RSM Malta

AML and Regulatory Compliance Roundup (January-April 2019)

JANUARY

As of 1 January 2019, all Member States shall apply new legally binding anti-abuse measures that target the main forms of tax avoidance practiced by large multinationals.

The rules build on global standards developed by the OECD in 2015 on Base Erosion and Profit Shifting (BEPS) and should help to prevent profits being siphoned out of the EU where they go untaxed. In detail:

  1. All Member States will now tax profits moved to low-tax countries where the company does not have any genuine economic activity (controlled foreign company rules)
  2. To discourage companies from using excessive interest payments to minimise taxes, Member States will limit the amount of net interest expenses that a company can deduct from its taxable income (interest limitation rules)
  3. Member States will be able to tackle tax avoidance schemes in cases where other anti-avoidance provisions cannot be applied (general anti-abuse rule). 

 

 FEBRUARY

The intergovernmental organization Financial Action Task Force (FATF) is consulting on a new interpretive note to one of its recommendations as part of its efforts to mitigate the money laundering and terrorism financing (ML/TF) risks associated with virtual financial assets. The upcoming new interpretive note will be adopted as part of the FATF Standards in June 2019. As has been the case for quite some time, the discussion is firmly centered on the idea that cryptocurrencies are used for money laundering and terrorist financing.

The Interpretive Note states that countries should define virtual assets as “property,” “proceeds,” “funds”, “funds or other assets,” or other “corresponding value.” As such, “countries should identify, assess, and understand the money laundering and terrorist financing risks emerging from virtual asset activities.” Virtual Asset Service Providers (VASPs), according to FATF, should be appropriately regulated and monitored.

 On the 4th of July 2018, Maltese Parliament introduced landmark legislation to define a new regulatory framework for cryptocurrencies and address AML/CFT concerns. The legislation comprises of three separate bills, including the Virtual Financial Assets Act (VFA), which set a global precedent by establishing a regulatory regime applicable to crypto exchanges, ICOs, brokers, wallet providers, advisers, and asset managers.

 

On 7 March 2019, the Malta Financial Services Authority (“MFSA”) decided to impose an administrative penalty of twenty three thousand Euros (EUR 23,000) on Doyen Sports Investments Limited.

The MFSA has concluded that the Company has carried out lending activities, without having the necessary license. Consequently, the Authority considers the Company to have acted in breach of Article 3(1) of the FIA where it is stated that: “No  business  of  a  financial  institution  shall  be transacted in or from Malta except by a company which is in possession of a licence granted under this Act by the competent authority.”

 

MARCH

IMF Report, which is coordinated as part of the Financial Sector Assessment Program, requested by the Maltese Government back in 2017, noted that key metrics suggest that the Maltese banking system is in good health, but challenges still exist.

IMF notes that although Malta has benefited from considerable financial inflows, the associated risks, especially related to money laundering and terrorism financing (ML/TF), need to be closely monitored and addressed. As per IMF’s guidance, to strengthen bank supervision, the MFSA should take timelier supervisory actions, increase the frequency of onsite inspections, make more use of monetary fines as part of the sanctioning regime, and ensure supervisory action is not delayed through judicial appeal.

According to the Report, multi-prong approach is needed to address anti-money laundering and combating the financing of terrorism (AML/CFT) deficiencies. “Enhancing the AML/CFT system is required to protect the financial sector and the broader economy from the ML/TF threats. Efforts should focus on banks’ application of preventive measures (including customer due diligence with efficient verification of beneficial ownership (BO)), in particular regarding their higher risk activities and clients, including the significant non-resident sector.” Regarding the assessment of FIAU and MFSA approach on handling AML/CFT issues, IMF stated that “additional supervisory resources are needed for Financial Intelligence Analysis Unit (FIAU) and the MFSA to bolster the application of risk-based AML/CFT supervision. The authorities should take appropriate corrective actions—including timely, dissuasive, and proportionate sanctions—in case of breaches of AML/CFT requirements.”Finally, IMF recommended the establishment of a EU-level arrangement responsible for AML/CFT supervision which would be supported to facilitate a consistent and comprehensive approach and minimize regulatory arbitrage.

APRIL

In April 2019, the British bank Standard Chartered agreed to pay $1.1 billion to settle allegations by the authorities in the United States and UK that it violated money-laundering laws and economic sanctions. The authorities, including the Treasury and Department of Justice as well as New York State regulators and prosecutors, said that Standard Chartered had for years processed hundreds of millions of dollars in transactions from countries barred from participating in the American financial system, including Cuba, Iran, Sudan and Syria. Standard Chartered, which is based in London, has extensive operations in Africa and Asia, including the Middle East.

Apart from the US authorities, FCA has fined Standard Chartered Bank (Standard Chartered) £102,163,200 for Anti-Money Laundering (AML) breaches in two higher risk areas of its business. This is the second largest financial penalty for AML controls failings ever imposed by the FCA.

 

Financial Intelligence Analysis Unit of Malta issued on 4th of April, the “Guidance Note on Submitting Suspicious Transaction Reports by Remote Gaming Licensees.” FIAU issued this Guidance Note to assist remote gaming licensees in identifying the information and documentation that should be provided to the FIAU when submitting a Suspicious Transaction Report.

The submission of a Suspicion Transaction Report (STR) to the FIAU is a key obligation for subject persons, in any case their Money Laundering Reporting Officer determines that there is knowledge or suspicion that funds are the proceeds of criminal activity or are related to funding of terrorism, or a person may have been, is or may be connected with money laundering or the funding of terrorism. This Guidance is an effort made by the local Maltese AML/CFT Regulator to improve the quality of STRs, decrease the need for follow up communications between the FIAU and gaming licensees, and overall improve the efficacy of the analytical process.