08/09/20

MALTA: Jurisdiction gets another downgrade at crucial juncture for financial services industry.

As published on theshiftnews.com, Saturday 5 September, 2020.

Malta’s lucrative financial services industry and its international ranking has suffered another blow as the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes has downgraded the island’s standing to “partially compliant”.

This downgrade ranks Malta as one of the countries with the lowest standards in the EU, and in the same category ranking of rogue countries such as Botswana, Kazakhstan, and Liberia.

The OECD’s decision comes at a bad time for the country, which is fighting the possibility of a detrimental grey listing by the Council of Europe’s MONEYVAL over its systematic failure to monitor and uphold anti-money laundering rules, as well as prohibitions against the financing of terrorism.

Once again, the latest OECD’s downgrade is the result of low or no supervision by the authorities entrusted to keep a watchful eye, particularly the Malta Financial Services Authority (MFSA) and the Financial Intelligence Analyses Unit (FIAU).

In its second peer review by the OECD’s Global Forum, published a few days ago, the international organisation said that Malta’s new peer review resulted in an overall ‘partially compliant’ rating, whereas the first round report (carried in 2013) had concluded that Malta was ‘largely compliant’ with the standard.

This means that unlike the majority of countries, which after a bad review in 2013 made the necessary changes to be declared complaint, Malta took the other direction and reduced its standing, instead of making sure to put its house in order.

According to the OECD, the main concerns identified in Malta refer to the effectiveness of enforcement and supervision activities to ensure the availability of ownership, accounting and banking information, particularly considering the falling compliance rates.

“Malta also had a large number of inactive companies registered during the review period, which caused delays or failures to provide information to its main EOI (exchange of information) partners.”

Among the recommendations made for Malta, the usual enhancement and supervision, mostly by the failing MFSA, comes as a top priority.

“One of the key recommendations given to Malta in this report related to the lack of monitoring and supervision on the implementation of the cooperation regulations,” the report states.

The 2013 report had recommended that Malta continues its efforts to ensure that its supervisory and enforcement powers are sufficiently exercised to support the various legal requirements set out in the cooperation regulations.

Yet, in its final assessment, the OECD concluded that “Malta has not taken sufficient measures to address the recommendation given in 2013”.

Malta’s financial services industry, created in the mid-90’s and a large source of wealth for the Maltese economy, has suffered a blow as a result of a number of serious scandals, including money-laundering activities, involving those at the highest levels of government.

The sagas over the Pilatus and Sata banks continued to tarnish Malta’s reputation overseas, soon after the new Labour government began selling Maltese and European passports to shady multi-millionaires.

The MFSA and the FIAU were caught unprepared and they have been trying to grapple with challenges, particularly in the run-up to the Moneyval assessment in which they are being accused of being strong with the weak and weak with the strong in its effort to tick the right boxes.