Malta placed on the FATF Grey List and the Action Plan thereof
The Financial Action Task Force (also known as the ‘FATF’) is the global money laundering and terrorist financing watchdog. The FATF issues ‘Recommendations’ and several jurisdictions commit to implementing them into their regimes.
As part of the FATF’s monitoring process to ensure compliance with its international standards, the FATF issued the following: (1) Jurisdictions under Increased Monitoring (Grey List), here the FATF identifies jurisdictions with strategic deficiencies in their AML/CFT/CPF regimes that have committed to, or are actively working with the FATF to address those deficiencies; and (2) High-Risk Jurisdictions Subject to a Call for Action (Black List), here the FATF identifies jurisdictions with significant strategic deficiencies in their AML/CFT/CPF regimes and calls on all FATF members to apply enhanced due diligence, and, in the most serious cases, apply counter-measures to protect the international financial system from the money laundering, terrorist financing, and proliferation financing risks emanating from the jurisdictions forming part of the Black List.
On the 23rd of June 2021, the FATF placed Malta under increased monitoring as part of a process to ensure that it addresses specific remaining deficiencies in its anti-money laundering and countering the financing of terrorism (AML / CFT) regime. This process is often referred to as having been grey listed.
Jurisdictions which are grey listed by the FATF are considered to be non-reputable.
A non-reputable jurisdiction is defined under Article 2(1) of the PMLFTR (Prevention of Money Laundering and Funding of Terrorism – Subsidiary Legislation 373.01), as follows:
means any jurisdiction having deficiencies in its national anti-money laundering and counter funding of terrorism regime or having inappropriate and ineffective measures for the prevention of money laundering and the funding of terrorism, taking into account any accreditation, declaration, public statement or report issued by an international organisation which lays down internationally accepted standards for the prevention of money laundering and for combating the funding of terrorism or which monitors adherence thereto, or is a jurisdiction identified by the European Commission in accordance with Article 9 of Directive(EU) 2015/849.[1]
The three recommended actions upon which the FATF felt were not addressed by Malta relate to the following matters:
- The accuracy of available beneficial ownership information on Maltese Companies;
- The sanctioning of companies and company gatekeepers for failings related to the obtaining of beneficial ownership information; and
- The generation and use of financial intelligence in investigating and prosecuting tax evasion and related money laundering.
In order to be removed from the list of jurisdictions under increased monitoring Malta had to address the identified deficiencies and essentially implement the FATF’s Action Plan. The Action Plan involved a number of reforms and improvements.
In line with the aforementioned action plan, Malta made the following reforms:
(1) continuing to demonstrate that beneficial ownership information is accurate and that, where appropriate, effective, proportionate, and dissuasive sanctions, commensurate with the ML/TF risks, are applied to legal persons if information provided is found to be inaccurate; and ensuring that effective, proportionate, and dissuasive sanctions are applied to gatekeepers when they do not comply with their obligations to obtain accurate and up-to-date beneficial ownership information;
(2) enhancing the use of the FIAU’s financial intelligence to support authorities pursuing criminal tax and related money laundering cases, including by clarifying the roles and responsibilities of the Commissioner for Revenue and the FIU; and
(3) increasing the focus of the FIAU’s analysis on these types of offences, to produce intelligence that helps Maltese law enforcement detect and investigate cases in line with Malta’s identified ML risks related to tax evasion.
Exactly one year later, in June 2022, after significant process to address the said deficiencies which were identified by the FATF, Malta was successfully removed from the grey list.
Effects of the Grey-Listing on the iGaming Industry in Malta
Malta’s regulation of gaming was not specifically targeted and nothing actually changed regarding the strength of the regulated environment that Malta offers. However, despite the iGaming Industry not being specifically targeted by the grey-listing, it certainly came as an unwelcomed surprise to the iGaming Industry with a number of undesirable ripple effects. Many viewed the negative consequences suffered by the iGaming Industry as severely unjust and unfair as it is very clear that the iGaming Industry did not lead to the outcome of the grey-listing.
In 2004, Malta became the first EU Member State to enact comprehensive legislation on remote gaming, and Malta is considered as one of the foremost tried and tested jurisdictions in the world. With such a well-established, comprehensive regime, the iGaming Industry in Malta has trail-blazed its way to continuously improve compliance standards and setting the standard on a global platform, especially within the past 5 years. The industry and the Malta Gaming Authority have worked tirelessly together to continuously raise the bar. Therefore, such negative consequences were seen as unjustified – many would go as far to say that the iGaming Industry were the victim in all of this.
Operational Impacts - Complications with Foreign Banks
The iGaming industry experienced immediate operational consequences as soon as the grey-listing was announced. Banks and financial institutions across Europe responded to the grey-listing immediately. The grey-listing increased the risk profile of the gambling industry but it has always been considered a highrisk industry for banks and financial institutions. During the grey-listing period for Malta, there was a combination of a high-risk industry in a jurisdiction that is seen as high risk.
