As a topic, anti-money laundering (AML) and the combating of terrorism financing can be abstract and complex, but it’s also never been higher on the commercial and even political agenda. In the regulated sphere – and increasingly in other parts of the economy – stakeholder reactions to financial crime can be make or break.
Being an international business centre, Malta’s position in relation to AML is not reserved for the domestic audience. Beyond the headlines, foreign stakeholders certainly place weight on country mutual evaluations. One of the most respected of these evaluators is MONEYVAL, a monitoring body of the Council of Europe. In September of last year, the 5th round evaluation report on Malta was published. The previous rounds of evaluation had looked at the less practical and more legal preventative arrangements in place and Malta scored relatively well. In this evaluation, the focus was aimed towards the effectiveness of Malta’s preventative and law enforcement efforts. Do regulators and industry have a strong understanding of the AML risks they face? Are the number of suspicious transaction reports being filed with the FIAU in line with expectations? What proportion of filed reports result in prosecutions and convictions? To what extent are proceeds of crime being confiscated? etc. The results were not positive for Malta and we have been given twelve months to put our house in order.
Evolution of money laundering
Money laundering is one area of the ‘economy’ where innovation is clear. For example it has been reported recently that certain popular video games have been infested by money launderers as in-game purchases are being abused to provide a legitimate appearance to illicit cash. To understand the evolution of this financial crime, one must understand that lawbreakers are prepared to pay a price in cash and time to make their ill-gotten gains appear to be clean, whilst staying out of the reach of the authorities. The experienced and sophisticated money launderer understands the law and will do what he can to make his activity hard to detect and trace. Use of technologies which provide users with anonymity and piggy-backing on individuals, professionals or organisations with a clean reputation are examples of features of emerging typologies which testify to the trend of ever increasing sophistication in the field of money laundering.
Response of industry and regulatory bodies
In this game of cat and mouse, industry is not standing still. At one end of the risk management spectrum a drastic, but popular, action is to derisk totally by terminating high risk business relationships. Clearly that strategy has its limits. For companies vulnerable to money launderers the concept of ‘know your customer’ is no longer a soundbite, but an imperative. This can result in the collection of extensive information on customers, not just at the account opening stage, but throughout the business relationship. Regulatory authorities and other public bodies are also committed to increase resources to combat financial crime. The upfront collection of appropriate account opening documentation is now taken as read, with heavy sanctions being applied where shortcomings exist. Greater emphasis is now being placed on transaction/customer monitoring and AML governance matters. Given the above, it’s no surprise that AML is one area of the economy where there is a skills shortage. Both regulators and industry are seeking to leverage technology to meet rising expectations whilst keeping payroll costs under control.
Some would naively categorise money laundering as a victimless crime, but that would ignore the various consequences which impact us all. In addition to the bureaucracy involved, the increased compliance costs mentioned above are ultimately paid for by customers and taxpayers. Secondly, when launderers use legitimate businesses to provide cover for their money laundering, other businesses face unfair competition. We have also seen certain overseas banks decide to stop providing correspondent banking to their Maltese counterparts. In what can be characterised as a domino effect, Maltese banks have also shut down or restricted business to reduce their money laundering risks and keep in good standing with the correspondent banks they still have. Aside from business hardship, where money laundering goes unchecked, the criminal activity underlying it is likely to flourish, with all the accompanying negative consequences for society.
The MONEYVAL assessment was based on a visit which took place in late 2018, so Maltese authorities were presented with a fairly clear picture of where shortcomings were perceived well ahead of publication. Indeed the FIAU responded to the report by stating that a full 90 per cent of the recommendations had already been addressed by Spring 2019. The report particularly highlighted longstanding issues in relation to financial and human resource shortages within various public bodies dealing with AML crime, which are starting to be tackled. These relate both to law enforcement and regulatory bodies. What’s more questionable is whether the reforms that have been made will bear tangible results in a tight timeframe.
Just like all vessels rise and fall with the tide, we’ll all suffer if the country doesn’t succeed to take the collective action required to improve our reputation and our institutional framework.
Information on the event: AML & FINANCIAL CRIME CONFERENCE
ARQ Group and the Malta Bankers’ Association are hosting a full day Financial Crime Conference in Malta on the 13th of February. The central theme of the event will be the findings of and follow up to the MONEYVAL report on Malta, together with other topical subjects such as corresponding banking relationships, transaction monitoring, terrorism financing and public-private partnerships.
ARQ is collaborating with the MBA to support a regulatory environment that fosters sustainable growth in Malta. This will be the definitive conference on this topic, with talks and interactive panel discussions by renowned international experts and policy makers. We are excited to have confirmed 29 speakers and panellists including the Vice Chair of MONEYVAL, as well as the former Deputy Attorney General and former Head of the Israeli FIU who will be analysing different parts of the MONEYVAL report and discussing with the regulators and policy makers the actions that are being taken by the country.
We look forward to welcoming regulatory and risk professionals to this full day event which will take place at the Westin Dragonara on Thursday, 13th of February. The event will be of particular interest to those working in the financial, gaming and professional sectors.
Written by Dr Manfred Galdes & Mr Dominic Fisher. As published on the Times of Malta (26/01/2020).