UNCLAS VALLETTA 000479


STATE for INL, EUR/WE, DS/IP/EUR, DS/DSS/ATA, EB/ESC/TFS
JUSTICE for OIA and AFMLS
TREASURY for FINCEN

E.O. 12958: N/A
TAGS: SNAR EFIN KCRM KTFN ASEC MT
SUBJECT: Malta: 2008 INCSR Submission: Part II - Money

REF: (A) STATE 103813
(B) VALLETTA 00450



1. (U) Embassy Valletta submits this Part II of the 2008
International Narcotics Control Strategy Report (INCSR) for Malta.
The response is generally keyed to questions posed in reftel A
related to "Money Laundering and Financial Crimes" and should be
read in conjunction with Part I, reftel B. Note: Valletta is a
former SEP post.

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STATUS OF COUNTRY:
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2. (U) Malta joined the European Union (EU) on May 1, 2004. To
comply with EU directives, Malta strengthened its regulatory regime
and introduced measures to attract European investors and to shed
its image as an offshore tax haven. Malta has made significant
headway, introducing EU-compliant legislation for the prevention of
money laundering and strong financial services legislation. Malta
does not appear to have a serious money laundering problem.

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OFFSHORE FINANCIAL CENTERS:
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3. (U) Since 1997, Malta has been closing the loopholes on all
offshore financial activities; and Malta modernized its banking
legislation to comply with OECD standards. All licenses for
offshore registered businesses expired on September 30, 2004,
completing Malta's transition from an economy with over 400
international business corporations in 2001 to a country where
offshore banking and business is no longer legal. Companies and
trusts appear to be well regulated; international entities are
subject to 35 percent tax, which is reduced to 5 percent if the
entity invests over $1 million in Malta. Bearer shares or anonymous
accounts are no longer permitted in Malta.

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LAWS AND REGULATIONS:
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4. (U) The Government of Malta (GOM) criminalized money laundering
in 1994. Maltese law imposes a maximum punishment of one million
Maltese Lira (approximately $3 million USD) and/or 14 years
imprisonment for those convicted of money laundering crimes. Also
in 1994, the GOM issued the Regulations for the Prevention of Money
Laundering, applicable to financial and credit institutions, life

insurance companies, and investment and stock brokerage firms.
These regulations impose requirements for customer identification,
record keeping, the reporting of suspicious transactions, and the
training of employees in anti-money laundering topics. In 2003, a
new set of regulations combining the 1994 money laundering act and
the Second EU Directive on the Prevention of Money Laundering became
national law; these regulations expanded anti-money laundering
requirements to designate non-bank financial businesses and
professions. In 2007, the Money Laundering Act was amended to
strengthen the Attorney General's powers of investigation and the
fines imposed on offenses.


5. (U) The Maltese Financial Services Authority (MFSA) is the
regulatory agency responsible for licensing new banks and financial
institutions; additionally the MFSA has been responsible for
monitoring financial transactions going through Malta since the
supervisory function of the Central Bank of Malta was passed to the
MFSA in 2002. In 2005, the MFSA widened its regulatory scope to
encompass banking, insurance, investment services, company
compliance, and the stock exchange. The MFSA has a rigorous process
of analyzing companies prior to granting a license. This entails
detailed analyses of all the applications it receives, including
information about the directors and other persons involved in the
management of the company.

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FINANCIAL INTELLIGENCE UNIT:
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6. (U) In 2001, Malta's parliament established the Financial
Intelligence Analysis Unit (FIAU) through an amendment to the
Prevention of Money Laundering Act, 1994, to serve as Malta's
Financial Intelligence Unit (FIU). The unit became fully functional
in 2002. The FIAU is independent and has a board that consists of
members nominated by the Central Bank of Malta, the MFSA, the
Police, and the Attorney General. Board members are not subject to
the direction or control of their parent agency or any other
authority.


