On the 23rd of June, the Financial Action Task Force, a global anti-money laundering (AML) watchdog, voted to add the EU countries of Malta to the task force’s grey list that could have serious economic consequences for the nation. This marks the only EU nation to be currently placed on the FATF grey list and what action Malta takes next will be crucial for the European economy.
Founded in 1989, the FATF is a G7 initiative to develop global policies to fight issues of money laundering and, as of 2001, terrorism financing. The task force achieves this by setting standards that promote the most effective implementation of regulatory, legal, and operational measures to combat major threats to the international financial system.
The FATF manages a blacklist that dictates countries in need of action due to significant and immediate financial criminal threats, and a grey list that identifies countries that are high-risk countries for financial crimes and are in need of minor strategic reform. Nations must meet a suitable number of recommendations with most of the 39 full FATF members meeting the standards.
For example, the United Kingdom is a FATF nation that is identified as having suitable and effective strategic AML policies in place. Of the 40 FATF recommendations, the UK is compliant with 38 and highly compliant with several of those.
There are several ways the FATF grey listing can affect the Maltese economy. It raises the assignment of risk given to a Maltese individual or company when assessed by a foreign institution. Essentially, it will significantly affect how foreign investors will deal with businesses in Malta – they will be required to perform an increased level of due diligence and banks face a 4% fine of global turnover if they are to breach these procedures.
The risk of such a fine may be enough to turn foreign investors away from Malta. Founder of Risk Management Firm QGEN Group, Damian Mifsud, argues that an American bank can make in one day in the UK, what would take one year in Malta. If a due diligence breach were to occur in Malta, then they would face a 4% fine on all their earnings regardless.
The FATF grey list is regularly updated and countries in the past have enacted reforms and been removed from the list. Back in 2019, Iceland – a member of the European Economic Area – was grey listed but managed to exit the list within 12 months by enacting essential reforms.
The FATF actually provides an action plan for grey listed nations and Malta will be no different. It is already known that the Malta Financial Intelligence Analysis Unit must increase focus on money laundering crimes and serious tax offences. Another key area of reform for Malta will be in improvement of the identification of inaccurate beneficial ownership information that legal Maltese legal persons provide.