P 111528Z DEC 08
FM AMEMBASSY VALLETTA
TO SECSTATE WASHDC PRIORITY 1861
INFO EU MEMBER STATES COLLECTIVE PRIORITY
IRAN COLLECTIVE PRIORITY

S E C R E T VALLETTA 000517 
 
 
NOFORN 
 
E.O. 12958: DECL: 12/11/2018 
TAGS: PARM PREL EFIN KNNP MT IR
SUBJECT: MALTA AGREES TO DENY REQUESTS BY IRANIAN BANKS TO 
ESTABLISH SUBSIDIARIES IN MALTA 
 
REF: A. SECSTATE 115523 
     ¶B. VALLETTA 485 
 
Classified By: DCM Jason L. Davis for reasons 1.4 (b) and (d) 
 
¶1. (U) On December 11, DCM called on MinFin Head of 
Secretariat Alan Caruana to get the GoM's formal response to 
Ref A demarche, which asked that Malta agree to adopt "at 
least one" of several proposed "preventative measures to 
address the specific risks posed by Iran." 
 
¶2. (C) The text of the GoM's response, drafted by Malta's 
Financial Intelligence Analysis Unit (FIAU), appears at 
paragraph 5, below. One highlight is a firm commitment by 
Malta to deny requests by Iranian banks to establish a 
subsidiary, branch, or representative office in Malta. The 
mechanism for denial is based on a determination by the Malta 
Financial Services Authority (MFSA) that "nationals or 
institutions from Iran would not be considered by the MFSA as 
being fit and proper persons for the purposes of MFSA's 
licensing criteria."  In fact, the FIAU report noted, MFSA 
had recently discouraged a potential request for the 
establishment in Malta of a representative office of an 
Iranian credit institution. 
 
¶3. (C) The FIAU report also noted that Malta was already 
implementing several of the other measures proposed in the 
demarche, including requiring Maltese financial institutions 
to identify clients and beneficial owners before establishing 
business relationships with individual companies from Iran, 
reviewing existing account relationships based on risk 
assessment, and imposing enhanced reporting requirements for 
financial transactions involving Iran. 
 
¶4. (S) One disappointing element to the report was the 
response to our proposal that Malta deny requests by Iranian 
institutions to enter into joint ventures with or purchase a 
controlling stake in any local financial institution.  On 
this point there was no firm commitment to prevent it, only 
an assertion that the MFSA did have the authority to deny 
such requests, and that existing statutory criteria were 
robust enough to enable the MFSA to adequately verify the 
risks to the local financial system posed by such requests. 
DCM asked Caruana whether he thought the FIAU had 
deliberately left the door open to such acquisitions, and if 
so why. Caruana recommended that he, Ambassador Bordonaro, 
and DCM meet with the FIAU leadership to ask this question 
and to push for improved language.  A meeting is being 
scheduled for early January, in order to accomodate the 
travel schedules of the relevant officials. 
 
¶5. (SBU) Following is the text of the GoM's response to Ref A 
demarche: 
 
Begin Text 
 
JOINT NOTE PREPARED BY THE FINANCIAL INTELLIGENCE ANALYSIS 
UNIT AND THE MALTA FINANCIAL SERVICES AUTHORITY 
 
Preventive measures adopted by the Financial Intelligence 
Analysis Unit (&FIAU8) and the Malta Financial Services 
Authority (&MFSA8) pursuant to the FATF Statement issued on 
the 16th October 1008 (&the October Statement8) and the 
FATF Guidance on the implementation of financial provisions 
of UN Security Council Resolution 1803 issued on the 17th 
October 2008 (&the Guidance8). 
 
FATF October Statement 
 
The FIAU, as the entity responsible in Malta inter alia for 
the dissemination of information with a view to combating 
money laundering and the financing of terrorism, took 
immediate steps to ensure that the October Statement be 
brought to the attention of all subject persons in terms of 
the Prevention of Money Laundering and Funding of 
Terrorism Regulations, 2008 ("the 2008 Regulations"). 
 
Indeed, the approach adopted by the FIAU was similar to that 
taken with regard to the previous Statement issued by the 
FATF on 28th February 2008. The October Statement was in fact 
prominently placed on the FIAU,s website and circulated to 
all credit and other financial institutions individually with 
a note to take measures to ensure compliance thereto. 
 
As to the other persons falling within the scope of the 
Maltese AML/CFT laws, the FIAU forwarded the October 
Statement to all the representatives of subject persons 
sitting on the Joint Committee for the Prevention of Money 
Laundering and Funding of Terrorism. This Committee is 
composed of associations and bodies representing subject 
persons, together with the Police, the Attorney General's 
Office, the MFSA and the Central Bank of Malta. The members 
of the Committee were asked to circulate the October 
Statement and to bring its contents to the notice of all 
their members. 
 
FATF Guidance re UNSCR 1803 
 
In the case of the Guidance, the FIAU took similar measures 
to bring this document to the attention of the industry 
whilst making sure that it itself applies that guidance 
related to the authorities. Thus the FIAU has notified all 
credit institutions individually with respect to the Guidance 
and encouraged them to examine and apply all the measures 
laid out therein. The Guidance has also been prominently 
placed on the FIAU,s website. 
 
