Strengthening compliance to Anti-Money Laundering Legislation and Regulation

INSIGHTS

25 Apr 2022

Global anti-money laundering efforts have taken a significantly wider dimension in recent years in the wake of international scandals that had severely dented the reputation of the worldwide financial system while putting into doubt the ability of individual countries to truly stem the flow of financial crime. For years, AML compliance failed to receive the required attention, with financial crime being seen as the domain of a limited number of businesses and individuals which many may consider beyond their territory. Yet, there is a growing awareness of the extensive width and scope of its impact.

Allowing money laundering to flourish effectively means supporting terrorism, drugs and violence in our neighbourhoods. Businesses set up with the intent of cleaning dirty money have no qualms in undercutting their prices as long as they appear legitimate while causing distress to genuine entrepreneurs. Finally, such activities often involve a degree of tax evasion, thereby siphoning off resources which could otherwise be invested in the community in sectors such as infrastructure, health or education for the benefit of society at large.

Over the past years, Malta has not been immune to this worldwide predicament, and its failure to effectively address the dangers of money-laundering have pushed the Financial Action Task Force (FATF) to place the country on the enhanced monitoring procedure, also known as grey-listing. This situation has accelerated significant anti-money laundering legislative and regulatory reforms in the sector, which enhance efforts at a European level to step up this fight against financial crime.

The implementation of this framework brings together a number of stakeholders in the public and private sector. While it is the Financial Intelligence Analysis Unit (FIAU), which is responsible anti-money laundering in Malta, through supervision of markets and enforcement, the Malta Gaming Authority and the Malta Financial Services Authority are also key players in this regard as the FIAU’s agents in their respective industries. The police’s Economic Crimes Unit is another key stakeholder in this drive.

Anti-money laundering efforts in Malta are primarily legislated and criminalized through the Prevention of Money Laundering Act (Cap. 373) and its subsidiary legislation, the Prevention of Money Laundering and Funding of Terrorism Regulations. These two key pieces of legislation, which adopt an “all crimes” approach, have transposed the EU’s Fourth and Fifth AML Directive (AML4 and AML5). This legislation allows prosecutors to accuse a subject person of failure to abide by anti-money laundering legislation without the establishment of a predicate offence.

AML compliance is then supported by the Implementing Procedures issued by the FIAU. The latter interpret these same regulations and seek to assist subject persons in understanding and fulfilling their obligations under the regulations, thus ensuring effective implementation thereof. The Implementing Procedures are binding on subject persons and failure to comply subject them to significant administrative penalties.

Malta’s anti-money laundering legislation places significant responsibility on legal or natural persons that carry out relevant financial business, with any person being found guilty of money laundering by the criminal court being liable a punishment of imprisonment which could reach 18 years, or to a fine reaching €2,500,000.

Malta’s anti money laundering act defines smaller penalties are applicable for convictions handed by the Court of Magistrates.

The definition of subject person has also been significantly extended in recent years in Malta’s anti-money laundering act and includes a wide network of professionals, including accountancy and tax practitioners, real estate agents, notaries and legal professionals as well as persons trading in works of art.

Malta’s anti-money laundering legislation places substantial responsibility on every subject person to carry out in-depth customer due-diligence, which ensures the correct identification of the customer, including the identification of directors of companies and the identification of the beneficial owner of firms in question. Such AML Compliance responsibilities are not limited to the onboarding stage of customers but are required throughout the full cycle of a business relationship, all while ensuring that all relevant documentation is continuously kept up to date.

Moreover, subject persons are required to implemented fully-documented risk management procedures, to examine complex and unusually large transactions or activities, especially if these involve non-reputable jurisdictions. In order to facilitate the process through which subject persons provide information to the FIAU, a standardised Risk Evaluation Questionnaire (REQ) has been developed by the Agency.

The PMLA also legislates on corporate liability, stating that when an offence is carried out by a body or persons, every person who at the time of the offence had an executive or administrative role shall be guilty of an offence, unless he or she can prove that such offence was committed without his knowledge. In the case of companies, lack of AML compliance can lead to administrative penalties which reach a maximum of EUR 5 million or not more than 10% of the total annual turnover of the same entity.

In addition, Malta’s anti-money laundering legislation, in implementing AML5, places additional requirements and controls on financial institutions, these being firms providing a wide range of financial services, covering activities carried out by banks, payment institutions, including e-money, insurance and their intermediaries, investment services, collective investment schemes and fund administrators, services related to retirement pensions, as well as virtual financial assets agents.

