Two month ago in Dublin Malta has been sharply criticised by an influential European monitoring body for inadequately tackling financial crime, in a report highlighting the risks of its large banking and online gambling sectors, a Reuters report says.
The report, which in the past has been closely watched internationally including by U.S. Treasury officials, is a setback for the island that has sought to repair its reputation following the murder of a journalist investigating corruption.
Moneyval, a pan-European group backed by more than 30 countries, said Maltese police seldom used information gathered to trace criminal money and not enough was being done to tackle money laundering risks in online gambling.
A group of key Maltese government ministers issued a statement to say they were happy with the progress the country had made so far and they would prepare a one-year plan to implement Moneyval’s 58 recommendations.
They said the country was “deeply committed” to tackling money laundering and terrorist financing.
Despite having a population of only 420,000, Malta, a former British naval stronghold south of Sicily, has a financial sector that dwarfs many EU countries. It is also the European leader in online gaming.
Moneyval said that although the country had tried to better understand money laundering risks, investigations were hampered by “limited resources, both human and financial”.
Moneyval said they were “not convinced” Maltese police could effectively investigate and prosecute “cases related to financial, bribery and corruption offences.”
Last year, Pilatus Bank, an international lender based on the island, was shut down by the European Central Bank after its chairman was accused in the United States of money laundering and bank fraud.
The lender had received a clean sheet from Maltese authorities despite allegations of processing corrupt payments by investigative journalist Daphne Caruana Galizia, who was killed by a car bomb (tinyurl.com/yd8nmmap).
There is no proven link between her murder and reports she wrote about the bank, but anyway the suspicion is a public fact, a Bloomberg Businessweek report says.
As a European Union member state, Malta has implemented all EU Directives regulating the prevention of money laundering. Furthermore, Malta is part of MONEYVAL (the Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures formerly PC-R-EV), established in September 1997 by the Committee of Ministers of the Council of Europe to conduct self- and mutual- assessment exercises of the anti-money laundering measures implemented in Council of Europe countries.
By virtue of the Prevention of Money Laundering Regulations, the Malta Gaming Authority (MGA) is also the supervisory authority bound to monitor the operation of all its licensees and report to the FIAU any suspected money laundering or terrorist funding activity.
In fact, the story of how Malta got to this point—allegations of money laundering, political skulduggery, smuggling, organized crime, and even a murder – is a complicated one.
Multiple investigations—by local magistrates, American prosecutors, and European politicians and banking regulators—have been rattling Malta’s financial and political networks for more than a year. Some of the most powerful countries in the world have suggested that a nation of about 450,000 people might pose a serious threat to global efforts to track money laundering, enforce economic sanctions, and maintain fair transnational standards.
In the early 1990s, to convince the rest of Europe that it could be a trusted partner, Malta began instituting a series of financial and regulatory reforms.
By the time the country’s membership in the EU was formally approved in 2004, Malta had staked out its place within Europe’s economy, and the nation’s attractive tax schemes—effective rates as low as 5 percent for foreign-owned companies, vs. an average of 22 percent for other European countries—helped attract investment funds, banks, and financial-services firms from all over the world. The steady influx of new business helped the local economy avoid a significant downturn during the 2008 financial crisis.
Shortly after Muscat and his Labour Party took office in 2013, effectively ending 25 years of Nationalist electoral dominance, the country instituted the controversial passport-selling scheme, which was denounced by EU officials who feared it could create a back door for shady individuals or dirty money to gain access to Europe’s financial markets. But Muscat energetically pushed the plan, traveling abroad to sell it to prospective citizens, and it quickly took off. In 2014, Malta began a three-year run as the fastest-growing economy in Europe, and Muscat and his allies described the passport program as a complete success. By the beginning of this year, the government had collected about €600 million through it.
Muscat’s opponents in the Nationalist Party, as well as some members of the Maltese press, weren’t sold. In 2016 investigative journalist Daphne Caruana Galizia dug into the documents released in the Panama Papers leak and discovered that two of Muscat’s closest aides had established companies in Panama. She accused them of using those businesses to launder money from kickbacks she said they’d received for helping to arrange the sales of passports to Russian nationals. They denied it; a separate magisterial inquiry regarding those allegations is under way.
Later, Caruana Galizia reported that Muscat’s wife, Michelle, had established her own Panamanian shell company through the same middleman who’d set up those for Muscat’s aides—the accusation that the magistrate this summer said he’d found no proof to support. Caruana Galizia also accused Pilatus Bank, a Maltese institution founded in 2014, of handling much of the money in those alleged transactions, as well as those involving the shell companies set up by the prime minister’s aides.
Additionally, the journalist alleged that the first lady had received at least $1 million from Azerbaijan’s ruling family. Last year an international consortium of investigative journalists accused members of Azerbaijan’s ruling elite of operating a $3 billion scheme to launder money, pay off European politicians, and buy luxury goods; the reports cited “ample evidence” tying the ruling family to the schemes. Azeri President Ilham Aliyev last year labeled the accusations “totally groundless, biased and provocative.”
Caruana Galizia’s blog became the most-read news source in Malta. And even though she criticized both parties, it was a clearinghouse for critics of Muscat’s government. On any given day she might have accused a Maltese official of visiting a prostitute; or exposed an alleged local oil smuggling ring that helped Libya evade sanctions; or traced personal connections between government officials and suspected criminals; or slammed Muscat for trying to pitch Malta as a cryptocurrency capital, which she suggested would attract more corruption; or detailed alleged links between the country’s growing online gaming sector and the Italian Mafia. The list of her enemies was large and growing, and by last fall she faced 47 lawsuits—42 civil, 5 criminal—about 70 percent of them from government officials, according to her sister, Corinne Vella.
Now, two years after the Caruana Galizia killed in a car bomb assassination, there is a new secret investigation by Malta authorities on some Romanian and Bulgarian connection to money laundering. One of the subject of the investigation is a Maltese registered company “Brobet” LTD owned by three Bulgarians – Stefan Naydenov and his two sons Boyan Naidenov and Cvetomir Naydenov. Some sources from the Maltese police says, that the Bulgarians have a serious links towards Italian Mafia in Sicily and Milan and that they are subject of investigation on money laundering in some other European countries. “Brobet” LTD is registered in Malta and has a license for online gambling in Bulgaria and Malta. The company operates with the trade mark “Efbet” and it has a large number casinos all over Bulgaria. Efbet is one of the largest Bulgarian gambling operators in this East European country and his main owner Stefan Naydenov is well known with his belonging to the communist secret services. Similar investigation connecting “Brobet” with money laundering are taking part in Greece and Romania.
The European Parliament is concerned enough about Malta to have sent an investigative delegation to the country multiple times this year. The committee’s report, issued recently, described an atmosphere of fear had settled over the country—and a sense that criminals could operate with impunity.
European Parliament report described “systemized and serious deficiencies” in the rule of law in Malta, which had eroded the population’s general sense of security. Additionally, a police investigation in Italy has alleged that the Sicilian Mafia infiltrated companies in the online-gaming sector, using them to launder illicit funds.
Despite the official will of the Maltese government , it didn’t appear to be particularly pleased to be delivering a concrete action towards money laundering, drawing more attention to a problem that it clearly sees as a threat to Malta’s reputation and livelihood. The reputational damage resulting from continued scrutiny from various quarters—the European Parliament, the European Banking Authority, Italian police, the U.S. Department of Justice—could trigger a backlash against the tiny country that might pose a real threat to its economic foundations.