FIAU working with ‘partners’ to fight money laundering

At the end of 2022, the Financial Intelligence Analysis Unit (FIAU) launched its first ever strategy for the period 2023-2026. Its Acting Director Alfred Zammit spoke to FinanceMalta about the most important changes that it signifies.

The past 20 years have seen significant changes to Malta’s economy and, with that, the role of the FIAU. As that role evolved, so did its operations. Ten years ago, it had only 13 employees with a budget of €480,000. Today, the FIAU employs 141 employees, with a budget of €11.5 million.

Until 2022, the FIAU had relied on regular reviews and development plans. Drawing up the first strategy required an innovative process – one that relied heavily on consultation with its own employees. Over half of them actively participated, putting forward ideas on what could be done – or done differently.

Some of the important initiatives in the strategy are more challenging than others, he admitted. However, there is nothing there which is not considered to be achievable.

“We needed to look at how the FIAU had changed its vision and its purpose. The original mission statement was based more on the FIAU carrying out its operations effectively and efficiently, and in an autonomous and independent way,” Mr Zammit explained from his office in the new, larger premises in Mriehel.

“Of course, this is still important and is there to stay. But now there is more emphasis on the need to ensure that our financial system is safeguarded and that it is reputable, and that we are serving the legitimate expectations of society and the business community.”

This approach, which also aligns with the Malta Financial Services Advisory Council’s strategy for financial services, is aimed at ensuring effective and proportionate preventative measures in collaboration with the private and the public sector. Mr Zammit explained what this means in practice: “Essentially this means that we need to be more risk-based and proportionate, both internally at the FIAU and within the private sector. The FIAU and all types of subject persons, such as banks, financial institutions and others, must collaborate with one another.”

One of the main thrusts of the FIAU strategy is to move away from seeing entities and individuals as “subject persons” and rather to see them as partners in the fight against money-laundering and the financing of terrorism.

“We cannot do it alone,” he stressed.

A practical way to help create this partnership is to provide training for financial and other service providers explaining their compliance obligations, for example, with regards to de-risking and the proportionate application of AML controls, and to explain how the supervisory process works.

“This way, they know what is expected from them, they feel more confident in being able to apply risk-based measures that are proportionate to risk, and are in a better position to then undergo supervision without hitches,” he explained. “On the regulatory front, our mission is to improve compliance, and to do this through empowerment and education whilst resorting less to formal enforcement measures.”

This approach might not have been possible in the past, but Mr Zammit believes that there has been a considerable improvement in the compliance culture – even if there is always room for improvement: “When we look at the size of the sector, and the results of our supervisory examinations, the proportion of serious glitches is actually quite low. There is much more awareness that compliance protects both them and the country.”

Indeed, the FIAU received 8,586 Suspicious Transaction Reports in 2022, a 19% increase over the 7,218 in 2021 (2020: 5,175). The largest increase came from Virtual Financial Asset Service Providers (2022: 965; 2021: 411) although there was an increase across the board, including from the non-financial sector, such as auditors, accountants, real estate agents and company service providers.

“In many countries, including some large jurisdictions, there is typically very little reporting from the non-financial  sector. It is positive to note that STRs are increasing as they are a good indicator of awareness,” he said, adding that he hoped this trend would continue.

The increase is partly the result of the FIAU’s outreach: it works closely with several representative bodies, such as the Malta Bankers’ Association, the Institute of Financial Services Practitioners, and the Malta Institute of Accountants among others. It also has regular meetings with the Notarial Council and representative bodies from the real estate sector, and has other similar initiatives planned.

The FIAU had been working towards a more compliant sector long before the FATF put Malta on the greylist in 2021. Its statistics over the past years show a steady growth with regards to actions.

“Out of a list of 58 action points outlined by MONEYVAL in its 2019 assessment, only three actually got us onto the greylist. Operationally speaking, these mostly needed to be tackled jointly by the FIAU, the Malta Business Registry, the Police and the tax authorities,” he explained.

Photo: Mr. Alfred Zammit, Acting Director, Financial Intelligence Analysis Unit (FIAU)

Getting Malta off the greylist within a year does not relieve the pressure on the FIAU, however. Business models in financial services are becoming more and more complex, and its staff must remain a step ahead of those with bad intentions.

“There are different typologies in the way in which the proceeds of crime are laundered. Some are very complex and difficult to identify – and to act on. Some are, however, more rudimentary such as the use of dirty cash – which has now been restricted through the cash restriction regulations.