Banks and financial institutions based in other jurisdictions began requesting more documentation with stringent deadlines and applied enhanced due diligence measures towards Malta-based companies before approving most transactions in and out of Malta. In addition, many Malta-based companies found it increasingly difficult and cumbersome to open bank accounts in foreign jurisdictions as they were met with unrealistic requests or simply refused straight away. Such reactions led to many operational difficulties for the iGaming industry with major delays from an operational perspective and additional costs which were not anticipated, putting pressure on cash flows for both small and larger businesses.
Reputational Damage
Grey-listing is a complex process and the very few items that Malta failed were very specific and technical. However, whilst only some individuals will fully understand the specific details of such process, everyone had seen the news and headlines, and this created a negative effect by association which undoubtedly lead to complicated conversations to attract new business partners, new businesses to relocated to Malta, new staff members, and foreign investment.
Gaming is here to stay
Malta as a jurisdiction has worked tirelessly to build a strong and resilient gaming hub. Gaming companies that are based in Malta have very deep roots within the jurisdiction, and it certainly would not have made financial sense for them to change that. As expected, we did not see companies leaving in a mass exodus from Malta as a result of the grey-listing.
Actions from the MGA
The MGA viewed the grey-listing as a major reputational issue. The MGA’s overriding objective is to provide players with a playing environment which is safe, fair and free from crime. Malta offers a strong regulatory framework and the MGA never want businesses to be in a position where being regulated in Malta makes it difficult for them to carry on. If that were to happen, then those players would be pushed towards a more risky environment which would be completely at odds with what the MGA have set out to achieve. The MGA’s aim throughout all of this was to strike a balance, getting Malta off the grey list and to support those regulated businesses and ease any problems they were facing.
Reaching a balance was difficult as the MGA wanted to ensure that markets remain open and consumers have a wide choice, while at the same time regulating those freedoms in a way that is safe and fair. To assist with the practical issues faced in terms of banking and monetary institutions, the MGA had a large part to play. The MGA set up a division dedicated to outreach and they were speaking to the international partners of local licensees as part of a process which started before the grey-listing. The MGA shared their best practices and explained Malta’s regulatory processes, the monitoring program over licensees, the compliance and licensing process, due diligence and the MGA’s AML overview. These efforts meant the MGA were able to help ease the effects of grey-listing on local and international banks and international partners.
What’s next?
Malta was officially removed from the grey-list in June 2022 after implementing a long list of changes to the way it combats tax evasion, collects information on ultimate beneficial ownership, and the way it shares information with local and international authorities. These issues were at the heart of a FATF action plan which Malta had to implement before being given a clean bill of health by the global anti-money laundering body. Moving forward, Malta is tasked with continually proving that it is committed to keeping up the current pace of reforms.
We do not gauge that there has been any significant long-term damage suffered by gaming companies with a connection to Malta as a jurisdiction during the grey-listing period. We believe that this is mainly due to the fact that it is clear that the iGaming Industry was not specifically targeted by the grey-listing and did not lead to the outcome of the grey-listing. This is due to the high standards of safeguards in place within the industry over the years in conjunction with the FIAU and MGA’s rules and guidance - a clear testament of the continued commitment which the iGaming Industry in Malta has to making gambling safer and ensuring a high standard of compliance.
Since Malta has been removed from the grey-list in June 2022, we have seen a dramatic improvement with regards to iGaming company’s relationships with banks and attracting new business. Whilst banks of course continue to ask for appropriate due diligence documentation, it is apparent that the pressure being applied has eased with less burdensome compliance processes and improved lines of communications. Furthermore, we have noticed that the grey-listing topic is now considered to be ‘old news’ when it comes to conversations when attracting new business. It is no longer the prominent topic during these conversations and seems to be viewed by many as a challenging time which the iGaming Industry in Malta harshly endured and strongly overcame.
We see that Malta continues to be a jurisdiction of choice for the iGaming Industry and rightly so. Malta has positioned itself as one of the few platinum standard of licence regimes. Having been in the iGaming industry for over 20 years, Malta has seen the market dip, revitalise itself and evolve. Consequently, as a regulator, the MGA is vested with a great depth of knowledge and knowhow when it comes to dealing with operators and the business reality of remote gambling - this is reflected not only in its understanding of the ever-evolving iGaming industry but also reflected within Malta’s gaming legislative framework.
This article was originally published in the January 2023 issue of the IMGL magazine.
About the Author
This article has been authored by Kyle Scerri, CSB Group Regulated Industries and Compliance Advisor, Jan Killips Wright, Regulated Industries and Compliance Advisor, Dr Francesca Anastasi, Legal, Risk & Compliance Advisor and Dr Bjorn Camilleri, Regulatory & Business Advisor. For any additional information or support required please contact us on [email protected]
[1] Article 2(1) of the PMLFTR (Prevention of Money Laundering and Funding of Terrorism – Subsidiary Legislation 373.01
