Financial Crime Compliance
The rapidly changing development of threats and risks by criminals and terrorists both at national and international level has led to the establishment of various legal provisions which are specifically intended to prevent and combat money laundering and terrorist financing.
The role of the Central Bank of Malta
Legislation in place ensures that the Central Bank of Malta forms an integral part of the Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) and Sanctions framework.
Prevention of Money Laundering Act Cap. 373 of the Laws of Malta:
- a representative of the Central Bank of Malta is part of the National Co-ordinating Committee on Combating Money Laundering and Funding of Terrorism;
- a representative of the Central Bank of Malta is a member of the Board of Governors of the Financial Intelligence Analysis Unit
National Interest (Enabling Powers) Act Cap. 365 of the Laws of Malta:
- a representative of the Central Bank of Malta is a member of the Sanctions Monitoring Board.
The Central Bank of Malta is also represented in the AML bi-lateral meetings chaired by the Ministry of Finance which discuss the AML Regulations and Directives being amended and/ or proposed by the European Commission. Feedback and consultations are also provided on the back of the AML trilogues (European Parliament, Council and the Commission).
There are various other committees and boards at the European Banking Authority and the European Central Bank where the Central Bank is represented.
The Laws of Malta, EU Directives and FATF
The Laws of Malta encompass:
The EU Legislation entails EU Member States to present and initiate measures which require various legal persons to cater for and take appropriate action as to avoid a scenario where such legal persons are used for the purposes of money laundering or terrorist financing.
In June 2015, there was the publication of the Fourth Anti-Money Laundering Directive and the Revised Transfer Regulation which became applicable from 26 June 2017. In May 2018, the Fifth Anti-Money Laundering Directive was published and became applicable as from 20 June 2018. On 12 November 2018, the Sixth Anti-Money Laundering Directive was published and became applicable as from 3 December 2020 and had to be implemented by all member states by 3 June 2021. These Directives can be accessed through the following hyperlinks:
The EU Commission provides international and global standards on the prevention of money laundering at EU level through the Financial Action Task Force (FATF) Recommendations.
To achieve global implementation of the FATF Recommendations, the FATF relies on a strong global network of FATF-Style Regional Bodies (FSRBs), in addition to its own 39 members. The nine FSRBs have an essential role in promoting the effective implementation of the FATF Recommendations by their membership and in providing expertise and input in FATF policymaking. Over 200 jurisdictions around the world have committed to the FATF Recommendations through the global network of FSRBs and FATF memberships. (FATF)
Money laundering and terrorism financing are a serious threat to the economy. The Central Bank of Malta actively acts to prevent the transfer of funds of illegal origin and to put in place adequate safeguards. The Head of the Financial Crime Compliance Department briefly explains the nature of financial crime, what is financial compliance and why it is so important
What is Financial Crime?
Interpol gives the following definition of financial crime:
Theft, fraud, deception, extortion, corruption, money-laundering... The possibilities for making money illicitly are seemingly endless. To so-called white-collar criminals, the risks appear low and the returns high.
Financial crime ranges from basic theft or fraud committed by ill-intentioned individuals to large-scale operations masterminded by organized criminals with a foot on every continent. These are serious criminal activities whose importance should not be minimized as, over and beyond their social and economic impact, they are often closely linked to violent crime and even terrorism.
We are all impacted by financial crime which has taken on a whole new dimension with the rapid advancement of digital technology.
Criminal gangs operate transnationally to avoid detection, and stolen funds cross many physical and virtual borders before they reach their final destination.
What is Financial Crime Compliance?
Financial Crime Compliance looks at the three aspects of financial crime, namely:
- AML/CFT
- Sanctions
- AB&C (Anti-Bribery & Corruption)
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Financial Crime Compliance is the process to ensure that a "subject person" is complying with local and EU legislations and regulations.
A "subject person" according to the Prevention of Money Laundering and Funding of Terrorism Regulation (SL. 373.01) means any legal or natural person carrying out either relevant financial business or relevant activity.
The Financial Crime Compliance Department is responsible for identifying, assessing, advising, monitoring, and reporting on the financial crime risk that a firm fails to comply with. The main objective of this function is that of ensuring that an organisation has internal checks and controls that adequately measure and manage these kinds of risks, that such organisation may encounter.
What is Money Laundering?
The Prevention of Money Laundering Act (Chapter 373 of the Laws of Malta) 2.(1) defines money laundering as:
"The conversion of transfer of property knowing or suspecting that such property is derived directly or indirectly from, or the proceeds of, criminal activity or from an act or acts of participation in criminal activity, for the purpose of or purposes of concealing or disguising the origin of the property or of assisting any person or persons involved or concerned in criminal activity."
(where 'property' means "property and assets of every kind, nature, and description, whether movable or immovable, whether corporeal or incorporeal, tangible, or intangible, legal documents or instruments evidencing title to, or interest in, such property or assets and, without derogation from the generality of the foregoing, shall include:
(a) any currency, whether or not the same is legal tender in Malta, bills, securities, bonds, negotiable instruments, or any instrument capable of being negotiable including one payable to bearer or endorsed payable to bearer whether expressed in euro or any other foreign currency;
(b) cash or currency deposits or accounts with any bank, credit or other institution as may be prescribed which carries or has carried on business in Malta;
(c) cash or items of value including but not limited to works of art or jewellery or precious metals; and
(d) land or any interest therein.")
In short, money laundering is the process through which a criminal or lawbreaker attempts to conceal the true origin and ownership proceeds of a criminal activity whilst retaining such proceeds with the final aim of providing a legitimate and legal cover for the source of income and finance.
What is the Financing of Terrorism?
Terrorist financing involves the solicitation, collection, or provision of monies with the intention that they may be used to support terrorist acts or organizations. These may originate both from legal and illegal sources.
According to the International Convention for the Suppression of the Financing of Terrorism, a person commits the crime of financing of terrorism "if that person by any means, directly or indirectly, unlawfully and wilfully, provides or collects funds with the intention that they should be used or in the knowledge that they are to be used, in full or in part, in order to carry out" an offense within the scope of the Convention.
What are Sanctions?
International sanctions are political and economic decisions that are part of diplomatic efforts by countries against states or organisations either to protect national security interests, or to protect international law, and defend against threats to international peace and security.
There are several types of sanctions and include financial and economic sanctions, diplomatic sanctions, military sanctions, sports sanctions, and sanctions on the environment.
Sanctions in Malta are governed by the National Interest (Enabling Powers) Act (NIA), Cap. 365 of the Laws of Malta and their application is monitored by the Sanctions Monitoring Board.
All sanctions issued by the European Union, the United Nations Security Council and the Sanctions Monitoring Board are directly applicable under the NIA. Any legal or natural person conducting a relevant activity or relevant financial business as defined in the Prevention of Money Laundering and Funding of Terrorism Regulations is obliged to adhere to applicable sanctions and carry out the necessary check to ensure that sanctions are always complied with.
What is Bribery & Corruption?
Bribery refers to the offering, promising, giving, accepting, or soliciting of an advantage as an incentive or rewarding for an illegal or unethical action, or a breach of trust.
Corruption is defined as dishonest or fraudulent behaviour by those in positions of power, typically involving bribery. Corruption can take many forms, but all involve the abuse of public or private office for personal gain.
Different types of bribery and corruption may include: Kickbacks, secret commissions, facilitation payments, influence peddling, electoral bribery, embezzlement, and extortion.