The Accountant – Is Good Governance on our Agenda?  –  Summer 2020 (MIA Publication)

Grey is a colour often associated with accountants, but not often connected with Malta, until now. Since the results of the Moneyval inspection of Malta were published in July 2019, the prospect of ‘grey-listing’ has been hanging over Malta. In this article, Dominic Fisher of ARQ Group will examine what grey-listing could mean for Malta and its accountancy profession.

About Moneyval and the Malta Report
Moneyval is a monitoring body which evaluates European countries regarding measures taken to combat money laundering and financing of terrorism. A key feature of the current round of inspections is the focus on effectiveness. Simply having a sound legal framework is not enough.

The Moneyval report on Malta, which was published in July 2019, was generally negative. In fact, Malta was rated as ‘low’ or ‘moderate’ in nine of eleven areas under review with supervision, prosecution and confiscation being areas of particular weaknesses. These findings meant that fundamental or major improvements were required across the board.

In terms of the accountancy profession, Moneyval also concluded that Maltese accountants were not confident in their understanding of money laundering and were unable to articulate clearly how it could occur in their sector. The FIAU’s latest annual report shows that suspicious transaction reports by external accountants and auditors has been rising, albeit from a very low base.

The corporate service provider (CSP) sector, which also employs many accountants, also came under criticism. Given that CSPs are involved with most Maltese company incorporations, they are critical gatekeepers to the Maltese financial system. It’s no coincidence that in October 2019 the MFSA opened a consultation to ‘raise the bar’ for this sector.

Grey-Listing
Malta has until October of this year to show progress or find itself ‘grey-listed’. Damage has already been done to Malta’s reputation by this prospect. For example, the latest Basel AML Governance Index had Malta falling from 13th to 89th in the world. In this Index we are sandwiched between Serbia and Russia in the rankings and now lag behind every other EU state.

Institutions which serve international clients or depend on overseas counterparties have also been negatively affected. In many sectors, obtaining or maintaining banking facilities in Malta is close to mission impossible. This isn’t a case of banks being nasty, but rather that they are careful, to the point of paranoia, of meeting stakeholder expectations. In practice, pleasing regulators, owners and correspondent banks currently involves prioritising compliance over short term commercial gain and avoiding certain types of business altogether.

If Malta is grey-listed, this would be a first for a EU country. Joining a list that contains Albania, Cambodia, Ghana, Zimbabwe, Syria and Yemen is self-evidently bad and will make Malta less attractive as a jurisdiction. With everything else that is going on in the world, it might be tricky to isolate the grey-listing effect, but we can predict that the quantity and quality of businesses seeking to locate in Malta will fall.

Remedial Action
Most of the gaps noted by Moneyval were known and long-standing and a National Co-ordinating Committee was established prior to the publication of the Moneyval report to ensure that necessary actions would be addressed. Of course, some of the weaknesses are easier to fix than others. A substantial injection of resources into the supervisory authorities has led to a tripling of inspections year on year in 2020. The sanctions which are currently being applied by the authorities are far more punitive than in the past. Nevertheless it remains highly questionable whether the criminal justice system can achieve and/or demonstrate the progress which is required and legislation to support non-conviction based asset forfeiture has yet to be passed.

Relevance to Accountants

Many accountants are aware of anti-money laundering requirements and typologies, but here’s my advice for any accountants in the current environment.

AML is an integral part of the job
– You like working with numbers? Your eyes glaze over when it comes to legal or compliance matters? Bad luck. Accountants on the front lines must be aware of money laundering risks and typologies and be ready to flag suspicious activity.

Systemise to comply
- Already strained by the regulatory burden? Don’t expect things to improve. For many organisations manual compliance processes are unfit for purpose. Explore automated processes that take the pain out of compliance.

Take AML appointments seriously
– Accountants are often asked to take on the MLRO position themselves or involved in the process to appoint MLROs. It is crucial to ensure that anyone taking on this post has the experience, seniority and bandwidth to carry out this role effectively. This is no time for enthusiastic amateurs.

Malta’s standing as an international financial centre is at stake. If we act accordingly, between the grey clouds, there is blue sky.

Dominic Fisher is a chartered accountant and is an expert in the field of risk and compliance at ARQ Group.