Rapid economic growth in a relatively short time involves risks that unless addressed with determination may eventually not make it sustainable. Malta’s rapid economic expansion in the last few years has been praised by international institutions like the International Monetary Fund, rating agencies and the European Union. However, these same institutions are flagging some of the risks inherent in the island’s economic model.
The European Commission has issued recommendations to member states on ‘golden visa’ schemes that enable non-EU citizens to acquire residency and full citizenship rights in exchange for investment. The recommendations are based on the Commission’s review of ‘citizenship for sale’ programmes run by Malta, Cyprus and Bulgaria.
A draft version of the report states that “Investor citizenship and residence schemes create a range of risks for member states and the Union as a whole: in particular, the risk to security, including the possibility of infiltration of non-EU organised crime groups, as well as the risk of money laundering, corruption and tax evasion”.
Even if the final version of the report is somewhat watered down in order not to spark conflicts between Brussels and member states over the rule of law ahead of European Parliament elections, the ‘golden passports’ industry intermediaries argue that the EU is misinformed about such schemes. The Investment Migration Council, an industry body that represents investors and governments participating in the schemes, says that the report failed to acknowledge the role of intermediaries in strengthening the due diligence process around the schemes.
The latest IMF review acknowledges the positive developments in the Maltese economym including above-average growth and fiscal rectitude but also warns of risks and challenges that need to be addressed.
Just like the EU, the IMF has concerns about the robustness of Malta’s anti-money-laundering processes. More specifically, the IMF rightly expects that the Malta Financial Services Authority, should be genuinely financially and operationally independent of government influence. Not surprisingly, the IMF review warns that the large and internationally-connected financial and remote gaming sectors, the strong demand for the Individual Investors Programme and the envisaged expansion of blockchain-related activities gave rise to “significant” money laundering risks.
In the context of recent documented supervisory failures on the part of the MFSA and the Financial Intelligence Analysis Unit, the IMF review recommends steps to be taken to improve the understanding of risks and enhance the identification through “intrusive, risk-based supervision”.
There is little that was not already known about the risks identified by the European Commission and the IMF. The critically-important question is whether the flagging of these risks by international institutions are being addressed effectively. If the confidence gap between the government and its agencies and the international organisations like the EU, the IMF and rating agencies gets any wider, the long-term prospects of economic growth risk deteriorating.
The diplomatic language found in the EU and IMF reports should not dilute the underlying seriousness of the risks they identify. It is now up to the government and regulators to show they are indeed committed to safeguard Malta’ reputation.
This is a Times of Malta print editorial