Malta AML
Malta’s inclusion on the ‘grey list’ of countries with anti-money laundering (AML) deficiencies is a stark warning for other countries and offshore centres, say experts.

In June 2021, the Financial Action Task Force (FATF) sent tremors around financial markets when it made Malta the first European Union (EU) country to be grey-listed. This delivered a message to Europe and the rest of the world that no jurisdiction is immune from increased scrutiny.

Any country added to the grey list will likely suffer significant impact on its reputation and economy.

A compliance specialist with wide experience in Malta, said:

‘It was a shock for Europe and if we dig deeper, we might see other countries with financial crime fighting deficiencies. Many Maltese schemes work with other jurisdictions — such as the British Virgin Islands, Cyprus, Luxembourg, Ireland, Jersey and Guernsey. If I were in some of those countries, I’d be worried.’

Between February 2020 and October 2021, the number of grey-listed countries grew from 18 to 23, and the United Arab Emirates, another important financial centre, is reported to be at risk of inclusion soon.

Why is Malta on the grey list?

FATF grey-listed Malta after two years of assessments that identified AML deficiencies — it was fully compliant in only 12 of the taskforce’s 40 recommendations. The country has also experienced several business scandals; and in 2017, journalist Daphne Caruana Galizia was murdered there. She had been investigating corruption, including links between the country’s online gaming industry and organised crime.

Maltese bank accounts have also been identified as a conduit for a significant volume of laundered funds, usually from investment scams and tax frauds. In 2013, the Maltese government established a controversial programme that gave citizenship to people who contributed to an investor programme – which many view as ‘selling EU passports’.

The compliance specialist said Malta also faces structural problems as a ‘tiny island where everyone knows everyone’, which can lead to corruption and nepotism.

‘They need a fair process to appoint people to higher positions,’ she said. ‘Also, the focus in Malta is usually on gambling, cryptocurrency and trusts. But parts of the real estate industry are also corrupt. If Malta wants to remain in the EU, it needs to decide to play fair. For example, it is the only EU country “selling” its passport.’

When can Malta exit the list?

Malta faces a deadline of 2023 to improve its financial crime record and exit the FATF’s grey list. In September, its government submitted a plan to the taskforce to solve AML inadequacies; and in October, the FATF president said Malta was making good progress in implementing this.

In The Times of Malta, Tonio Zarb, president of the country’s Institute of Financial Services Practitioners (IFSP), highlighted a positive review by the EU AML monitoring body Moneyval.

This review ‘noted robust regulatory and legal change,’ which represented ‘a tremendous improvement thanks to the efforts of regulatory authorities and financial services to restore our reputation and prioritise high standards,’ said Zarb. ‘I hope, due to these continued efforts, Malta will exit the grey list in 2022.’

However, The Times of Malta also reported sources saying the government’s strategy does not include timetables for achieving its goals and that it was unlikely to be enough to get Malta off the grey list before 2023.

What is the impact?

Grey list inclusion could seriously damage Malta’s economy and is a stern warning for many other countries, especially offshore financial centres.

Following the listing, Maltese financial providers have reported multiple issues with some cross-border transfers taking weeks rather than days; the UK rated Malta as a high-risk country for money laundering; and Russia placed it on a financial blacklist.

According to the Malta Independent, one opposition politician claimed the government had failed to take important decisions towards exiting the grey list. This had caused negative impacts on various sectors; withdrawal of investors; and many people considering leaving the country, he said.

The IFSP confirmed the move had caused significant reputational and practical damage to sectors including financial services, tourism, housing and manufacturing.

In a survey by the Malta Employers Association, 88% of businesses said the grey-listing will have a rapid negative impact on the economy, with 64% anticipating strong repercussions.

What can companies do?

In December 2021, Malta’s Financial Intelligence Analysis Unit released a list of money laundering red flags on beneficial ownership and suspicious transactions — part of a series of guidance seeking to address the FATF’s concerns.

The compliance specialist said firms have responded. ‘Since Malta was grey-listed, companies are requesting more proof of source of funds and wealth,’ she said. ‘But they must do it with a true willingness to understand corporate structures, which can be complicated. Technology can help but you need a well-trained human to assess risk, and not to shy away from asking the right questions of clients.

‘For example, enhanced due diligence may include asking for additional ID, but that doesn’t necessarily prove you have understood the risk. Maltese companies are applying compliance procedures – they were not grey-listed for lack of procedures. But they need to add tough, deeper thinking. Too often, they don’t do that because competition is hard and clients will move to the company next door if they make it too burdensome.’

How technology can help

Companies must see the grey-listing as a wake-up call and an opportunity to boost Malta’s reputation as a financial centre. To do this, they need a more proactive, risk-based stance to AML.

Technology will be central in achieving this. Among other things, it can provide targeted verification and know your customer (KYC) measures. State-of-the-art tech can help identify beneficial ownership and suspicious transactions by matching to high-risk individuals.

Malta is under intense scrutiny and it still faces many challenges. But this spotlight gives companies an opportunity to show they are capable of exemplary compliance, and can start transforming the country’s reputation.


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