A report due to be completed shortly will point out the structural risks and weakness in Malta’s attempts to prevent money laundering. The so-called National Risk Assessment is an exercise that is aimed at assessing the money laundering risks prevalent within a jurisdiction through a study of the threats and vulnerabilities.

Since Malta’s legislation is largely in place, the focus of the report will be on determining whether the country’s institutional set-up is adequate in terms of monitoring, law enforcement capabilities, prosecutorial resources, asset tracing and asset management capabilities and other related areas. The report should also hone in on the main internal and external threats, identifying also those services and sectors that expose the country to higher risks and would therefore require more robust due diligence.

“Do the statistics available on the type of prosecutions and convictions, and figures for confiscations convince us that the systems are working effectively in practice,” the FIAU director Manfred Galdes asked during a recent Powerpoint presentation on the progress of the report.

“Results must lead to action!” he concluded, referring specifically to the fact that this exercise will now place the authorities in a much better position to allocate human and other resources to the areas where vulnerabilities are identified. Financial operators and practitioners will also be able to focus their efforts on the areas that pose a higher risk.

Since this exercise is mandated by the revised FATF Recommendations, similar reports are being prepared in a number of jurisdictions, with Malta being among the first to complete the exercise.

The process for the nationwide analysis was started in November 2013, led by the FIAU, which brought together 60 people in seven working groups. The methodology being used is the World Bank’s, which is widely used and provides an effective basis for comparison.

The Malta exercise, however, differs from many of the others being carried out as it involves participation by operators within the private sector, enriching the results through their granular knowledge of the sectors as well as their understanding of product flaws.

In fact, the World Bank has asked the FIAU to present the model to other financial intelligence units as a clear example of best practice.

The report is also necessary for the country to make the major shift envisaged under the EU’s 4th Anti-Money Laundering Directive, which came in force last June, towards risk-based customer due diligence and risk-based supervision.

Member states have two years in which to implement these changes. The directive brings about numerous other changes, one of which will be the imposition of strict anti-money laundering obligations on remote gaming companies.

Although land-based casinos were covered by the 3th Directive as an obvious potential channel for illegal funds, online activity was simply not on the radar at the time.

It will also clamp down much more tightly on the identity of the beneficial owners of companies and the beneficiaries of trusts.

An information register of beneficial owners will have to be set up and its contents will have to be made available to not only the police and the FIAU, but also to service providers like banks, lawyers and other entities carrying out customer due diligence together with the somewhat vague category of those persons or organisations that can demonstrate a “legitimate interest”.

“There is no doubt that the aim of the initiative is to encourage transparency and to mitigate the risks posed by the misuse of corporate structures or trusts by persons having criminal intentions.

“Fiduciary services in themselves are not the problem. The issue is that the possibility of obscuring the ownership structure of a company through the use of a fiduciary company holding shares on behalf of others opens a window of opportunity for those persons wanting to use the corporate structure for illicit purposes,” Dr Galdes said.

“There are, of course, other risk factors that we need to keep an eye on, including the influx of the proceeds of crime through cash-based businesses that may be set up in Malta or that may be transferring funds to Malta from other jurisdictions. Our job, along with other supervisory authorities, is to ensure that Malta is a tightly-controlled jurisdiction and that it is not used for criminal purposes.

“The report will look at the internal and external threats and vulnerabilities, with the aim of identify the main areas of risk.

“Our assessment started by looking at the policy-making and supervisory structures, but it also looked at how many prosecutions and investigations there were, how many of these had an international dimension, and at the value of frozen and confiscated assets. The report will conclude whether these figures are satisfactory for a jurisdiction that has become an important financial centre.”

The FIAU has strengthened its resources significantly over the years. When it was set up in 2002, it only had four staff members whereas it now has 25. And while the unit had no compliance officers in 2008, a team is now well established.

The FIAU, with the assistance of the Malta Financial Services Authority, is required to monitor close to 2,000 entities and individuals, assessing whether their anti-money laundering obligations are being met through off-site examinations and onsite inspections.

At the same time, the FIAU is also involved in the analysis of information received through STRs and from foreign financial intelligence units and in instigating its own investigations.

The risk assessment report should be submitted to government in the coming weeks.

The exercise will be repeated in three to four years to ensure any new trends are picked up as promptly as possible.

FIAU: 2014 at a glance

• In 2014, the Financial Intelligence Analysis Unit received 233 reports of suspicious transactions, of which 27 were passed on to the police for further investigation.

• During 2014, there were six money laundering convictions involving seven persons.

• 81 per cent of all the reports involved at least one foreign natural person or legal entity, of 55 different nationalities.

• Over 74 per cent of the cases referred to the police in 2014 involved the use of bank accounts in Malta.

• One or more companies registered in Malta were noted in a third of the cases referred to the Police.

• In nearly half the cases, the subjects had received services from Maltese professionals and service providers.