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Network News • 03-12-2020

Redemption: leading the path to normality

Author: George Mangion
Published on Business Today 3rd December 2020

The Economist Intelligence Unit (EIU) predicts a fairly sharp slowdown in America, from 2.3% to 1.7%, as trade tensions continue to depress trade and investment. A continuation of the global slowdown in manufacturing will also drag down growth worldwide. It goes without saying that a steam roller attitude towards a no-deal Brexit next month could make matters worse, for Britain and its trading partners.

In Malta, we also have our own home-grown unrest. Six weeks ago, the government submitted its final Moneyval report to the Council of Europe’s experts which includes new legislative changes implemented by the country after it failed an assessment of its anti-money laundering regime. Even if the coming Moneyval verdict on our performance in the fight against financial crime may not be as damning as some fear, the industry faces a major challenge to restore Malta’s reputation in international financial circles.

Years of disregard for anti-financial crime regulations cannot be wiped out merely through public relations and marketing. In an interview, the chairman of FinanceMalta said he was eager to get on the first available flight to spread the good news that Malta is open for financial services business as soon as the inconveniences caused by the pandemic are behind us.

This may be a forlorn wish since, during the past year marking his appointment, there was nothing he could do to prime the pump. Although financial markets have recovered from heavy devaluations in spring, yet COVID-19 has now entered into a stronger second wave. Authorities around the world are called upon to remain vigilant, quickly identify adverse developments and react, using the full scope of their mandates, where needed. Many agree that the reputation damage to the island as a financial domicile resulting from political turmoil is palpable.

As they say – it does not rain – it pours. Another scandal of international scale concerns the use of shell companies in Malta to shield dubious billionaires in their drive to avail themselves of the favourable tax regime. A particular case involves an African princess of the dos Santos dynasty in a scheme valued at $2.2 billion by Forbes. The damage is exacerbated by the forced closure of three local banks. These were small private banks:  Nemea, Satabank and an Iranian owned bank, Pilatus.

The reprimand on Bank of Valetta by the ECB over AML and governance issues did send shock waves since this is a major bank with a majority shareholding held by the state. Since 2013, it was run by a chairman appointed by the government. The chairman then was the ex-managing director of RSM – the firm auditing the Labour Party. He has since been replaced by a popular economist in government circles – Dr Gordon Cordina.

More sad news followed such as the fine of €340,058 imposed on Lombard Bank by The Financial Intelligence Analysis Unit (FIAU), which found the bank breached five separate anti-money laundering provisions. It reported that in one case the bank failed to properly ascertain the source of funds of a politically exposed client.

The inadequate information held on file about the origin of the wealth of three other clients convinced the FIAU that it needed to penalise Lombard on inadequate enforcement of anti-financial crime directives. Lombard informed its stakeholders that it has always been and remains committed to preventing financial crime contemplated by its clients and appealed the fine.

The Malta Financial Services Authority (MFSA) launched enforcement proceedings against four local operators last month, levying fines of €15,000 each on two entities and stripping the other two of their licenses. The sudden resignation of the MFSA CEO, appointed only 18 months ago following the scandal of his accepting a free Las Vegas trip from Yorgen Fenech – seemed to break the camel’s back.

The arrest of Yorgen Fenech, owner of the secretive 17 Black company, as a person of interest in the assassination of journalist Daphne Caruana Galizia, and having close links with the former prime minister’s chief of staff (now also probed by police), heightened the anger of the crowd fearing collusion.

All these factors have taken their toll on public opinion while we are still feeling the cold blast of negative publicity following the disclosure of secret Panama companies in 2015 registered by Nexia BT (representing disgraced Mossack Fonseca) destined for top members of the cabinet.

To return to normality, Malta needs to look ahead; all stakeholders, including the government, national authorities and market operators must put financial crime compliance at the top of their agenda and continue enhancing internal controls to strengthen the fight against money laundering and terrorism funding.

The past years has seen several protests sparked by the damning revelations by the independent media and developments which emerged during the staggering public inquiry in the Caruana Galizia murder. To exacerbate matters, there have been occasional power blackouts which Enemalta (the state-owned utility) promptly blamed on ships laying anchor and seriously damaging the Sicily/Malta submarine electrical cable.

Moving on, Abigail Mamo, CEO of the Malta Chamber of SMEs, said that the chamber received calls from restaurants, retailers, grocers complaining of reduced business once the surge of orders spurned by the issue of cash vouchers abruptly ceased. Other worries concern poor trade during Black Friday.

Back to the theme regarding the reputation of Malta’s financial services sector, this can only be regained through hard work and patience.

Hopefully, Moneyval’s greylisting will never materialise. Then, Malta will have its work cut out to convince international regulators that we do not only enact good laws to prevent financial crime but also actually implement these laws with a steely determination.

Undoubtedly, the pandemic has caused many businesses to accumulate losses and some even close down. However, those who took the right steps to mitigate the situation are still making some profit, even if not so much. The truth is, the pandemic will go away next year with the help of vaccines and when it does, all industries that sharpened their knives during the slow-down will thrive and start making money.

We recently witnessed a major reshuffle of cabinet posts in the hope that new blood may speed up further AML reforms. Our redemption can triumph if we plant a root and branch reform backed by checks and balances in a concerted drive to strengthen the three pillars of good governance, the rule of law and democracy.

Author: George Mangion
Published on Business Today 3rd December 2020
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