O 171418Z NOV 08
FM AMEMBASSY VALLETTA
TO SECSTATE WASHDC IMMEDIATE 1823
DEPT OF JUSTICE WASHDC IMMEDIATE
DEPT OF TREASURY WASHDC IMMEDIATE

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: 
------------------------------ 
 
¶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: 
----------------------- 
 
¶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: 
---------------------------- 
 
¶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