The European Commission is gearing up to send an unprecedented rebuke of the Maltese government over their failure to reign in widespread money laundering. The Commission’s warning includes references to “systemic shortcoming” by Malta’s Financial Intelligence Analysis Unit (FIAU), which was already reprimanded by the European Banking Authority (EBA) in July.
What’s paramount about the latest development for the Maltese government is that the Commission’s follow-up to the EBA’s review will be legally binding, means the agency will be able to issue direct orders to the FIAU.
The Maltese government has said that it is taking steps to effectively monitor the financial sector, according to Finance Minister Edward Scicluna, but the Maltese regulatory authorities have remained under scrutiny in the wake of the Pilatus Bank scandal that saw the lenders’ chairman arrested in the United States for being behind sanctions evasion schemes connected to the Islamic Republic of Iran.
Malta first came under intense scrutiny by both the EU and the US after the Panama Papers leak revealed that ranking members of the government were personally embroiled in the Pilatus Bank scandal. The situation was further compounded following the murder of investigative journalist Daphne Caruana Galizia in 2017.
Galizia had begun digging into the into the documents released in the Panama Papers in 2016. She later discovered that two high-ranking government officials had established companies in Panama, which she said was used to launder money from kickbacks received for helping to arrange the sales of passports to Russian citizens with close connections to the Kremlin.
She later also accused Pilatus Bank of handling much of the money in the alleged transactions involving Russian nationals, as well as those involving shell companies set up by Prime Minister Joseph Muscat, his wife, and their aides. Galizia’s investigative reporting also found that Malta’s First Lady, Michelle Muscat, had received at least $1 million from Azerbaijan’s ruling Ilham Aliyev family as part of a $3 billion scheme by the Azeri ruling elite to launder money and pay off European politicians
Galizia was later killed by a car bomb as she drove from her home in October of last year. While a group of low-level suspects were rounded up in connection to Galizia’s assassination, many on the island and who have knowledge of the case, believe she was the victim of a hit put out by the Sicilian mafia, possibly with connections to the Maltese government.
Malta is the smallest of the EU’s 28-Member States and owes much of the economic boom that it has experienced over the last 15 year to its robust financial services, including the facilitation of online gambling and cryptocurrency exchange.
In 2014, Malta began a three-year run as the fastest-growing economy in Europe, but now major lenders are leaving the island despite €600 million in revenue from a controversial ‘passport sales’ programme that allows non-EU citizens the ability to gain access to Europe’s financial markets after investing a certain amount of funds into a bank located in Malta and subsequently being granted Maltese citizenship.
UK-based HSBC is one of the last major global banks to remain on the island, but European MPs are applying mounting pressure on the banks to leave Malta as the lender may be pressed to do so for the sake of its own reputation. Bank officials are more than likely to want to avoid any further bad press after HSBC was fined €1.6 billion in 2012 by the US Justice Department for laundering money.
The EU is currently dealing with several money laundering cases in Malta, Denmark, the Netherlands, Cyprus, Luxembourg, and Latvia – most of which involve shady individuals and dirty money from former Soviet republics This has prompted the Vice President of the European Bank Luis de Guindos to call for new and consistent EU-wide rules on financial transparency, Reuters reports.
Sven Giegold, a European Parliamentarian from the Green Party and a member of the Law Monitoring Group, told the UK’s Sunday Telegraph that the Maltese Government has failed to take concrete actions to tackle many of the findings from the EBA report, adding that his own meetings with officials from Malta’s financial regulator have been “ridiculous,” and questioned both the ability and viability of Malta’s Economic Crime and Money Laundering Squads to carry out their missions.