Issue link: https://maltatoday.uberflip.com/i/1441473
15 maltatoday | SUNDAY • 9 JANUARY 2022 NEWS MATTHEW VELLA MALTA'S Financial Intelligence Analysis Unit has published a se- ries of red flags on Maltese com- panies that could be used for tax evasion by fashioning them- selves as "consultancy" firms or using a company to buy a high- end property or yacht. Tax evasion is a high mon- ey laundering threat in Malta, with the years 2020 and 2021 seeing a significant increase in volume of suspicious reports to the FIAU. The FIAU estimates that around 10% of these STRs – suspicious transaction reports – relate to more serious and complex cases that involve the misuse of complex corporate structures, undeclared or false- ly declared income, foreign proceeds of crime or links to organised crime. The other 90% constitute more basic and less serious type of cases. "The FIAU still expects to keep receiving a sizeable portion of tax-related suspicious reports that relate to basic and less significant cases of tax crimes because un- declared income and tax eva- sion on a small scale is quite widespread domestically," the intelligence unit said in a guid- ance note. The FIAU says a Maltese company with trusts and bank accounts held in various juris- dictions is now considered a red flag, and practitioners must ask the appropriate questions to ascertain the validity of such an arrangement. "One of the most common reasons for suspicion that was identified when analysing cases related to tax evasion was that indicating 'suspicious transac- tions that are not in line with the customer profile'," the FI- AU says in its guidance note. Such examples include local- ly-owned companies having no domestic financial footprint: Maltese companies owned by Maltese residents would be ex- pected to have a commercial or other activity going-on in Mal- ta, which would in most cas- es necessitate the opening up of bank accounts to facilitate such an activity. Whilst a local company may have legitimate reasons for not having a local financial footprint, this is not typical and should be further scrutinised. The FIAU also warns of trans- actional activity with seemingly no purpose or economic sense, which is indicative of 'layering'. From intelligence gathered by the FIAU, Maltese companies used as money conduits are also sued to move funds from one point to another, making it more difficult to trace and detect the flow of cash as it passes through multiple juris- dictions. "Many a times such transactions would not have any commercial rationale and would not be fitting with the company's activity profile," the FIAU says. The FIAU also warns of com- panies set up primarily to pro- vide consultation, marketing, or research services. "A number of cases were re- ported by subject persons whereby transfer of funds originated from the provision of consultancy, marketing or research services. From the analysis carried out it resulted that whilst the amounts were significant, the supporting doc- umentation was either missing or not sufficient to clearly es- tablish that such funds orig- inated from the provision of such services," the FIAU says. At times the movement of sig- nificant amounts of funds were backed up by simple invoices and no letter of engagements or contracts expected in con- nection with such payments were obtained. Such services are attractive to mask the movement of illicit funds since these services do not require significant capital and at time expertise or experi- ence by the service provider. A company providing these ser- vices with a substantial turno- ver is expected to have various streams of income, so these companies are also seen as a red flag. The FIAU also says that for- eign-owned Maltese compa- nies purchasing high-end prop- erties or yachts or private jets in their own name or through the use of a Maltese company, should also be thoroughly scru- tinise. The other warning sign is company structures that at- tempt to circumvent Maltese beneficial owner disclosure legislation. Examples would be discretionary trusts without proper justification, or where customers refuse to provide source of wealth. "Such checks may assist to identify cases involving corpo- rate entities, where the funding is derived from a third party not formally associated with the company, which in the ab- sence of a justifiable explana- tion is indicative of potential beneficial ownership conceal- ment." mvella@mediatoday.com.mt FIAU's tax evasion guide lists red flags for suspect companies Around 10% of STRs – suspicious transaction reports – relate to serious and complex cases that involve the misuse of complex corporate structures, undeclared or falsely declared income, foreign proceeds of crime or links to organised crime STRs with tax crime as suspect predicate offence (2018 – 2021) 2018 2019 2020 2021 Total STRs 1,679 2,778 5,175 7,188 Tax-Related STRs 340 375 1,337 919 % of Tax Related STRs 20% 13% 26% 13%