Malta’s Financial Sector at Risk of Money Laundering Detection Methods Failures
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Malta’s financial services sector has experienced significant growth over the years, attracting international investors with its favorable taxation system. However, this attractiveness also makes it a prime target for money launderers seeking to disguise their illicit proceeds.
The Threat of Trade-Based Money Laundering
According to experts, money launderers go to great lengths to distance their funds from criminal activity, using complex structures and exploiting vulnerabilities in enforcement systems to undertake cross-border transactions. Malta’s tax system, which offers refunds upon dividend distribution to non-resident shareholders, has been a particular draw for these criminals.
Definition of Trade-Based Money Laundering
The Financial Action Task Force (FATF) defines trade-based money laundering as the process of disguising proceeds of crime through trade transactions, attempting to legitimize their illicit origins. This scheme typically involves collusion between parties who abuse trade finance services to facilitate the trading of goods.
How Practitioners May Unwittingly Be Drawn In
Good-willed accountants, corporate service providers, and lawyers may unwittingly find themselves at the center of a cross-border trade-based money laundering scheme. To avoid detection, money launderers often use professional services to disguise the source of funds.
Common Red Flags to Look Out For
To combat this threat, it is essential for practitioners to remain vigilant and recognize potential red flags. Some common traits that may indicate the existence of a trade-based money laundering scheme include:
- A large volume of goods being shipped compared to regular business activity
- Goods transported from or to high-risk jurisdictions
- Payment made by third parties with no apparent connection to the transaction
- Discrepancies between the description of goods on the bill of lading and those included in the invoice
Professional Vigilance is Key
Maltese accountants, auditors, tax advisors, and corporate services providers must be aware of these red flags and take a professional sceptical approach when dealing with cross-border transactions.
About the Authors
This article was written jointly by Alan Craig, advisory partner at Forvis Mazars in Malta, and Rebekah Barthet, forensic investigation and compliance senior manager at Forvis Mazars in Malta.