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Malta included on the “Gray List” of the Financial Action Task Force

By Teodora Luca,
Senior Associate Lawyer
Mihai Cătălin Luca Law Office

At the end of last month, the FATF (Financial Action Task Force) included Malta on the list of states under increased monitoring of the organization (the so-called “gray list”), due to shortcomings in the implementation of legislation to combat money laundering and terrorist financing.

The Financial Action Task Force is a 39-member intergovernmental body, of which 37 states and 2 regional organizations (European Commission and Gulf Cooperation Council) have a regulatory role (at the level of recommendation) and surveillance in the field of money laundering and terrorist financing.

With more than 200 countries and jurisdictions committed to implementing them, the FATF (Financial Action Task Force) has developed FATF Recommendations / Standards to ensure a coordinated global response to the prevention of organized crime, corruption and terrorism and to support authorities in identifying commit crimes (drug trafficking, human trafficking and other crimes). The FATF (Financial Action Task Force) is also working to stop the financing of weapons of mass destruction.

The FATF (Financial Action Task Force) monitors countries to ensure that they implement the standards fully and effectively.
The intergovernmental body identifies jurisdictions with weak anti-money laundering and anti-terrorist financing measures in two public documents, which are issued three times a year, following plenary sessions:

1) The list of high-ranking states identifies countries or jurisdictions with serious strategic deficiencies in combating money laundering and terrorist financing.
For all countries identified as high risk, the FATF (Financial Action Task Force) calls on all members and recommends that all jurisdictions apply enhanced customer awareness measures, and in the worst cases, members are required to apply restrictive measures to ensures the protection of the international financial system against money laundering and terrorist financing.
This list is often referred to externally as the “black list” and currently includes 2 states, the Democratic People’s Republic of North Korea and Iran.
With regard to these states, in addition to deeper monitoring, the FATF (Financial Action Task Force) calls on its members and recommends that all jurisdictions apply effective countermeasures and specific financial sanctions in accordance with United Nations Security Council resolutions to and protect the financial sectors from money laundering, terrorist financing. States should take the necessary measures to close existing branches, subsidiaries and representations of banks in those States in their territories and to close correspondence with banks in those States, where required by United Nations Security Council resolutions.

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2) The list of states under increased monitoring includes states with strategic shortcomings in anti-money laundering and anti-terrorist financing regulations, which have committed to actively cooperate with the FATF to address these shortcomings.
When the FATF (Financial Action Task Force) places jurisdiction under increased monitoring, it means that the country is committed to resolving the strategic shortcomings identified within the agreed deadlines and is subject to increased monitoring. This list is often referred to externally as the “gray list”.
Malta is the first Member State of the European Union to be included in the list of countries under increased monitoring, being included in the same category as countries such as Zimbabwe, Botswana, Syria, Yemen and Myanmar, the decision could have significant negative consequences for the EU member state and gambling of luck, in particular.
The Maltese government has made “a high-level political commitment to work with the FATF and MONEYVAL to strengthen the effectiveness of its AML / CFT regime”.

MONEYVAL is the Council of Europe’s permanent monitoring body responsible for assessing compliance with the main international standards for combating money laundering and terrorist financing and the effectiveness of their implementation, as well as for making recommendations to national authorities on necessary improvements to systems.

The Financial Action Task Force presented to Malta an action plan, focusing on three directions, which the Maltese Government is committed to implementing:
1. The Maltese authorities will continue to demonstrate that the information on real beneficiaries is accurate and up-to-date and that, where appropriate, effective sanctions, proportionate to the risk of money laundering and terrorist financing, will be applied to legal persons if the information prove inaccurate
2. Improving the use of financial information obtained by the Financial Intelligence Unit to support authorities investigating financial and money laundering offenses, including by clarifying the roles and responsibilities of the Commissioner of Revenue and the Financial Intelligence Unit; and
3. Deepen the Financial Intelligence Unit’s analysis of financial offenses to produce information to support Maltese law enforcement in detecting and investigating offenses in accordance with the money laundering risks identified by Malta in connection with tax evasion.

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In the report published by the Maltese Financial Information Unit in May 2021, the authority highlighted shortcomings of some remote gaming operators in checks to prevent and combat money laundering and warned that many remote gaming operators collect data that “does not adds value ”for high-risk players in performing anti-money laundering (AML) checks.

The report noted that a number of investigations into gambling operators revealed that these operators often gathered only insufficient details in building a customer’s profile, such as the mere statement that the customer is employed.
The Maltese financial intelligence unit referred to gaming operators applying insufficient and inadequate checks, such as an operator that did not implement “any form of additional customer awareness measures”, despite the fact that they allowed access to the activity of some players from high-risk countries, including many who have placed high bets at low odds.
It was also found that another operator had a “fairly robust” AML procedures manual, but did not implement the policies in the manual, such as mandatory checks for players spending EUR 2,000 or more.
In addition, the Maltese Financial Intelligence Unit listed the most common types of infringements in non-financial sectors, which include games.
Most frequently, the infringement consisted of inadequate assessment of risk factors for customers, accounting for 11.6% of infringements. The second most common violation was the lack of measures to verify whether a player is a politically exposed person, accounting for 7.6% of all violations.

The medium and short-term negative consequences of the decision to include Malta in the List of States under increased monitoring of the FATF (Financial Action Task Force) will most likely be felt by online gambling operators in Romania as well.

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If at the macroeconomic level, such a decision may lead to a decrease in investor confidence, leading to a reduction in their investments and the transfer of resources to jurisdictions considered stable, at the level of operators is expected a reluctance of the banking system to accept business relations with registered customers. in jurisdictions that present a high risk of non-compliance with regulations on preventing and combating money laundering and terrorist financing.
In the context in which the Romanian banking system already shows obvious reluctance to accept business relations with gambling organizers, especially in the case of non-resident companies, for the maintenance of contracts already concluded, it is expected that the checks will be performed more frequently. and to be even more thorough, the decision to maintain the business relationship being taken for each company, individually, based on the risk assessment on the client.

On the other hand, in order to fulfill the action plan agreed by the Maltese Government with the FATF (Financial Action Task Force), it is expected that the control actions of the authorities on the implementation of regulations on preventing and combating money laundering in the field of gambling intensified, the consequences will be felt in the activity carried out on the Romanian territory.

Last but not least, the Romanian authorities are expected to apply the set of control measures in order to ensure compliance with the legislation on preventing and combating money laundering and terrorist financing and, most likely, to speed up the procedure for adopting sectoral rules.

Malta included on the “Gray List” of the Financial Action Task Force
By Teodora Luca,
Senior Associate Lawyer
Mihai Cătălin Luca Law Office