The publication of the Panama Papers opened a Pandora’s box that contains evidence of the decades-long practice of some well-connected rich and famous - that of hiding their often ill-gotten assets from the scrutiny on fiscal and other anti-financial-crime authorities. Money launderers and tax avoiders shrink from transparency more than the devil fears holy water.

A Maltese government minister and the Prime Minister’s chief of staff were among the politically exposed persons who chose opaque jurisdictions to park their money in. It is they, not their detractors, who have contributed to Malta’s image as an Eldorado for money launderers that the country is now constrained to fight.

Government apologists try to deflect the destructive impact of the lax enforcement of anti-money-laundering directives by saying bigger countries like the UK and Germany are even more permissive in the way they filter banking transactions to ensure they are not tainted with money gained illegally.

But the series of events that started with the publication of the Panama Papers and continued with the murder of Daphne Caruana Galizia leaves no doubt in the eyes of many individuals and international regulatory bodies that Malta has a high tolerance for abuse, despite professing to adhere to international regulations aimed at preventing financial crime.

In an anti-money-laundering conference organised by the Malta Institute of Accountants last week, former FIAU director Manfred Galdes voiced what many in the financial services industry have known for many years: Malta is sending the message that serious financial crimes go unpunished.

The departure of Dr Galdes from his influential post at Malta’s anti-money-laundering agency was never convin­cingly explained. He seems to be one of the few people to hold a critical regulatory position who overcome the fear of retribution, speaking out when breaches of the anti-money-laundering directives are tolerated to protect individuals with good connections.

Dr Galdes insists that the police should be proactive in looking for evidence of money laundering by improving their skills in identifying how some people with few visible means manage to acquire assets that are apparently beyond their means.

Some financial services practitioners and international regulators rightly point out that the number of suspicious transactions reported to the FIAU has been small compared to the volume of transactions passing through Malta’s banks. Similarly, few assets are seized by the State as a result of court action against money launderers.

The German business newspaper Handelsblatt states that the German government, trying to shake off Germany’s reputation as a safe haven for money launderers, is considering introducing a new law that will, controversially, reverse the burden of proof of how assets are obtained. In future, suspects will have to explain where they acquired their assets. Up to now, it has been up to the authorities to prove gains were ill-gotten. The burden of proof is just one measure to consider in the fight against money laundering.

One of the weakest links in the process of clamping down on money laundering is the police. The MEPs’ rep-ort about the rule of law in Malta was written off as biased by the government but it raised some issues that international regulators will take seriously.

Soon Moneyval, the anti-money-laundering watchdog of the Council of Europe, will be undertaking a review of Malta’s anti-money-laundering proces­ses. In 2012, it said that “Malta’s reporting of suspicious transactions was low for the size of the market”. In 2015 it found the country ‘largely compliant’, but a Moneyval spokesman told Reuters that “the last report was not based on a full assessment of the Maltese legal framework”.

More recently, the European Banking Authority, on the request of a group of MEPs, started a preliminary investigation of Pilatus Bank.

Moneyval will undoubtedly note the comment in the MEPs’ report that “the institutions implementing and enforcing rules on money laundering were highly politicised”. Here lies the crux of the problem. The perverse networking bet­ween government-controlled institutions, which should act as checks and balances to the exercise of political power, is undermining the war against corruption and money laundering.

The growing concern in international circles that Malta may be a less-than-reputable jurisdiction will scare away bona fide investors. They will understandably not want to be associated with a jurisdiction where the ap­plication of strict anti-money-laundering directives is not a priority for the authorities. This erosion of trust may be slow but steady, and may be irreversible.

Lack of political will, not just at the local but also at EU level, will only perpetuate the tolerance of abuse committed by a few corrupt people, and allow it to fester for many more years.

The time is long overdue to get tough on money laundering.

This is a Times of Malta print editorial

Sign up to our free newsletters

Get the best updates straight to your inbox:
Please select at least one mailing list.

You can unsubscribe at any time by clicking the link in the footer of our emails. We use Mailchimp as our marketing platform. By subscribing, you acknowledge that your information will be transferred to Mailchimp for processing.