Other Measures 
 
Other measures adopted in relation to the October Statement 
and the Guidance by the FIAU as the regulatory authority on 
money laundering and financing of terrorism issues, and by 
the MFSA, as the regulatory authority responsible for the 
supervision of credit and financial institutions in Malta, 
are highlighted in the paragraphs below in sequence to the 
request. 
 
(A) Client and beneficial owner identification before the 
establishment of business relationships with individuals or 
companies from Iran 
 
In line with the FATF 40 Recommendations and the relevant EU 
Directives, Maltese financial institutions are prohibited by 
the 2008 Regulations from forming a business relationship 
with a person unless the financial institution adopts 
adequate customer due diligence measures and maintains 
adequate records. Such measures include among other things 
the identification and verification of the identity of the 
individual seeking to establish a business relationship and, 
where relevant, that of the beneficial owners. Additionally, 
as part of its ongoing monitoring obligations, the financial 
institution must keep its information up to date. These 
obligations exist irrespective of the nationality of the 
client. 
 
Moreover, subject persons are required to apply, on a 
risk-sensitive basis, enhanced customer due diligence 
measures in situations which, by their nature, can present a 
higher risk of money laundering or the funding of terrorism. 
Consequently, in view of the issuance of the above-mentioned 
Statement and previous similar statements, subject persons 
are expected to apply enhanced due diligence measures where 
applicants for business are Iranian nationals, Iranian 
companies or have close connections with Iran. 
 
Subject persons who breach the obligations of identification 
and verification of the person seeking to establish a 
business relationship or who do not apply the customer due 
diligence requirements established by the 2008 Regulations 
may be subjected to the imposition of administrative 
penalties by the FIAU. 
 
(B) Review of existing correspondent account relationships 
based upon a risk assessment in order to determine whether 
the respondent Iranian financial institutions are complying 
with relevant requirements. 
 
Notwithstanding that EU Regulations are binding on member 
states without the need for transposition into national 
legislation, the Malta Financial Services Authority 
(&MFSA8) in June 2008 issued a circular to licensed credit 
institutions drawing attention to the EU Commission 
Regulation (EC) No 219/2008 of 11 March 2008 amending Council 
Regulation (EC) No 423/2007 concerning restrictive measures 
against Iran and on Council Decision (2008/475/EC) 
implementing Article 7(2) of Regulation (EC) No 423/2007. 
Credit institutions are therefore required to undertake 
correspondent banking relationships in line with the 
requirements of the afore-stated EU Regulations. 
Additionally, during on-site reviews conducted at local 
banks, supervisory inspectors acting also as agents of the 
FIAU, undertake the necessary analyses to verify that the 
institutions are abiding with these (and other) statutory 
requirements and check as part of their oversight that no 
relationship would have been entered into with the 
individuals/persons mentioned in the Regulations. 
 
Moreover, Regulation 11(3) of the 2008 Regulations provides 
that credit institutions and electronic money institutions 
establishing cross-border correspondent banking and other 
similar relationships with respondent institutions from a 
country other than a Member State of the European Community 
are required to ensure that they fully understand and 
document the nature of the business activities of their 
respondent institution, including, from publicly available 
information, the reputation of and the quality of supervision 
on that institution and whether that institution has been 
subject to a money laundering or funding of terrorism 
investigation or regulatory measures. In such circumstances, 
the credit institutions and electronic money institutions 
would also be required to assess the adequacy and 
effectiveness of their internal controls for the prevention 
of money laundering and the funding of terrorism, to obtain 
the prior approval of senior management for the establishment 
of new correspondent banking relationships, to document their 
respective responsibilities for the prevention of money 
laundering and the funding of terrorism and, in the case of 
payable-through accounts, they are expected to be satisfied 
that the respondent credit institution has verified the 
identity of and performed on-going due diligence on the 
customers having direct access to the accounts of the 
respondent institution and that it is able to provide 
relevant customer due diligence data to that subject person 
upon request. 
 
(C) Enhanced reporting requirements for financial 
transactions involving Iran 
 
Subject persons are required by Regulation 15(1) of the 2008 
Regulations to examine with special attention, and to the 
extent possible, the background and purpose of any complex or 
large transactions, including unusual patterns of 
transactions, which have no apparent economic or visible 
lawful purpose and any other transactions which are 
particularly likely, by their nature, to be related to money 
laundering or the funding of terrorism, to establish their 
findings in writing and to make such findings available to 
the FIAU and to the relevant supervisory authorities in 
accordance with applicable law. 
 
In addition, subject persons are required, pursuant to 
Regulation 15(2) of the 2008 Regulations, to pay special 
attention to business relationships and transactions with 
persons, companies and undertakings carrying out their 
activity from a jurisdiction that does not meet the criteria 
of a &reputable jurisdiction8 i.e. a country having 
appropriate legislative measures for the prevention of money 
laundering and funding of terrorism and that complies with 
internationally accepted standards for the prevention of 
money laundering and for combating the funding of terrorism. 
In this regard, the October 2008 Statement and other similar 
FATF statements are seen to constitute valid tools in 
determining whether a jurisdiction is to be considered 
reputable or otherwise. 
 
