Malta has long been recognized as one of the most effective tax havens in the European Union, if not the world. A trait that has had the side effect of making it especially attractive to money launderers who can blend in their activities with the same operations that high net worth individuals and for corporations looking to reduce their tax bill use.
An Attractive Proposition
Part of the attraction for businesses to operate in Malta is the 5% tax on profits for foreign businesses, a tax break that cemented Malta as a tax haven. For money launderers, it has been the historical inability of the archipelago to effectively legislate against financial crime.
In July 2019, the Council of Europe’s AML/CFT monitoring body, Moneyval filed a report on Malta revealing that while the nation had made some efforts to curb money laundering there was still much to be desired in order to bring the tax haven up to standard. Malta suffered from low to partial compliance with 30 out of the 40 FATF Recommendations.
The Moneyval report was damning for Malta when it was released, the investigators were of the opinion that Malta, a tax haven, viewed combating money laundering as a non-priority. The findings of the report were stated to have the potential to “create within the wider public the perception that there may exist a culture of inactivity or impunity”.
The Impact of Moneyval
There’s a great deal of work to be done to make Malta a more reputable nation for the movement of money in the global financial system. And Malta is taking this seriously. Since the report was issued, the Maltese regulator, the Malta Financial Services Authority (MFSA), has worked to create and establish an empowered AML team that is working in close proximity with international experts.
These experts are primarily connected to the US through the US embassy in Malta and the United States Commodities Futures Trading Commission (CFTC). Just a few months ago, in May 2020, this collaboration led to 25 new cases focused on money laundering in particular, with a projection for money laundering focused inspections to increase to 60 in 2020. The inspections are expected to be in-depth on-site investigations of businesses in Malta to ensure that there is no money laundering activity occurring, an issue that Malta has had issues with in the past.
The relationship between Malta and the USA has come about as a result of Malta working to prevent itself from being blacklisted as a nation from the global financial system. There’s currently an expectation that Malta could be grey-listed by the end of 2020 if the country fails to turn around its Moneyval assessment. A senior official at the Finance Ministry talking to Times of Malta commented: “This is the iceberg on the horizon and we need to avoid it.”
If Malta is unable to improve its stance on money laundering effectively, and soon, then it could see the country grey or black-listed from the global financial system, either of which would have catastrophic consequences for their economy.
Malta is focused on improving its reputation for allowing money laundering activity and has committed to it through this new team. One of the criticisms in the Moneyval report is that the authorities in Malta lacked the necessary knowledge to effectively tackle financial crime, law enforcement appeared unable to recognize the crime when it was occurring.
The new AML team set up by MFSA is headed up by Anthony Eddington who is now the Head of Financial Crime at the MFSA and joined the regulator from Deutsche Bank, UK after working in the UK’s Financial Conduct Authority. The MFSA has also hired a new Head of Banking Supervision David Eacott, formerly of the Bank of England. It remains to be seen how or if this will affect Malta’s tax haven status.
Originally published August 3, 2020, updated November 17, 2021
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