MoneyVal – The Aftermath

The 5th Round Mutual Evaluation Report on Malta published by MoneyVal analysed the level of effectiveness of Malta’s Anti Money Laundering (AML) and Combating the Financing of Terrorism (CFT) system and sets out a number of recommendations to strengthen Malta’s AML/CFT regime.

On the 12th of December, the Malta Institute of Accountants (MIA) held a discussion forum relating to the aftermath of the MoneyVal report. A panel consisting of representatives of the banking industry and regulatory authorities discussed the results and replied to questions from the floor. This event was attended by over 200 members. The panel was formed by Ms. Marisa Frendo, MLRO and Compliance Manager of Bank of Valletta plc; Mr. Marcel Cassar, CEO of APS Bank and Chairman of the Malta Bankers Association; Dr. Michael Xuereb, Senior Advisor to the CEO’s Office at MFSA; and Dr. Alex Mangion, Head of the FIAU’s legal unit. The panel was moderated by Mr. Fabio Axisa, the MIA President.

Mr. Fabio Axisa opened the discussion by observing that though the MoneyVal report does not target solely the accountancy profession, it sheds a bad light on the profession in so far as compliance with AML obligations are concerned. He also highlighted the fact that the MIA met with various regulators such as the MFSA, and the Central Bank of Malta as well as with other stakeholders such as the Malta Bankers’ Association (MBA) which all relayed the same message, namely, that the accountancy profession needed to pull up its socks in so far as AML compliance is concerned. It is the objective of the MIA to ensure that its 3,500 members comply with their AML obligations in the best way possible, Mr. Axisa affirmed.

The MIA President observed that the purpose of this discussion forum was to find out the root cause of the MoneyVal comments, to see how others view the accountancy profession and to assess how the profession can improve, listen, learn and move forward.

  

Besides the various shortcomings at state level, the MoneyVal report dwells on the inefficiencies of designated non-financial businesses and professions (DNFBPs). DNFBS includes the accountancy profession, trust and company service providers, legal professionals and real estate agents, all of which have been designated in the report as being particularly vulnerable to money laundering. 

The MoneyVal report highlighted the following points:

1) Some DNFBPs including accountants were unable to clearly articulate how money laundering might occur within their institution or sector.

2) Some non-bank Financial Institutions (FIs) and DNFBPs have not filed any suspicious transaction reports (STRs) nor identified any suspicious transactions internally. Most DNFBPs were unable to elaborate on typologies, transactions or activities that would give rise to an STR, particularly in relation to Financing of Terrorism (FT). 

3) Problems related to ML/FT reporting, including the number of STRs, suggest that there might be problems with the overall understanding of the risks among the subject persons.

4) The majority of DNFBPs expressed the view that their businesses are unlikely to be vulnerable to Money Laundering (ML) or FT. This is in direct contrast to the communicated findings of the National Risk Assessment (NRA). 

5) Accountants were unable to clearly articulate how “control” is determined in relation to beneficial ownership of legal persons and arrangements.

6) Several DNFBPs were not aware at all offreezing or reporting obligationsstating that they would simply refuse the transaction or exit the customer relationship.

7) Most FIs implement daily or, in some cases, weekly screening of client and UBO databases against UN and EU lists, with the notable exception of some investment firms. Regular screening was not a consistent feature of DNFBPs’ procedures, with some accountants, trustees, company service providers and insurance agents indicating that this was undertaken as part of regular client reviews, which could be up to 2 years or more after take-on of the client. This raises concerns that existing customers who become subject of Targeted Financial Sanctions (TFS) may not be identified in a timely manner.

8) Although certain banks demonstrated advanced awareness of the importance of transaction monitoring to detect possible sanction evasions, this was not conducted by some smaller FIs and most of the DNFBPs.

9) Most FIs and DNFBPs were reliant on commercially provided sanctions lists and several DNFBPs were unaware of any sanction lists or other material being provided by Maltese authorities.

The discussion revolved around these three main aspectsidentified by the moderator at the outset of the forum:

1) The root cause of the MoneyVal comments 

The MoneyVal evaluators criticised the FIAU, the country’s ability to investigate crime, as well as the sectors’ ability to prevent money laundering and funding of tourism cases. The panellists argued how the country, as well as all subject persons must take stock of these issues and implement the necessary recommendations to tackle them. The way forward is improving policies, procedures and supervisory visits.

It was observed that there are number of concerns specifically related to the activity of detecting suspicious and dubious transactions. The root cause is the issue of understanding the risks. As practitioners and supervisors, accountants must be aware of the risks which they might face in order to be in a position to detect suspicious and dubious transactions when they arise.

It was noted that although the total number of STRs has been growing steadily over the period 2013-2018, there are generally low reporting rates across the sector compared to the inherent risks of thee sector.

