While many international institutions no longer list Malta as a tax haven, there is a danger that the country can develop an image as a place where one can use perfectly legal vehicles for criminal purposes. Money laundering, tax evasion and financing of terrorism are risks that businesses that set up in Malta may be taking knowingly or unknowingly.

In the past few months, the international media have carried stories where Malta was allegedly used as a haven for the wealth of dictatorial regimes like Muammar Gaddafi’s or to defraud small investors by fraudulent Italian business people who used Maltese Trusts law to keep assets away from the reach of legitimate creditors. More recently, a number of Maltese electronic gaming companies were accused in the Maltese courts of laundering millions of euros gained through the criminal activities of the notorious Calabrian ’Ndrangheta.

According to Italian police, some gaming companies operating in Malta formed part of an global network linked to the international crime syndicate. The Maltese courts ordered the extradition to Italy of a number of people running this network and also froze their assets.

In another case that has so far not been given much publicity, the Italian financial newspaper Il Sole 24 Ore alleges that the Vatican bank known as IOR used funds established in Malta to launder dirty money.

All these negative developments present a serious challenge to the Maltese government and the local regulators of the gaming and financial services industry. Both Malta’s main political parties support the interest of these industries as they create substantial economic wealth and jobs. It is no secret that Malta’s recent economic success is partly due to the activities of these relatively new economic niches. The big questions that the regulators need to ask is whether, once they grant a licence for an entrepreneur to operate in Malta, they can keep track of the operations of the licensees to ensure they do not engage in criminal activity.

Due diligence exercises are conducted by both the Malta Financial Services Authority and the Malta Gaming Authority before they grant a licence to an operator in the financial services or the gaming industry. However, the real risk lies in the need for ongoing monitoring to ensure that the original business plans of those granted a licence does not change to facilitate illegal activity such as money laundering. Many argue that no regulator that tolerates such high risk activities can vouch that it has the tools to nip in the bud abuse by offshore electronic gaming companies and certain financial services providers.

Malta’s new economy industries face major risks of being blacklisted by some mighty jurisdictions like those in the US and the EU unless the local authorities tighten their grip and show they are in control of what gets done by these companies. This tightening will hurt the economy as less reputable operators would be weeded out with a loss of jobs and other ancillary economic benefits.

The reputation of a small island economy can be very fragile. It needs to be protected against abuse by unscrupulous operators who use the advantages that the government and regulators offer to attract new industries.

Enough red lights have been flashing that show that both the financial services and electronic gaming industries are in need of a clean up to safeguard Malta’s grip on a reputation as a respectable centre for doing business. Now is the time for regulators to act.