach.

What is the next step in the monitoring process?

In October, Malta reported to the FATF on a voluntary basis. This gave us the opportunity to explain what we had already done within a couple of months of the grey-listing. We also received positive feedback. The FATF carries out a round of reporting every four months. We have already gone through the first one and we are now entering the second round, where we will be in regular communication with the FATF to update them on the progress made since October.

From what you have seen so far, and from the feedback received from the FATF, do you think Malta will manage to implement the action plan and exit the grey list?

Malta will undoubtedly exit the grey list. This is a question of time. We must keep in mind that Malta was grey-listed on a small number of issues. When Moneyval evaluated Malta in 2018, it issued 58 action points. The FATF found issue with only two of these and this shows us what kind of progress we have achieved. When we look at the work the FIAU and the police are carrying out, including on investigations, prosecutions and information-sharing, we can say that we are on the right track. All indications are positive and we have had good feedback from the FATF. Over the coming weeks, we will continue to show the FATF that we are doing things in a serious and sustainable manner.

FIAU deputy director Alfred Zammit