The economic slowdown could potentially create the right conditions for criminal activity and the Financial Intelligence Analysis Unit is aware of the risks Malta runs in the current climate.
Despite it not witnessing a substantial impact of the economic situation on the volume of reports referred to it, the FIAU has to be extra vigilant, the unit's chairman Silvio Camilleri told The Times Business.
"Criminologists say that in difficult economic times, crime is bound to rise," Dr Camilleri said. "This is even more so in the case of crimes that generate large flows of funds. Another major risk is that subject persons reduce the resources allocated to compliance as a result of their potentially diminishing spending capacity. This could severely damage the efforts that have been made over the years to strengthen the line of defence put up by subject persons against money launderers, rendering the entire financial system more vulnerable to money laundering and terrorism financing threats.
"These views are corroborated by the fact that any cost-cutting exercise within any organisation is most likely to be directed in the first instance at non-revenue generating sections."
Dr Camilleri stressed that no effort had to be spared to prevent the country from being used for illicit purposes. Smaller jurisdictions than Malta had invested considerably to protect their reputation.
"It is therefore crucial that all states look closely at the area of prevention of money laundering, especially in the light of the particular attention afforded to it by last April's G20 declaration on the strengthening of the financial system," he pointed out.
Asked about Malta's vulnerability to economic crime, Dr Camilleri said any country's exposure was difficult to gauge. Countries complying with the Financial Action Task Force recommendations were internationally recognised to have significantly mitigated the risks of being used by launderers.
He explained that as a member of the Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering and the Financing of Terrorism, Malta is subject to periodical assessments and a report is drawn up based on the FATF recommendations.
The third round mutual evaluation report for Malta was adopted by the MONEYVAL Plenary in September 2007. According to the MONEYVAL rules, 12 months after the report is adopted, member states are expected to present a progress report.
Malta is required the authorities to report on progress achieved in relation to money laundering offences, customer due diligence, suspicious transaction reporting and the criminalisation of terrorist financing. It also required information on developments regarding the recommendations made with respect to politically exposed persons, cross border correspondent relationships, the notion of attempted transactions, and the inclusion of originator information related to wire transfers.
Presented in Strasbourg last December, Malta's progress report showed significant advancement had been made in the Maltese anti-money laundering and financing of terrorism regime.
The adoption of the new regulations in 2008, with amendments to the Criminal Code and the Prevention of Money Laundering Act, addressed any remaining recommendations.
In the FIAU annual report for 2008, Dr Camilleri outlined how after a painstaking process, the unit proposed new overhauled regulations which have now fully transposed the requirements of the EU Third Anti-Money Laundering Directive and the EC Implementation Directive into Maltese legislation. The regulations also bring Malta in line with the standards set out by the FATF.
"The major change in the new regulations is the introduction of a risk-based approach for the application of customer due diligence," Dr Camilleri explained. "The regulations provide for the application of simplified and enhanced due diligence in certain defined circumstances.
"Some of the most important changes they bring about involve the inclusion of trust and corporate service providers and all persons trading in goods where payment in cash amounts to or exceeds €15,000; mandatory ongoing monitoring by subject persons of the business relationship; the requirement for subject persons to establish adequate policies and procedures on internal control, risk assessment, risk management, compliance management and communication; and the extension of the maximum period within which a suspicious transaction report is to be made by two to five working days."
The FIAU last year established a new compliance unit, particularly to support its wider remit to financing of terrorism and a wider spectrum of subjects persons.
"Inadequate compliance monitoring as required by law and international standards and obligations would expose the financial sector to serious risks," Dr Camilleri warned.
"The law charges the FIAU with the responsibility to monitor compliance and to co-operate and liaise with the relevant supervisory authorities to fulfil this responsibility.
"The FIAU relies extensively on the on-site monitoring conducted on its behalf by the relevant supervisory authorities, focusing its own efforts on off-site monitoring. On the basis of mutual agreements, the unit continues to rely on the Malta Financial Services Authority and the Lotteries and Gaming Authority for off-site compliance inspections in respect of subject persons licensed or authorised by the respective authority, thus rationalising on resources.
"With the setting up of its own Compliance Section, the FIAU has started to participate more actively in the on-site visits conducted by the MFSA and the LGA."
Once the compliance section is adequately resourced, the FIAU intends to introduce an annual reporting obligation by money laundering reporting officers of subject persons on their activities throughout the year, including details of internal reporting not filed with the unit. This will be done as part of the off-site monitoring and as an indicator for on-site examinations and will assist the unit to identify areas of weakness that require further investigation.
Internationally, the FIAU is part of an extensive network of similar bodies. Legislation provides for spontaneous exchange of information and for assistance governed by bilateral arrangements. Information is exchanged for intelligence purposes but can be transmitted to law enforcement agencies for extraordinary reasons following authorisation.
Drug trafficking, usury, undeclared income and fraud have been the top offences in connection with reports made to the unit. Dr Camilleri explained that there is a pattern to them: main activities involved in the suspected underlying criminal offences identified in reports have consistently involved these four crimes.
Credit institutions are the FIAU's main clients. Dr Camilleri said that banks report any atypical transaction and any situations where the source of funds seem suspicious or where transactions do not make commercial sense. The banks have the advantage, in most cases, of meeting clients face to face and establishing a relationship with them. This gives them more substance on which to base their decision as to whether the case warrants reporting.
The unit handled 30 cases with inconclusive information last year. Dr Camilleri pointed out that although the case is closed, the file is kept in abeyance in case additional information becomes available that would require the re-opening of the case.
"When the FIAU receives a suspicious transaction report, its officers systematically and scientifically analyse the information and supplement it with other information that the FIAU may already possess or gather," Dr Camilleri pointed out.
"Where a reasonable suspicion of money laundering or the funding of terrorism is deemed to subsist, the analytical report drawn up by the officers of the FIAU, with all relevant information, is submitted to the police for further investigation."
This year, the unit has embarked on a review of its procedures and logistical, personnel and IT requirements to consolidate its structure. The exercise is being led by Manfred Galdes, the FIAU's new director.
Following consolidation, the FIAU will then work on expanding its training and awareness-raising services to subject persons. It has collaborated with the MFSA actively in the area but Dr Camilleri said there was scope for expansion and increased specialisation in this area.
"During these last years, we have had a slow but steady increase in money laundering convictions and this has given a fresh incentive to the unit to double its efforts to seek to increase its input to the law enforcement authorities with better quality analytical reports to continue to be instrumental in increasing the number of prosecutions.
"This should in turn have the effect of improving the expertise of all involved: police, prosecutors and judiciary," Dr Camilleri insisted.