Regulations deriving from the above-mentioned regulations, which transpose requirements listed in AML5 and the FIAU's implementing procedures place on subject persons, including financial institutions, the responsibility to establish and maintain strong AML/CFT systems, which cover record-keeping, reporting and internal controls. These entities have also a legal obligation to file suspicious transaction reports.

AML5 obliges Member States to operate a central register with information on beneficial owners. Malta’s anti-money laundering legislation places the Malta Business Registry as the responsible entity for this operation.

The determination of beneficial owners is often a complex task for practitioners throughout their AML compliance procedures. While shareholding is normally the key identifier of ownership, other directors or even persons outside the formal company administrative structure could still be considered as a beneficial owner due their relations with key shareholders or through other means of exercising control over the company. In this context, the Maltese Registrar has been granted significantly increased powers which include the right to refuse the incorporation of a newly proposed company if its proposed directors already act as directors in other Maltese companies that have failed to submit information on beneficial owners.

As Malta approaches its exit from grey-listing, responsibility for strengthening the Maltese financial services jurisdiction remains a shared objective, and compliance with AML requirements is a key element in achieving such result.

Frequently Asked Questions

Which are the key stakeholders in Malta’s efforts to combat financial crime?

The Financial Intelligence Analysis Unit (FIAU) is responsible for anti-money laundering in Malta, through supervision of markets and enforcement. The Malta Gaming Authority and the Malta Financial Services Authority are also key players in this regard as the FIAU’s agents in their respective industries. The police’s Economic Crimes Unit is another key stakeholder in this drive.

Which is the primary legislation that addresses money-laundering?

Anti-money laundering efforts in Malta are legislated and criminalized through the Prevention of Money Laundering Act (Cap. 373) and its subsidiary legislation, the Prevention of Money Laundering and Funding of Terrorism Regulations. These two key pieces of legislation have transposed the EU’s Fourth and Fifth AML Directive. This legislation allows prosecutors to accuse a subject person of failure to abide to anti-money laundering legislation without the establishment of a predicate offence.

Which are the supporting regulatory elements in terms of AML?

AML compliance is supported by the Implementing Procedures issued by the FIAU. The latter seek to assist subject persons in understanding and fulfilling their obligations under the regulations, thus ensuring effective implementation thereof. The Implementing Procedures are binding on subject persons and failure to comply subject them to significant administrative penalties.

Who are the subject persons?

In terms of Maltese law, subject persons include a wide network of professionals, including accountancy and tax practitioners, real estate agents, notaries and legal professionals as well as persons trading in works of art.

What is a subject person’s responsibility?

Subject persons are expected to carry out in-depth customer due-diligence, which ensures the correct identification of the customer, including the identification of directors of companies and the identification of the beneficial owner of firms in question. They are also expected to maintain fully-documented risk management procedures, to examine complex and unusually large transactions or activities, especially if these involve non-reputable jurisdictions.

Where do firms stand and what are their responsibilities?

The PMLA also legislates on corporate liability, stating that when an offence is carried out by a body or persons, every person who at the time of the offence had an executive or administrative role shall be guilty of an offence, unless he or she can prove that such offence was committed without his or her knowledge. In the case of companies, lack of AML compliance can lead to administrative penalties which reach a maximum of 5 million euro or not more than 10% of the total annual turnover of the same entity.

What is the role of financial institutions in an AML context?

Malta’s AML legislation covers firms providing a wide range of financial services, covering activities carried out by banks, payment institutions, including e-money, insurance and their intermediaries, investment services, collective investment schemes and fund administrators, services related to retirement pensions, as well as VFA agents. These firms are expected to establish and maintain strong AML/CFT systems, which cover record-keeping, reporting and internal controls. These entities have also a legal obligation to files suspicious transactions reports.

What does the legislation say about beneficial ownership?

EU Member States are required to maintain a central register with information on beneficial owners. Malta’s anti-money laundering legislation places the Malta Business Registry as the responsible entity for this operation. Companies are expected to provide full information on their beneficial ownership. While shareholding is normally the key identifier of ownership, other directors or even persons outside the formal company administrative structure could still be considered as a beneficial owner due their relations with key shareholders or through other means of exercising control over the company.

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