Most of the FIAU employees come from the private sector and have experience working for banks, financial institutions, and CSPs among others. This means they understand the business and how to analyse cases and pick up red flags that might otherwise be missed or overlooked.

There is comprehensive in-house training – 160 programmes last year alone – as well as overseas training – an important opportunity for staff to interact with their peers from other authorities with similar roles.

Another important aspect is that FIAU does not work in a silo. Although exchanges of information within the EU are mandated by the EU’s anti-money laundering legislation, it has MOUs with around 20 countries outside the EU, with a few more to be finalised by year end. Nationally, the FIAU works very closely and exchanges information with several authorities, such as the Police, the Commissioner for Revenue, the MFSA, and the MGA to mention a few.

The amount of information disseminated is incredible: last year alone, it shared over 7,900 reports with various entities both in Malta and overseas, while over 6,900 of these intelligence reports were sent to foreign counterparts.

“This is one of the many reasons why we take our confidentiality obligations – set in law according to international standards – so seriously. If we were not able to guarantee the confidentiality of the information we deal with, our counterparts would not want to share their information with us. Our processes are regularly assessed by MONEYVAL and other international institutions, and any failure in this regard would have serious consequences, and would also put at risk our membership in the Egmont Group, an international body that brings together 166 FIUs.”

The sharing of intelligence is a crucial element in the fight against money-laundering and the financing of terrorism. In a recent Directive, for example, the European Commission made it clear that the police and other authorities should be able to request information from FIUs and share intelligence.

Although the FIAU’s role is to collect and analyse intelligence, it cannot take its findings any further. This is why its collaboration with other entities in Malta is so important. Last year, for example, it sent over 400 reports to the Commissioner for Revenue as it had information of interest.

It also cooperates very actively with the Police by providing analytical intelligence reports and other disseminations of intelligence. It also forms part of the Financial Crime Task Force and can assist the police with their investigations.

“It is a bilateral process. If they have a lead, we can check whether we have any intelligence on that person or entity,” he said, and it is clear that there is a general sense that from the Police’s side there is a greater focus on ensuring that financial crimes are investigated and prosecuted.”

He warned against expecting quick outcomes, however, noting that there were time-consuming processes which needed to be followed, and welcoming the fact that there was a push by government to reform the judicial process.

“Criminal investigations and prosecutions often need evidence from overseas, a process which is bureaucratic and time-consuming – it could take months and even years. Obviously, investigation is required to collect evidence, build a case and prove it beyond reasonable doubt. There is a big difference between intelligence work and criminal investigations. There is also a big difference between intelligence and evidence.”

Having said that, the fight against money-laundering, including the implementation of proper anti-money laundering measures, continues to be an important tool in the fight against crimes which generate dirty money, from drug trafficking to corruption – so-called ‘predicate offences’.

In the meantime, the FIAU is waiting for the appeal judgments from the Constitutional Court regarding the imposition of administrative penalties.

The FIAU may impose significant pecuniary penalties in accordance with the powers and responsibilities given to it several years ago through a number of provisions in the Prevention of Money Laundering Act and the Prevention of Money Laundering and Funding of Terrorism Regulations. As the FIAU increased its supervisory coverage over the years and actively implemented its enforcement responsibilities, the legal provisions in question have been challenged in the First Hall of the Civil Court in its Constitutional jurisdiction. Up to now there are three court decisions finding that the administrative enforcement powers and responsibilities given to the FIAU are unconstitutional.

The FIAU together with the State Advocate has appealed these judgements and the final decisions will be taken by the Constitutional Court.

The ultimate decision will affect the way forward on enforcement and the imposition of penalties – whether the law remains as is or whether changes will have to be made, and if changes are to be made, exactly what changes would be required.

Whatever the outcome, what’s important is that there is certainty as to the enforcement of compliance and that penalties are proportionate, effective and dissuasive as required by the EU AML Directive, the FATF standards and Maltese law. Doubts on the effectiveness of enforcement can undermine the deterrent factor and ultimately compliance.

“The most important thing is that when we find breaches – especially when these are serious or systemic – proportionate, effective and dissuasive action is taken. Having an efficient and effective enforcement system is a critical component of a country’s AML/CFT framework, and every effort must be made to ensure that this is the case” Mr Zammit said, adding that these legal challenges, whatever the outcome, “will give us the opportunity to mature Malta’s system.”