Malta’s money-laundering headache
Panama Papers cast doubt on island’s ability to push through EU anti-graft laws.
A money-laundering scandal that reached the highest levels of government in the EU’s smallest country has attracted the attention of Brussels.
When a Maltese cabinet minister and the prime minister’s chief of staff were mentioned in the Panama Papers leaks, it looked like a messy domestic affair.
No longer. The alleged burying of a report into the saga has set alarm bells ringing among EU lawmakers worried about Malta’s ability to steer through new EU anti-money laundering legislation when it holds the rotating presidency of the EU’s Council of Ministers in the first half of next year.
A spokesman for Joseph Muscat, Malta’s prime minister, said: “We are taking this issue very seriously.”
But not everyone is convinced.
“This is all very embarrassing,” German Green MEP Sven Giegold said. “We will raise this whole mess in the [European Parliament’s special] Panama Papers committee. Malta has to get serious. It has to tidy up in order for the whole European financial infrastructure to gain credibility.”
Last week, the man tasked with investigating the saga resigned.
The Parliament’s special committee is likely to summon Keith Schembri, Muscat’s chief of staff, and Konrad Mizzi, a member of the government, when it meets after the summer break.
Schembri and Mizzi were named in the Panama Papers — leaks in April of more than 11 million documents from the Panama-based law firm Mossack Fonseca. According to the documents, only days after the Labour Party won the 2013 Maltese elections, the two men instructed lawyers to set up offshore trusts in New Zealand and companies in Panama. They then tried to set up accounts with eight different banks in tax havens across the world.
The revelations sparked street protests in Malta in April, and Mizzi (sort of) lost his job as energy minister — he stayed in the government as minister without portfolio but with responsibility for “the implementation of [the government’s] energy plans.”
What’s even more troubling for Brussels is more recent events.
Last week, the man tasked with investigating the saga resigned. No reason was given for the decision by Manfred Galdes, director of the Financial Intelligence Analysis Unit, other than that he was going to “take up a post in private practice.”
He wasn’t the first casualty of the scandal. Galdes is reported to have handed over his confidential report into the saga to Michael Cassar, Malta’s police commissioner, in April. Under Maltese law, the police commissioner has the final say over whether or not to prosecute in cases relating to money laundering. But before he could take any action, Cassar resigned citing health reasons.
In a letter to the prime minister, Cassar said: “I used to exercise and managed to avoid many health problems but, due to a lack of time, some of these problems have returned.”
Lawrence Cutajar was last week confirmed as Cassar’s replacement, becoming the fifth police commissioner since the 2013 elections. The opposition Nationalist Party immediately condemned the appointment, saying Cutajar’s only qualification for the job was “being Joseph Muscat’s friend” and pointing to a 2013 Facebook post in which Cutajar praised the prime minister for “having balls.”
Galdes and Cassar have refused to comment on the investigation, but that hasn’t stopped rumors circulating about their abrupt departures.
Speaking to Malta Today at the weekend, Simon Busuttil, leader of the Nationalist Party and, like Muscat, a former MEP, said: “Did Galdes resign while the investigation was ongoing, if the investigation is ongoing, what were its conclusions? Is it true that an investigation report had been handed to the police for further action, but just two days [later], the police commissioner resigned?”
After the summer break, talks will begin on an updated EU Anti-Money Laundering Directive, prompted at least in part by the Panama Papers scandal.Slovakia, which holds the EU presidency until the end of the year, will start off the negotiations but the Maltese will be in charge during the final stages, if all goes to plan.
A European Commission spokesperson said the idea behind the new rules was to improve transparency. “We aim for a rapid adoption of the revision in order to strengthen transparency rules further and to close any potential loopholes.”
It aims to do that by giving greater powers to national financial intelligence units such as the one formerly headed by Galdes, which look into tax avoidance and evasion, and force companies and trusts to disclose who are their ultimate “beneficial owners.”
The Maltese government would have to sign off on any new proposals made during the discussions with the European Parliament and Commission.
There are growing concerns about the country’s reputation as a financial services hub.
A spokesperson for the Maltese prime minister said he wasn’t concerned about any potential conflicts of interest, saying: “We’ve always been compliant with all EU regulation on anti-money laundering.”
A spokesperson for Malta’s permanent representation to the EU added: “The Mizzi and Schembri case … has absolutely no bearing, connection or impact whatsoever on Malta’s EU presidency or its role in steering through new [anti-money laundering] proposals and legislation. Malta will continue to show commitment in combating illicit practices through the [anti-money laundering] directives and other related directives.”
But Carl Dolan of Transparency International was less enthusiastic. “The prospect of Malta steering legislation that aims to eradicate corporate secrecy in the EU once again highlights that the Council has no formal procedures for dealing with any conflicts of interest that might arise,” he said.
Malta’s problems don’t end there. There are growing concerns about the country’s reputation as a financial services hub, an area in which the tiny island nation has high hopes for the future.
The chief executive of Deloitte in Malta, Malcolm Booker, told POLITICO that “any kind of disruption in the sector for whatever reason is always an issue. [The financial services sector] wants a quiet, peaceful day, with business as usual. The more transparency, the more regulation, the better.”
Kristy Debono, a Nationalist MP, said she believes the scandal is causing serious damage to the reputation of the Maltese financial services sector. “The problem is that the prime minister has not taken responsibility. He needs to take certain actions so that [Malta’s] reputation will remain intact.”
Speaking at an event hosted by Malta’s banking association weeks before he stepped down, Galdes made his position clear: “There is a link between economic growth and dealing with financial crime. The reality being faced is that the bar has been raised. The way we react is key to our success. We must avoid ending up on any gray list or black list. We need to maintain our reputation as a trustworthy financial sector.”
That’s harder to do in the wake of the scandal. Ana Gomes, a Portuguese MEP and vice chair of the Parliament’s Panama Papers committee, said Malta was in the crosshairs.
“Malta is definitely a case for particular attention, not just because of allegations against the prime minister’s chief of staff and the minister, and this latest development with the Financial Intelligence Analysis Unit chief resigning, apparently because his recommendations were not followed, but also because Malta is already on our radar.”
“Malta is one of the jurisdictions in the EU that has a very lax system of incorporation where it is very easy for anyone who wants to fool the anti money-laundering authorities, they can set up a company like a Russian doll and can make ultimate beneficial owners hidden,” said the MEP, who is from the Socialist group, the same political family as Muscat, Mizzi and Schembri.
“I am going to propose that Malta will be high on our agenda … even more so with these developments.”