Wednesday 28 February 2024

An icy cold shower in the middle of a heatwave

This column first appeared in Malta Today

As we try to figure out the best way to keep cool during this sweltering heatwave, Malta got its own icy cold shower this week when the news broke that it had been grey listed by the FATF (Financial Action Task Force).

The FATF is the global money laundering and terrorist financing watchdog and when it puts a country on its grey list that means it is under increased scrutiny. Despite Malta belatedly scrambling to avoid this very situation by finally starting to pull up its socks, it was a case of too little, too late, and the FATF is obviously not convinced that our country has done enough.

I will leave the more detailed explanation of what this will mean for the financial services sector to the experts. But what the ordinary person really wants to know is: how will this affect me in real terms?

As clearly explained by one such compliance expert, Charles Cassar (whom I am paraphrasing), it could mean you will find it more difficult if you have to deal with foreign financial institutions. If gaming companies decide to relocate elsewhere, it could mean a loss of jobs. Those (legitimate) companies which were thinking of investing in Malta might change their minds. As for local businesses, they might have to jump through more hoops as banks increase their due diligence procedures and question every transaction.

I am sure there are those who have already felt the effects of the latter – have you tried depositing or even withdrawing a sum of cash recently? Suffice to say that you are made to feel like a hard-nosed money launderer straight out of Ozark.

The bitter truth is that the booming economy which the Labour administration was always so quick to brag about has, in too many instances, been directly linked, and is a result of, dirty money. Just this week we saw another restaurant being dragged into the fray, and the assets of its directors have been frozen. Who knows how many reading this have frequented the popular La Vecchia Degona in Pieta’, completely oblivious to the fact that they were actually supporting an illicit operation? Darren Debono was named as the actual owner of the company which operated this restaurant, along with two others being used to wash money, Capo Mulini in Marsaxlokk and Porticello (formerly Scoglitti) in Valletta. He was arrested in Italy in 2017 in connection with a major fuel smuggling operation between Libya, Sicily and Malta. He is being charged with money laundering along with the other company directors involved.

The common theme is that these restaurants were all being run on a cash basis, leaving no paper trail to speak of. “None of the banks want to allow them to have an account with them as they are subject to FIAU investigations and [the banks] don’t want problems,” the court-appointed administrator of the company testified in Court.

Is it any wonder that banks are on high alert if anyone waltzes in with a wad of cash? These days, even handymen (who used to be notorious for only wanting to be paid in cash) are asking for a cheque because the banks are making cash deposits more difficult.

Meanwhile on Friday afternoon, the FATF explained the three areas where Malta still needs to take tangible action:

  1. The ownership information for companies based in Malta has to be accurate, and it has to take decisive action when it is found to be inaccurate. Gatekeepers that do not comply with their obligations to obtain accurate and up-to-date beneficial ownership must be sanctioned. 
  2. Enhancing the use of financial intelligence by the FIAU to support authorities pursuing criminal tax and related money laundering cases.
  3. Focusing FIAU analysis on criminal tax offences, to get it to produce intelligence that helps Maltese law enforcement detect and investigate cases in line with Malta’s identified money laundering risks related to tax evasion.

The average Joe might not have to worry his/her head about the above three requirements although, as explained earlier, the negative boomerang effect might be felt by law-abiding citizens in other ways. However, the message was loud and clear: “Malta must not downplay the seriousness of the matters at hand”. The FATF is bluntly telling the Government that it wants real implementation of the law against money laundering and tax evasion, and not just cosmetic changes.

What is also crystal clear is that the party is over, which is something many have long predicted will happen. The numerous scandals and revelations involving those in power and those who are the real powers behind the throne, have brought with them increased scrutiny and have led us to this point.

Much like a dashing, handsome man who appears out of nowhere,“ticks all the right boxes” and sweeps a woman off her feet in a whirlwind romance, proposing to her and getting married before she has time to catch her breath, Malta’s ‘romance’ with a turbo-charged economy was all just too good to be true. And much like these unscrupulous men who scam vulnerable, gullible women out of their life savings on the pretext that they are in love with them, so too did Malta get scammed by a circle of unscrupulous people, who whispered all the right things and cast a bewitching spell with dreams of living happily ever after. But the feel good factor which was created was, in reality, as insubstantial as fluffy, cotton candy.

And let’s be honest, it was staring us all in the face. If the average person can take a cursory look around and easily point out those who are living a lavish lifestyle which in no way tallies with their supposed income, why should it be so difficult for the tax compliance unit to do the same? We have all seen teenagers driving cars which cost as much as a small flat, while those who have worked all their lives make do with a more modest model. We have all wondered how some businesses suddenly start opening branches and expanding left, right and centre as if they have money on tap like a keg of beer. If, in the eyes of a casual observer, these things simply do not add up, how can they be allowed to slide by those who are supposed to be on the lookout for tax evasion?

I do not blame those who work legitimately, run a clean business, do everything by the book, declare every last cent and dutifully pay their taxes, for being furious at how Malta’s name has been dragged through the mud by those who have been simply using the country as their personal money laundering machine. As more shady businesses are (hopefully) forced to close down shop, let us just hope the rest of us will not be dragged down in the process, due to a possible domino effect.

Views on corruption differ, depending on where you live

If any further proof were needed that a country’s culture often determines what they think about corruption, then the latest Global Corruption Barometer – EU 2021, has confirmed it.

In Malta, for example, 33% admitted to using personal connections to obtain a public service. This percentage decreases among Scandinavian countries. As anyone reading this will know, it is such a common practice here that few bother to hide it. On the contrary, it is talked about openly, almost as a form of bragging about “who you know”. And for some, it does not even really fall under the heading of real “corruption” and they will just dismiss you as a naive fool for not pulling some strings, whenever the situation arises.

What particularly struck me was that that 65% of Maltese say that Government corruption is a big problem, in comparison with those on the lower end of the scale which, again, all happen to be Scandinavian countries, namely Denmark (12%), Finland (16%) and Sweden (21%). Yet if the public outcry against corruption were as loud as that percentage and had to be reflected in elections, things would be very different. So, it is clear that we have come to accept it in the same blasé way someone who is perpetually late will brush off their lack of punctuality “u iva… I’m only 30 minutes late….” while those who are there waiting are annoyed and angry, but keep tolerating it.

The most worrying statistic of all, however, is the 56% of the Maltese who said they feared being targeted if they had to speak up about corruption (11% more than the EU average). This too tends to be a Maltese trait even on innocuous matters, where people prefer to hide behind anonymity when they complain, or whisper about it in private, rather than being man or woman enough to be upfront and confront the issue face to face.

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