Taskforce causes waves in Malta

There is perhaps an irony that Malta, the leading European hub for dot.com or point of supply activity in many grey markets, should have found itself being placed on the grey list of the global money-laundering and terrorist financing watchdog.

The press report ahead of the action from the Financial Action Taskforce (FATF) had pinpointed the gaming sector and the country’s push to be known as blockchain island’ as being prime culprits for the predicted bad news.

Such were the rumours that analysts at Redeye in Stockholm issued a flash note ahead of the panned FATF press conference to suggest that Malta being added to the grey list “seems to be related to the EU (deciding) on a new definition of ‘illegal sports-betting’ and/or crypto-related. We may know more after the press briefing.”

Well, we do indeed, now know more and unsurprisingly at no point was illegal sports-betting mentioned during the press conference. Meanwhile, the head of FATF Marcus Pleyer was also quick to dismiss the rumours about blockchain, pointing out that the government’s plans in this direction were announced after the FATF investigation has been completed.

The press conference comments from Pleyer also dispelled speculation that the decision was related in some way to Malta’s lower (5%) rate of corporation taxes or government policy with regard the buying of citizenship.

But the news on where Malta had actually failed to satisfy the FATF investigators was perhaps more unsettling – and certainly more harmful to the country’s standing as a hub for business activity of any type.

Fail often, fail harder

Pleyer confirmed that Malta was being grey-listed because “strategic deficiencies” in three main areas where the country’s financial system and oversight was lacking.

The first was the area of information about the lack of information available or inaccuracies about the beneficial ownership of companies based on the island. The second is in the area of the use of financial intelligence by the government’s own tax investigation authorities and the last was to give more support for criminal prosecutions for tax offences. 

None of these, Pleyer seemed to suggest, would be the hoped-for quick fixes that previous commentary had suggested might be the case.

“There remain serious weaknesses and areas that must be addressed,” said Pleyer. “It is crucial for Malta to make sure that systems are in place that are strong enough to address money-laundering and the financing of terrorism and serious organised crime.”

He added that the Maltese government “must not downplay the importance of these measures.”

Neither should anyone be in doubt about how potentially damaging the grey-listing might be in terms of economic development. Pleyer referred during the press conference to a report from May this year from the IMF into the impact of grey-listing on capital flows which said that the evidence pointed to a “sharp decline” of a magnitude of up to minus 7.6% of GDP.

Moreover, from the point of the grey-listing confirmation, the IMF report found that foreign direct investment also falls on average by around 3% and other investment inflows declines on average by around 3.6%.

A shady place

Part of that investment story will be about the reputational hit, and it is in this area where the gaming sector will be playing close attention.

Many of Europe’s biggest listed firms have significant footprints in Malta, such as Evolution, Betsson and Kindred. Needless to say, the move by the FATF doesn’t sit well with their various commitments on money-laundering and proceeds of crime.

More than that, though, their commitment to Malta might now be the subject of some awkward questions from investors. Corporate statements in the area of environment, social and governance (ESG) issues are more than just window dressing. 

Of course, previous to the FATF marshals riding into town, Malta could hardly be said to have an unblemished reputation. To date, its usefulness to the online gaming sector as a point of supply jurisdiction within the EU have outweighed worries over allegations of corruption in high places.

But usefulness can change. The FATF’’s Pleyer made it clear Malta has its destiny with regard to regaining white-listing in its own hands. But even if its return is reasonably swift – and the expectations in that regard are for at least a year or more – the long-term damage to Malta’s reputation with decision-makers at the top of the gaming sector might already have been done.

Scott Longley has been a journalist since the early 2000s, covering personal finance, sport and gambling. He has worked for a number of publications including Investment Week, Bloomberg Money, Football First, eGaming Review and Gambling Compliance. Scott now runs his own editorial consultancy, Clear Concise Media, and writes for a number of online and print titles.