Issue link: https://maltatoday.uberflip.com/i/1357762
8 OPINION 1.4.2021 T he hope of deliverance based on a positive out- come of a final report from Moneyval experts on fi- nancial reforms - hangs like a Damocles sword over our heads. Our report was submitted by the government last October. e rumour mill was gearing up to a positive report which would preclude us from be- ing grey-listed as a high-risk country for financial crime. e heavy load of corruption and tax evasion cases arising out of the revelations of the assassinated journalist has mounted pressure on the gov- ernment to speed up internal reforms to strengthen our reg- ulations. With hindsight, we noted that Malta had initially failed a first assessment from Mon- eyval in 2019, after which the government was given a year to patch up any legislative gaps in terms of money laundering and terrorist-financing. Every practitioner who saw the build-up of a successful finan- cial services sector hopes that this cloud will float away and let in the sunshine. Realistically, we know that living on hope is a risky hab- it so the government has tak- en the bull by the horns and started a root and branch re- form of our regulatory bodies. For some years, there has been suggestions to adding more resources to FIAU and MFSA. While other EU countries have not escaped the incidence of financial tax scandals, yet in Malta we pride ourselves that the regulatory net has always been effective to keep out the bad wolf. Recent events have proved this to be over ambi- tious. Tightening of governance has helped a lot and recently it culminated in police arrests of eleven suspected in collusion with serious money launder- ing schemes. e puzzle was compounded with the closure of three local banks and the scandals of Electrogas, Vital Health Care and the Mon- tenegro Wind farm project where millions in backhanders were paid including money si- phoned to politically connect- ed interlocutors. is has taken its toll on public opinion while we are still feeling the cold blast of negative publicity follow- ing the disclosure of Panama companies opened by the now disbanded audit firm Nexia BT. ree Panama companies were destined for top mem- bers of cabinet. e Panama papers in 2016, revealed the extent of the role played by opaque companies and offshore arrangements in laundering criminal activities, including tax fraud. For seven years, judges and tax author- ities followed in awe the slew of discreet revelations on cor- ruption by the blogger - Daph- ne Caruana Galizia. e slate must be wiped clean. We cannot afford to continue tarnishing our in- ternational reputation and undermine national institu- tions meticulously built over the years. ree years ago, the country passed through an emotional chapter exacer- bated by the assassination of a journalist who was active in exposing financial crime and corruption in high places. In a democracy, we respect freedom of speech and the rule of law. But such rights can be abused and stretched like a rubber band. e latter should not be pushed beyond its safe- ty limit. All this was happen- ing while Luxembourg, an EU country considered to be the pinnacle of financial probity was equally prominent in the news. Some say our headaches pale in significance (this is no relief ). I am referring to research carried out last year by Süddeutsche Zeitung, Le Monde, OCCRP and oth- er media partners about the tax secrecy deals shrouded in mystery in Luxembourg. e latter continues in its trajec- tory as a thriving tax haven – even after the earlier Lux- Leaks scandal. More than 250 billionaires run companies in Luxembourg with dubious in- vestment funds. In total, a list of 64,458 beneficiaries were identified. ese assets form a sizable part of the world's wealth. e Grand Duchy is no minion in harbouring the sins of fat cats. It shelters 37 of the 50 wealth- iest French families who con- veniently park their assets and investments through dozens of Luxembourg holding com- panies. e scoop was given the catchword "OpenLux". is blatantly reveals how compa- nies first move their profits to Luxembourg via intra-compa- ny loans and then on to other tax havens. Malta is a minus- cule actor by comparison. We never concealed questionable funds of such size and magni- tude. e latter are suspected of originating from criminal activity or linked to criminals targeted by judicial investiga- tions. In its defence, the Grand Duchy rebuts such allega- tions. It says that it "rejects the claims made in these articles as well as the entirely unjus- tified portrayal of the country and its economy". As a regu- lated country with the highest rate of GDP in EU, Luxem- bourg contends that it contin- uously assesses and updates its supervisory architecture and arsenal of measures to combat money laundering and terror- ist financing. Squeaky clean and fully in line with all EU and international regulations and transparency standards. Its regulators apply, without exception, the full arsenal of EU and international meas- ures to exchange information in tax matters and combat tax abuse and tax avoidance. But the research reveals cracks in the edifice. It found funds links to the Italian Ma- fia, the'Ndrangheta and the Russian underworld. e League, Italy's far-right party, has hidden a secret fund there which is sought by the Italian authorities. People close to the Venezuelan regime have recycled corrupt government procurement funds. e list of international assets held in Luxembourg is a gigantic in- ventory, including luxurious residences, chalets, yachts, helicopters, private jets and big planes, music catalogues, the rights to images and fine works of art. In short, it remains a hotbed of tax planning for compa- nies and wealthy individuals through preferential tax re- gimes. How can you muster control over such a rich territory when its trade register (equivalent to our MBR register) has only 59 employees to enforce more than 100,000 entities and to carry out an initial control of the declarations? Put into per- spective while Malta's own fi- nancial sector reaches 12% of GDP (prior to 2019) yet Lux- embourg's own financial sec- tor accounts for a quarter of the country's economy. Back to Malta, and we note how recent financial regula- tions and tightening of the op- erations by MFSA and FIAU have been unprecedented and were designed to meet the exi- gencies reported by Moneyval in their initial inspection. Only recently, the Maltese government has received the conclusions from the Council of Europe's Moneyval group to the draft Enhanced Follow-Up Report, a crucial document for the future of the island's banking and financial services industry. ere is a sigh of relief in the air among practitioners that our worst fears about grey-listing were unfounded and a renaissance of our finan- cial domicile will return. e reform conducted on institutional reforms and reg- ulatory, supervisory and legal changes have borne fruit. One hopes that with the passage of the pandemic, there will be a successful reopening of our domicile which may attract bona fide investors to shelter their nest eggs. Moneyval - redemption in sight George Mangion George Mangion is a senior partner of an audit and consultancy firm, and has over 25 years experience in accounting, taxation, financial and consultancy services. His efforts have seen PKF being instrumental in establishing many companies in Malta and ensured PKF become one of the foremost professional financial service providers on the Island