7. (U) The FIAU co-ordinates the fight against money laundering,
collects information from financial institutions, and liaises with
parallel international institutions as well as the MFSA and the GOM
Police. The GOM requires banks, currency exchange offices,
stockbrokers, insurance companies, money remittance/transfer
services, and other designated non-bank financial businesses and
professions to file suspicious transaction reports (STRs) with the
FIAU, which investigates them. The FIAU also conducts organized
training sessions for Maltese financial practitioners to make them
aware of their responsibilities.


8. (U) The FIAU is leading an initiative to consolidate all
guidance notes for all of the covered financial services and other
businesses. In 2003, the FIAU, together with the Banking Unit at
the MFSA, updated the Guidance Notes for Credit and Financial
Institutions issued by the Central Bank of Malta in 1996.


9. (U) There is no monetary threshold that requires the generation
and filing of a STR. Instead, the circumstances surrounding the
transaction dictate the necessity of a STR -- regardless of whether
the transaction is completed. The FIAU received 46 STRs in 2004
and, 68 STRs January through November 2005, 78 STRS in 2006, and
down to 63 in 2007. We expect that enforcement will continue to
improve as the FIAU continues analyzing STRs for referral for police
investigation. Malta has also moved to bolster the prosecutorial
opportunities for financial crime. The GOM has recently designated
one of the country's five prosecutors to deal solely with money
laundering cases. Bank secrecy laws are completely lifted by law in
cases of money laundering (or other criminal) investigations.

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TERRORIST FINANCING:
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10. (U) In 2002, the Council of Europe Select Committee of Experts
on the Evaluation of Anti-Money Laundering Measures (MONEYVAL)
conducted a second round mutual evaluation of the overall
effectiveness of the Maltese anti-money laundering system and
practices, including compliance with the FATF Special
Recommendations on Terrorist Financing. The review found that Malta
was in partial compliance with Special Recommendation No.1
(ratification and implementation of UN instruments), because it had
signed and ratified the pertinent UN Conventions, but had not yet
fully implemented UNSCRs 1269,1373, and 1390.


11. (U) Since the 2002 evaluation, Malta has criminalized terrorist
financing and taken several steps to consolidate its legal framework
for countering "acts of terrorism, funding of terrorism, and
ancillary offenses." In late 2002, the criminal code was amended in
such a way that terrorist financing would meet the standard for
categorization as a "serious crime" under Malta's Prevention of
Money Laundering Act. On June 6, 2005, the Act was extensively
amended and expanded to include provisions for offences of terrorism
and funding of terrorism and to make ancillary amendments for the
prevention of such funding. In addition, the Act broadened the
money laundering mission of Malta's Financial Intelligence Unit.
Now, the FIAU has authority to focus on terrorism funding. In 2005,
Malta adopted a legal notice on "Prevention of Money Laundering and
Funding of Terrorism Regulations" under the Prevention of Money
Laundering Act of 1994 and has successfully implemented UNSCR 1373.


12. (U) In May 2005, the European Parliament adopted the Third EU
Directive on the prevention of the use of the financial system for
the purposes of money laundering or terrorist financing. Member
States have agreed to implement the Directive within two years after
its publication in the European Union's Official Journal, which
occurred on November 25, 2005. The Third Directive only required
marginal changes in Maltese legislation as Malta was already in
substantial compliance with the enumerated requirements. This
directive builds on existing EU legislation and incorporates into EU
law the June 2003 revision of the Forty Recommendations of the
Financial Action Task Force (FATF). [Note: FATF is an
inter-governmental body whose purpose is to develop and promote
policies, both at national and international levels, to combat money
laundering and terrorist financing. End Note.] The Directive is
applicable to the financial sector as well as lawyers, notaries,
accountants, real estate agents, casinos, trust, and company service
providers. Its scope also encompasses all providers of goods, when
payments are made in excess of 15,000 euros. Those subject to the
Directive are required to: (1) identify and verify the identity of
their customers and of its beneficial owner, and to monitor their
business relationship with the customer; (2) report suspicions of
money laundering or terrorist financing to the public authorities;
(3) take supporting measures, such as ensuring proper training of
personnel and establishment of appropriate internal preventive
procedures, and; (4) introduction of additional requirements and
safeguards for situations of higher risk (e.g., trading with
correspondent banks situated outside the EU).

