Malta – the centre of criticism for years. As the first EU member state, the country has recently made it to the grey list of the Financial Action Task Force (FATF) due to increased and persistent money laundering and terrorist financing risks. The "grey list" is a global list of countries under increased scrutiny for deficiencies in the implementation of FATF standards.

Being an international supervisory authority, the FATF sets the standards and recommendations for combating money laundering, terrorist financing, and financing of weapons of mass destruction (proliferation) and controls their implementation on a regular basis. More than 200 states and jurisdictions are committed to complying with FATF standards, including all EU member states.

For many years, the state of Malta has repeatedly appeared in connection with corruption, money laundering, and organised crime. Nevertheless, the EU Commission has been inactive to date and even defended Malta at the FATF General Assembly - despite the fact that, among other things, the island state's "Blockchain Island" strategy is viewed with concern within the EU. Crypto companies gain access to the EU via Malta. For instance, Crypto.com received a Virtual Asset License on July 08, 2021, allowing it to do business within the entire EU.

Malta is not alone. Other European countries also have shortcomings in implementing and enforcing anti-money laundering laws and regulations. By November 2020, the FATF reviewed a total of 18 EU member states, and not a single one of them achieved a high level of effectiveness in terms of key indicators for combating money laundering.

Interesting in this context are countries, such as Latvia and Andorra, where glaring deficiencies in their processes have led to bank closures. Latvia also played a role in the "Russian Laundromat" affair. However, the FATF has not included either country in the grey country list to date. Perhaps this is due to the fact that Latvia and Andorra are members of MONEYVAL^[1].

Cyprus provided another example of questionable action with the "Golden Passport" programme launched in 2013, which - according to the official announcement – was supposed to "attract foreign capital and support its own real estate market due to the financial crisis." The highlight: Cyprus has promised NON-EU citizens Cypriot citizenship if they invest at least two to two and a half million euros either in real estate or in a company with at least five employees or in shares of Cypriot companies and Cypriot government bonds. In this way, the Cypriot state received more than eight billion euros within six years, partly in capital and partly in investments. For the investors, this was a lucrative business, because in addition to Cypriot citizenship and the associated right to enter the EU, the Cypriot EU passport gave its holder the right to enter more than 150 countries around the world without any visa. In 2020, Cyprus discontinued the programme after pressure from many other EU member states. Bulgaria and Malta had similar programmes in place.

What are the Consequences of Malta's FATF Assessment for Obliged Entities according to the Anti-Money Laundering Act (AMLA)?

According to the European Commission Delegated Regulation (Directive (EU) 2015/849), enhanced due diligence requirements are to be applied for third countries.

Extract from Directive (EU) 2015/849:

Having regard to Directive (EU) 2015/849 of the European Parliament and of the Council (...) on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, (...), and in particular Article 9(2) thereof, whereas:

(2) All Union obliged entities under Directive (EU) 2015/849 should apply enhanced due diligence measures in their relationship to natural persons or legal entities established in high-risk third countries, thereby ensuring equivalent requirements for market participants across the Union.

Malta, as a member of the EU, does not fall under the definition of a third country. From this, obliged entities under the AMLA can deduce that the application of enhanced due diligence requirements in the case of

- business relationships with the Maltese state,
- business relations with natural and legal persons domiciled in Malta, or
- business relations with natural and legal persons from Malta

is not indicated. However, the inclusion of Malta in the "grey list" should lead to a corresponding adjustment in the risk analysis and, if necessary, to measures being taken (see also FATF: http://www.fatf-gafi.org/publications/high-risk-and-other-monitored-jurisdictions/documents/increased-monitoring-june-2021.html). In addition, an adjustment or extension of the research system used can also be derived in order to, among other things, examine and monitor payment transactions with Malta more closely.

This is not the first time that Malta has shown itself to many obliged entities as a country with money laundering-relevant risks. Already in 2017, Malta came into the focus of institutions obliged to the AMLA in Germany. With the amendment of the German AMLA and the extension of §2, all organisers and brokers of games of chance were also obliged to comply. The problem: most providers of (online) gambling platforms were based in Malta, which undermined German regulation. 

In this context, a digression on the state treaty for the new regulation of gambling in Germany is of interest. It came into force on July 01, 2021. Concluded between all 16 federal states in Germany, the new State Treaty on Gambling 2021 (GlüStV 2021) regulates the framework conditions for the organisation of games of chance nationwide. In order to be allowed to operate gambling (online or on site as a gambling hall), the operator needs an official gambling license. With the new gambling treaty, gambling and operating in this field are now legalized. 

Before that, gambling in Germany was more of a legal grey area, actually illegal, but still somehow legal. According to German law, operating and gambling in gambling halls was generally prohibited; only gambling in state lotteries was allowed. In 2011, the state of Schleswig-Holstein passed a special regulation, but none of the other states agreed to it. As a result, gambling in Germany experienced only partial legalisation. Despite severely restricted licensing, new online casinos were founded all the time. European law made it possible: gambling is legal if the provider has a corresponding license within the EU. Therefore, most gambling operators are based in Malta or Gibraltar, and gambling in Germany had to be tolerated. 

Due to the inclusion of Malta on the so-called "grey list" of the FATF, the obliged entities are now required to take appropriate measures. It will be interesting to see if and when the European Commission will put Malta on the EU list of countries (DelReg) and whether Malta will remain the only country in the EU on the FATF's so-called "grey list".

^[1] MONEYVAL was established in 1997 and is a Committee of Experts of the Council of Europe whose mission is to monitor and facilitate the implementation of standards against money laundering and terrorist financing. MONEYVAL includes countries that are members of the Council of Europe but not members of the FATF. In its investigations, MONEYVAL refers to the standards published by the FATF and reports its findings to the FATF.