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What is Sanctions Screening in Malta?

Malta has been at the forefront of implementing EU sanctions against Russia following its invasion of Ukraine. The country’s legal framework for imposing and enforcing sanctions is governed by the National Interest (Enabling Powers) Act, Chapter 365 of the Laws of Malta.

Automatic Application of EU and UN Sanctions

The act automatically applies EU and UN sanctions in Malta. UN Security Council Resolutions impose sanctions directly applicable through the act. The EU Council implements its adopted sanctions through EU Regulations, which have direct effect in every EU Member State.

Sanctions Screening Obligations for Subject Persons

The Malta Financial Services Authority (MFSA) and the Sanctions Monitoring Board (SMB) require subject persons, including accountants, auditors, lawyers, notaries, CSPs, and banks, to comply with international sanctions. This includes screening their clients against the sanctioned individuals list to prevent the use of Malta as a conduit for concealing assets.

Subject Persons’ Obligations

  • Monitor business relationships and regularly check the list of designations by the UN, EU, and the Board.
  • Screen client databases against those lists on an ongoing basis and immediately after any changes occur.
  • Identify and freeze any funds, financial assets, and economic resources connected or related to designated individuals and entities.

Effective Internal Controls and Reporting

Subject persons must have in place effective internal controls and procedures to ensure compliance with the act and any relevant EU or UN Resolutions or Regulations. They are also required to report their findings to the MFSA and SMB and inform authorities of any actions taken.

Sanction Exposure When Doing Business

While sanctions screening is an obligation for subject persons, all businesses must ensure they do not violate any sanctions during the course of their operations. This includes monitoring sanction exposure and ensuring compliance with laws.

Authorizations and Restrictions

Businesses operating in industries such as import/export may require authorization from the SMB to import/export non-prohibited goods from/to Russia. The EU has also introduced restrictions on providing services to Russian entities, including accounting, auditing, tax, and consultancy services, public relations services, architectural and engineering services, IT consultancy services, and legal advisory services.

Consequences for Breach of Sanctions in Malta

Any breach of sanctions is a criminal offence under the act, punishable by:

  • Imprisonment for up to 12 years.
  • Fine of up to €5 million.
  • Both imprisonment and fine.

For bodies corporate, the consequences include:

  • Fine of up to €10 million.
  • Suspension or cancellation of any relevant license.
  • Closure of the business.
  • Compulsory winding up.

Directors and officers of companies in breach of sanctions may also be held accountable unless they prove that the offence was committed without their knowledge and they exercised all due diligence to prevent it.

Administrative Penalties

The act also provides for administrative penalties for subject persons who fail to implement effective internal controls and procedures, ranging from €100 to €300 per contravention. Daily cumulative penalties can also apply.

Conclusion

It is essential for businesses operating in Malta to remain aware of any new developments in sanctions and monitor their exposure to avoid serious financial, criminal, and reputational repercussions.