Financial Crime Trends and Predictions in Malta: An Ongoing Concern
Malta’s financial sector has been under scrutiny due to alleged vulnerabilities to money laundering (ML) and terrorist financing (TF). Despite being rated as a relatively low-risk country by the Basel AML Index, the Financial Action Task Force (FATF) criticizes Malta’s anti-money laundering and combating the financing of terrorism (AML/CFT) framework for being ineffective.
The Discrepancy
The answer to this puzzling discrepancy lies in the fact that the new Mutual Evaluation Report for Malta was issued by the FATF on July 18, after the data collection period for the Basel AML Index had already ended. This means that the latest FATF report was not taken into account when calculating Malta’s risk score.
The Impact
According to the Basel AML Index, Malta’s overall ML/TF risk score has jumped from 3.94 to 5.38 out of 10, with risks related to the quality of its ML/TF framework increasing from 4.48 to 6.70. This dramatic shift in Malta’s risk assessment highlights longstanding gaps in the effectiveness of the country’s AML/CFT framework.
Importance of Up-to-Date Data
To properly assess specific country risks related to ML/TF for compliance or policy purposes, it is essential to use up-to-date data. The Public Edition of the Basel AML Index, which covers 125 countries with sufficient data, is issued annually and primarily used to identify trends in AML/CFT and changes in country risk levels over longer periods.
Expert Edition
However, for more accurate assessments, users are advised to utilize the Expert Edition of the Basel AML Index, which is updated quarterly and includes all 203 countries worldwide. This edition also allows users to dive deep into individual indicators to see exactly where the risks lie and investigate further if needed.
The Case of Malta
The case of Malta illustrates the ongoing challenge in obtaining quality, up-to-date data to calculate country risk scores for ML/TF. While FATF reports are the most comprehensive data sets available, they are issued too infrequently.
Other Important Sources
Other important sources in calculating ML/TF risks include:
- Financial Secrecy Index (FSI)
- US State Department International Narcotics Control Strategy Report (INCSR) data
- Transparency International’s Corruption Perceptions Index and TRACE Bribery Risk Matrix
According to the FSI, Malta is a high-risk country in relation to financial secrecy, while the INCSR does not label it as a major money laundering country. Malta also faces medium-level risks when it comes to corruption and bribery.
Analysis of Mutual Evaluation Report
An analysis of Malta’s latest Mutual Evaluation Report reveals that the country’s overall performance in technical compliance is 68 percent, with partial compliance in several areas, including:
- Preventive measures
- Regulation and supervision of financial institutions
- International cooperation
In contrast, the report finds that the effectiveness of Malta’s AML/CFT systems is only 30 percent, with low levels of effectiveness in:
- Understanding ML/TF risks
- Coordinating actions to combat money laundering
- Investigating and prosecuting ML offenses
- Confiscating proceeds of crime
The country needs substantial improvements to address these issues.
Conclusion
Malta has been advised to take immediate action to rectify its AML/CFT framework and improve its performance in the fight against financial crime. Failure to do so may lead to further reputational damage and potentially even sanctions from international authorities.