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ASSET FORFEITURE/SEIZURE:

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13. (U) The MFSA circulates to its financial institutions the names
of individuals and entities included on the UNSCR 1267 Sanctions
Committee's consolidated list. To ensure compliance, the list is
posted on the MFSA website and the MFSA contacts every financial
institution directly to confirm whether or not the institution has
done business with any person or entity appearing on the
consolidated list. To date, no assets have been identified, frozen,
and/or seized as a result of this process. Please refer to the
"freezing funds" section of para 17.

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CASH SMUGGLING:
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14. (U) Alternative remittance systems such as hawala, black market
exchanges, and trade-based money laundering do not appear to be a
problem in Malta. Such activities are against the law in Malta,
those participating in such activities would be prosecuted if
discovered. Anyone wishing to raise money for charitable reasons
must receive a government license.

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INTERNATIONAL COOPERATION:
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15. (U) Malta is a founding member of the MONEYVAL and chaired the
committee until December 2003. The FIAU became a member of the
Egmont Group in July 2003. Malta is no longer a member of the
Offshore Group of Banking Supervisors, but has joined the
International Organization of Securities Commissions (IOSCO). Malta
is a party to the 1988 UN Drug Convention, the UN Convention against
Transnational Organized Crime and the UN International Convention
for the Suppression of the Financing of Terrorism. Malta has
ratified the Council of Europe Convention on Laundering, Search,
Seizure, and Confiscation of the Proceeds from Crime and the Council
of Europe European Convention on the Suppression of Terrorism, and
has amended its criminal code to be in alignment with these
conventions.


16. (U) A Maltese statute, the Prevention of Financial Markets Abuse
Act, which came into force on March 22, 2005, transposes and
implements the provisions of the EU Market Abuse Directive
(2003/6/EC) together with its implementing measures and provides for
the repeal of the Insider Dealing and Market Abuse Offenses Act.
The purpose of the Prevention of Financial Markets Abuse Act is to
safeguard the integrity of Maltese and Community financial markets
and to enhance investor confidence. The Act applies to financial
instruments admitted to trading on a regulated market in Malta or in
any other Member State or EEA State, or for which a request has been
made for admission to trading. The provisions of the Act affect the
following categories: issuers and their managers and other insiders;
financial intermediaries; ordinary investors; journalists,
researchers and disseminators of financial recommendations; national
statistics bodies; competent authorities in Malta and abroad and
operators of recognized investment exchanges.


17. (U) An innovative feature of the Act is the provision for two
separate sanctions and procedures against market abuse. Provision
is made for administrative sanctions by the competent authority as
well as for criminal sanctions imposed by the criminal courts. In
2005, Maltese law enabled the Attorney General's office to request
the criminal court to freeze funds by issuing a written order known
as the "freezing order."


18. (U) Another Act introduced in 2005 is the Money Declaration Act
which specifies that any person entering or leaving Malta and
carrying a sum equivalent to 5,000 Maltese Lira (roughly $15,000) or
more in cash shall be obliged to declare that sum to the
Comptroller. A person who makes a false declaration for the
purposes of these regulations or who does not fulfill the obligation
to declare such sum shall be guilty of an offense and shall, on
conviction, be liable to a fine equivalent to 25% of the value
represented on the date of entry or leaving Malta, by the cash
carried, but in any case not exceeding a fine of twenty thousand
Maltese Lira (roughly $60,000).


19. (U) Please contact PolOff Monica Cummings
with any questions related to the report.

DAVIS