Accountancy professionals have submitted 3 STRs in 2013, 2 in 2014, 4 in 2015 and 7 in 2018. There were 1,193 STRs submitted in the first 10 months of 2018, only 7 of which were done by accountancy professionals. 

It was noted that there have been several straightforward cases analysed by the FIAU which accountants and auditors failed to report even though the cases in question did not require any elevated knowledge of risk to trigger an STR. In these cases, there were practitioners who disregarded both their AML obligations and their ethical obligations.

The discussion highlighted the fact that there is an overall lack of awareness and sensitivity towards these issues. These shortcomings require the joint effort of both the authorities and subject persons in order to be addressed effectively. Therefore, this means further guidance by the authorities themselves coupled with a sensitisation by the professionals to the issues. On the part of accountants as subject persons, this can be done by making the issues core to their operations to detect riskycases and flag them to the FIAU for further investigation.

The panel discussion also revolved around the ‘Raising the bar for Company Service Providers (CSPs)’ consultation document issued by MFSA which was proposed to regulate CSPs as a response to the MoneyVal report. The CSP document was perceived as one that revolutionises the way in which accountants work. The panelists concluded that the ultimate objective must in all cases be that we rebuild a reputation based on ethics and a positive approach which can only be achieved by raising the standards bar.

2) To assess how non-accountants view the profession

Mr. Cassar observed how in the past it was always deemed critical that Malta acts as and is perceived as a jurisdiction of strong repute, bolstered by a strong regulatory framework and embracing a high standard of business acceptance. This was a constant for several years. However, it was noted that recently the tone changed, causing a spiralling downwards of standards. Banks have been perceived as not doing enough to attract business. However, Mr. Cassar emphasised that the truth is that banks want business – but solely reputable business.

It was observed how banks are being approached with very high-risk business which is often outside the banks’ risk appetite. Banks feel that the introducers of new companies in Malta are not well-prepared when they approach banks with new business and banks are often approached by companies with low quality management accounts and late audited accounts.

Mr. Cassar emphasised that lawyers and accountants are the first point of contact for companies seeking to register themselves in Malta. Such professionals are approached before the banks and hence the importance that such professionals can flag risky business and report accordingly. It was also noted that some accountants and lawyers are charging an account opening fee for succeeding in opening an account with a bank for their clients. This is simply not ethical, Mr. Cassar observed.

3) To assess how the accountancy profession can improve, listen, learn and move forward

This open discussion summarised the various shortcomings identified by the panellists with a view of coming up with possible solutions. It was noted that the MIA has actively sought collaboration with the relevant authorities and is working to raise awareness amongst its members in so far as their AML obligations as subject persons are concerned.

The concluding question arose: what happens if Malta fails to undertake the recommendations made by MoneyVal? Malta currently falls under the International Co-operation Review Group (ICRG). This group reviews the actions taken and the progress made. Every jurisdiction is given a one-year period which means that Malta has until October 2020 to implement and start showing results. The results achieved will ascertain whether Malta will be blacklisted or otherwise.

Dr. Mangion explained how the FIAU has implemented an action plan which sufficiently addresses the recommendations. Indeed, 75 % of recommendations found in the MoneyVal report are already being executed.It was noted that the FIAU has filed reports with the Accountancy Board in relation to practitioners who were not behaving correctly. The FIAU is also working on signing a Memorandum of Understanding (MOU) with the Accountancy Board which will enable the sharing of information between the two entities and which will be beneficial for both parties. Mr. Axisa also affirmed that the MIA takes action vis-a-via malpractices and any members who are misbehaving lose their MIA membership and are reported to the Accountancy Board.

Dr. Mangion also explained that a dedicated team within the legal section focusing on guidance and outreach has been set up with the objective of ensuring better awareness. 

In so far as the accountancy profession is concerned, Dr. Mangion noted that, it has already been agreed with the MIA, that specific training will be delivered to members of this profession. Furthermore, the MIA and FIAU are currently collaborating in the drafting of sector-specific implementing procedures – Part II of the Implementing Procedures – which to date never existed. Such a document would assist accountants and auditors in interpreting their AML obligations such as what source of wealth checks ought to be carried out when performing an audit; what cases should be reported; what type of risks ought to be taken into consideration when performing a risk assessment; and what sort of behavior displayed by clients should raise alarms. 

The way forward:
In order to ensure that the profession is in line with what is expected from it in terms of AML obligations, panellists agreed that accountants must ensure regular and consistent screening of clients and ultimate beneficial owners’ databases against UN and EU sanctions lists as part and parcel of their procedures, to ensure that only legal business is retained within the Maltese jurisdiction. The acute level of lack of knowledge and awareness amongst members of the profession must also be addressed and accountants must ensure that they are fully aware of their obligations in so far as the detection of suspicious transactions and their flagging are concerned.