Malta's inclusion on the Financial Action Task Force (FATF)'s list of Jurisdictions under Increased Monitoring (also known as they 'grey list') in June 2021 raised quite a few eyebrows in the local financial services sector given that this event made Malta the first EU Member State to be grey listed, despite the fact that subject persons in Malta are subject to the rigorous provisions of local and EU Anti-Money Laundering and Financing of Terrorism laws and regulations.

Fast forward 12 months later, and after significant progress made by Malta to address the deficiencies identified by the FATF, Malta was removed from the grey list.

The below article will provide a coherent snapshot of the factors that were addressed by Malta that led to the country's removal from the FATF grey list accordingly.

1. Accuracy of Beneficial Ownership Information

According to the FATF, one of the issues that needed to be addressed was the accuracy of beneficial ownership information as well as the application of proportionate fines/punishment for gatekeepers that fail to keep up to date beneficial ownership information.

There were instances where beneficial ownership information of companies was not accurately recorded by gatekeepers and were as a result not accurately filed at the Malta Business Registry. This was concerning due to the fact that concealment of beneficial ownership information as well as difficulties to identify beneficial ownership are potential money laundering and/or terrorist financing indicators red flags.

Companies are now legally required to disclose information relating to the beneficial ownership to the Malta Business Registry (MBR) in accordance with the Companies Act (Register of Beneficial Owners) Regulations, and failure to do so will lead to fines and penalties being issued. The MBR has also introduced a 'Beneficial Owners' section on their website, where users can access up to date beneficial ownership information on each and every active company listed on their portal for a small fee.

In fact, during 2021, both the MBR as well as the Financial Intelligence Analysis Unit (FIAU) conducted a number of intensive on-site inspections at gatekeepers that focused mainly on the accuracy and validity of beneficial ownership information that was submitted to the MBR.

The FIAU issued the results of such inspections in a recent publication entitled "Compliance with Beneficial Ownership Obligations by Company Service Providers - Thematic Review 2021". The overall results were quite positive, with the document noting that "most CSPs are compliant with their beneficial ownership related obligations. In cases where CSPs were found to be non-compliant with their beneficial ownership related obligations, non-compliance was limited to exceptional cases, and no systematic breaches were identified throughout the thematic review, whether at the individual CSP level or within the CSP sector overall."

It is clear that the above-mentioned factors have all contributed towards addressing the deficiencies that were identified as to the accuracy of beneficial ownership information, and as a result have contributed towards Malta being removed from the FATF grey list.

2. Enforcement of Money Laundering Offences in Malta

According to the FATF, another issue that needed to be addressed was related to enhancing the use of the FIAU's financial intelligence to support authorities pursuing criminal tax and related money laundering cases.

The FATF felt that cases related to money laundering were not given priority in Malta, and that more enforcement of the law was needed in order to increase the number of convictions and tackle the money laundering cases that have been pending over the years without any related parties being prosecuted.

A number of changes were made in Malta across the board to combat this issue. Top officials were replaced in the Malta Police Force as well as in the Malta Gaming Authority, which signaled intent to change the status quo with top priority given to tackle this deficiency.

The FIAU increased the number of inspections and reviews on subject persons, including inspections carried out at banking institutions, financial institutions, gaming companies, corporate service providers, notaries as well as real estate agents. In fact, throughout 2021, the FIAU issued more than ?11m in administrative penalties to subject persons for failures in complying with their mandatory AML/CFT obligations.

This is in stark contrast to previous administrative penalties that were levied to subject persons in prior years, where these more than tripled between 2020 and 2021, with the 2020 figure being c. ?3.8m (2019: c. ?3.9m; 2018: ?996,180; 2017: ?61,145). This signaled the FIAU's intent to clamp down on non-compliance by subject persons on their AML/CFT obligations, which also acted to contribute towards addressing such deficiencies that ultimately helped in leading Malta to be removed from the FATF grey list accordingly.

3. Tackling of Cases related to Tax Evasion

The FATF felt that Malta was not doing enough to tackle cases related to tax evasion on a national level, and that focus on the FIAU's analysis of these types of offences must be given more importance so that Maltese law enforcement agencies can promptly detect and investigate such cases.

During the course of 2021 and 2022, the relevant authorities in Malta have worked and are working towards improving the methodology towards tackling tax evasion by developing a clear national policy that is shared between the Malta Police Force, the FIAU, and also the Office of the Commissioner for Revenue. Such methodology would cover how to prioritise and tackle tax evasion in a coherent, effective, and proportionate manner across the board.

This also includes enhancing the authorities' expertise and resources to improve the handling of cases of tax evasion and providing adequate training to the private sector in order to enhance their capability to detect and report more serious types of tax related cases.

The role of the FIAU in addressing such a deficiency cannot be under-estimated. The FIAU's priority to focus more on tax-related cases and handle them in a more efficient manner cannot be emphasized enough and they have endeavored to create a dedicated team that will follow up on serious tax evasion reports. In fact, in November 2021 the FIAU published a dedicated paper entitled "Typologies & Red Flags: Indicators of Tax-Related ML" to help subject persons (as well as members of the general public) detect any suspicious activity that could potentially be linked to tax evasion, and to report such activity to the FIAU in a prompt and immediate manner.

Concluding remarks

In June 2022, the FATF concluded that Malta had made significant progress in addressing the concerns that were identified 12 months prior, and promptly acted to remove Malta off the grey list.

That being said, Malta must not rest on its laurels, and must continue to sustain the improvements made in its AML/CFT systems over the recent past. Failure to do so will lead to further disciplinary action taken by the FATF and other related bodies, which could have a disastrous impact on Malta's economy, reputation, and the country's ability to attract foreign investment accordingly.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.