IMF board says Malta must tighten AML-CFT regime

The International Monetary Fund’s executive board warned in a February Article IV Consultation that Malta must improve its anti-money laundering capacity, echoing criticisms made by several European Union agencies.  

The IMF directors underlined criticisms made in a staff report that Malta’s anti-money laundering and countering the financing of terrorism regime (AML-CFT) needed more reform. The call came despite Maltese authorities making several changes to the AML-CFT regime after critical European Banking Authority (EBA) reports.

The IMF board “stressed the need for sustained efforts to safeguard financial integrity and stability” and said that Malta’s authorities needed to continue with AML-CFT reforms and “swiftly close gaps in supervisory and enforcement capacities”.

The EBA ordered major changes to Malta’s AML-CFT regime in two reports issued in 2018. The EBA was called in by the European Commission to investigate how Malta’s authorities had supervised Pilatus Bank. Opposition politicians had alleged Pilatus was carrying out large-scale money laundering.

US authorities subsequently arrested the owner of Pilatus on charges of money laundering for Iranian individuals and organisations on June 30, 2018, before the EBA issued its reports. The EBA produced two reports strongly critical of the Malta Financial Services Authority and the island’s Financial Intelligence Analysis Unit.

It said that the FIAU in particular had initially begun an adequate investigation of Pilatus Bank, but had then ignored adverse evidence and cleared the bank of wrongdoing. The EBA also said the MFSA had failed to properly check that Pilatus was obeying AML-CFT regulations and raised serious concerns over its handling of the case. The MFSA finally closed Pilatus Bank down on November 5.

The IMF board also called for Maltese authorities to ensure that crypto assets traded by local crypto asset companies “should be supervised in line with the Financial Action Task Force standards”. Malta’s government is attempting to make the island a centre for financial technology and crypto asset companies. The country’s parliament passed three cryptocurrency laws in July 2018 as part of a “national blockchain strategy”.

An IMF staff report in November 2018 sounded a much stronger warning note. It cautioned that the fintech drive was one of several factors causing “significant ML/TF [money-laundering and terrorist financing] risks” in the island’s financial sector.

The IMF board also said in the Article IV Consultation that Malta had “shortfalls in supervisory capacity and gaps in banks’ liquidation and insolvency frameworks”. It recommended that the Maltese government should make sure the MFSA’s long-term financial and operational independence was guaranteed. This again echoes criticisms made by the IMF staff report in November last year that the MFSA was facing problems in enforcing its mandate because of lack of funds and of independence.

The IMF board also called for Malta’s financial crisis management framework to be strengthened. Reforms should include the adoption of an administrative bank insolvency regime, the board said. It added that the authorities should increase their oversight of Malta’s non-bank financial sector.