It is important to point out that, as the US Authorities had 
already been informed in April 2008 in a meeting with Mr 
Stuart Levey, US Under Secretary of the Treasury for 
Terrorism and Financial Intelligence, a credit institution 
which had in the past carried out transactions with Iranian 
entities and individuals was asked by the MFSA to submit 
detailed information relating to its exposures to these 
entities. The information is being actively monitored and 
this credit institution is in regular contact and updating 
the authorities with developments in this area. 
 
(D) Restrict financial transactions with Iran or persons in 
Iran; 
 
In accordance with Regulation 15(3) of the 2008 Regulations, 
where a jurisdiction which is deemed non-reputable continues 
not to apply measures equivalent to those laid down by the 
2008 Regulations, subject persons are required to inform the 
FIAU. In such cases the FIAU, in collaboration with the 
relevant supervisory authority, may require such business 
relationship not to continue or a transaction not to be 
undertaken or apply any other counter-measures as may be 
adequate under the respective circumstances. 
 
Additionally, as noted in the comment to point (B), all 
credit institutions are required to operate within the 
parameters set by the EU Council Decision (2008/475/EC) and 
Commission Regulation (219/2008) with respect to the 
undertaking of financial transactions with Iran or persons in 
Iran. 
 
(E) Deny any requests by Iranian banks to establish a 
subsidiary, branch, or representative office in Malta; 
 
The establishment of a subsidiary, branch or representative 
office in Malta by a foreign institution is governed by 
Banking Rule BR/01/2008.02 issued by the MFSA and the 
criteria under the Banking Act, Cap. 371. Banking Rule BR/01 
establishes the criteria for licensing purposes which, inter 
alia, includes the &fit and proper8 and due diligence 
tests. 
 
More specifically, clause 20 of BR/01 states that an 
applicant for a banking licence must satisfy the MFSA that 
all qualifying shareholders, controllers and all persons who 
will effectively direct the business of the bank are 
suitable, fit and proper persons. These criteria go beyond 
questions of the suitability of particular individuals but 
entail the observance by the institution as a whole of the 
highest professional, ethical and business standards in 
conducting its activities in a prudent manner. In this 
respect the MFSA draws the attention of an applicant for a 
licence to article 32 of the Banking Act. Article 32 
prohibits persons who, among other things, are interdicted or 
incapacitated or who have been involved in money laundering 
or found guilty of a crime affecting public trust, theft, 
fraud, extortion or of knowingly receiving property obtained 
by theft or fraud, from holding office within a bank. 
 
Clause 20 similarly applies to subsidiaries and branches. In 
considering whether to authorise the establishment of a 
subsidiary or branch the MFSA will take into consideration 
the nationality of the applicant to determine whether it is a 
suitable person. In the light of the FATF statements, 
therefore, nationals or institutions from Iran would not be 
considered by the MFSA as being fit and proper persons for 
the purposes of the MFSA,s licensing criteria. In fact the 
MFSA has recently discouraged a potential request for the 
establishment in Malta of a representative office of an 
Iranian credit institution. 
 
(F) Deny requests by Iranian FIs to enter into joint ventures 
with or purchase a controlling stake in any local financial 
institution; 
 
Further to the conditions laid down by Article 20 of 
BR/01/2008.02 as detailed in item E above, Article 13 of the 
Banking Act establishes the criteria for participation in a 
credit institution. The consent of the MFSA is required for a 
person or entity to acquire or divest of a qualifying or a 
significant shareholding in a credit institution. A 
significant shareholding is defined as a holding of at least 
5% of an entity,s equity while a qualifying shareholding is 
at least 10%. Moreover, if as a result of an acquisition of 
shares in a credit institution, that institution becomes a 
subsidiary of the person or entity acquiring the shares, and 
that person is a credit institution authorized in another 
country, the MFSA needs to consult with the relevant 
authorities of the country concerned. Article 13 further 
provides the MFSA with the authority to deny such 
applications. Similar provisions are found in other financial 
legislation governing the non-bank financial sector. 
 
The MFSA is therefore confident that the above statutory 
criteria are sufficiently robust to enable it to adequately 
verify the risks that such potential venture/acquisition 
would place on the target institution itself and on the local 
financial system in general. 
 
(G) Warn those commercial sectors with significant business 
ties with Iran that transactions with individuals or entities 
from Iran have a heightened risk of money laundering or 
terrorist financing. 
 
As explained above, the FIAU places the FATF statements and 
other similar communications in this regard on its website 
and, in certain cases, opts to inform credit and financial 
institutions individually about specific documents issued in 
relation to this matter. Similarly, sanctions imposed by the 
European Union and by the United Nations Security Council are 
posted on the MFSA website. Furthermore the FIAU and the MFSA 
ensure that the matters discussed in this paper feature 
prominently during any seminars, conferences or other 
training programmes in which they participate. 
 
End Text 
 
BORDONARO