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Malta

Last Updated: 10/10/2008

CENTRAL AUTHORITY FOR REPORTING

Financial Intelligence Analysis Unit (FIAU). The FIAU is a governmental independent agency having a distinct legal personality. It is responsible for the collection, collation, processing, analysis and dissemination of information of suspected money laundering or terrorist financing activities in order to combat money laundering and terrorist financing, both in Malta and internationally.

ANTI-MONEY LAUNDERING REGULATOR(S)

While the authorities mentioned below are not anti-money laundering regulators as such, they fall under the definition of “supervisory authorities” under the Prevention of Money Laundering and Funding of Terrorism Regulations 2008 (the “PMLFTR”). Therefore, they are themselves subject to the PMLFTR and are bound to report suspicious activities that may be linked to money laundering or the funding of terrorism to the FIAU:

  • The Malta Financial Services Authority (MFSA) is the single regulator for financial services. This is a fully autonomous public authority, which reports to the Maltese Parliament on a regular basis. As an agent of the FIAU, the MFSA undertakes a number of on- site Anti- Money Laundering checks on its License Holders during its compliance visits;
  • The Central Bank of Malta, which is an independent, autonomous body, established by statute and responsible to Parliament;
  • The Malta Stock Exchange, which is a public corporation set up by statute in respect of which the MFSA, as competent authority, has issued a recognition order for it to provide the services of an investment exchange;
  • The Lotteries and Gaming Authority (LGA) is the single public regulator and supervisory body for all forms of gaming in Malta.

There are also other bodies which have the responsibility to regulate certain professions such as the:

  • The Chamber of Advocates, which regulates the legal profession;
  • The Commission for the Administration of Justice, which is set up under the Maltese Constitution and which, among its functions, has the task of drawing up a Code of Ethics regulating the conduct of members of the legal profession and also oversees the legal profession and has the power to suspend and/or revoke a professional warrant issued to a legal professional;
  • The Malta Institute of Accountants (MIA), which regulates the audit and accountancy profession;
  • The College of Notaries, which regulates the notarial profession;
  • The College of Legal Procurators, which regulates Legal Procurators.

While these are not specifically bound by the PMLFTR, they have an interest in ensuring that the professionals they regulate are complying with anti-money laundering and anti-funding of terrorism legislation. However, they do not have any regulatory role as such.

  • The Malta Police Force also has a specific Economic Crimes’ Squad (responsible for the investigation of all financial related crimes) of which the Money Laundering Unit forms part. The Money Laundering Unit investigates reports sent by the FIAU, as well as reports from other sources. The police investigating officers also prosecute the cases which they investigate;
  • There is a Money Laundering Unit established within the office of the Attorney General which requests the Courts to issue judicial orders (namely investigation and attachment orders, which are specifically designed to facilitate money laundering investigations and which could eventually be followed by freezing and confiscation orders);
  • The Minister of Finance has the authority under the PMLFTR to make rules and regulations for the better application of the provisions of the PMLA;
  • The Ministry of Foreign Affairs, in co-ordination with the Attorney General’s Office, takes action to issue the relevant Legal Notices or Government Notices relating to the implementation of the UN Security Council resolutions (which are published in the Government Gazette.

HAS THE THIRD EU MONEY LAUNDERING DIRECTIVE BEEN IMPLEMENTED? IF NOT, WHEN IS IT EXPECTED TO BE IMPLEMENTED?

The Legal Notice 42 of 2006, (The Prevention of Money Laundering (Amendment) Regulations, published in the Government Gazette Number 17,886 on the 28th February 2006) and amending the former Prevention of Money Laundering and Funding of Terrorism Regulations 2003 (Legal Notice 199 of 2003), transposed many of the provisions of the EU’s Third Money Laundering Directive (including the extension of the 2003 Regulations to cover the funding of terrorism).

However it was the “Prevention of Money Laundering and Funding of Terrorism Regulations, 2008” (which came into force on 31 July 2008 and were published in Government Gazette Number 18,289) that transposed all the remaining provisions of the EU’s Third Money Laundering Directive into Maltese law. Because of the number of amendments that were made, the legislator opted to repeal the 2003 Regulations rather than amend them.

LIST THE LAWS REGARDING ANTI-MONEY LAUNDERING, INDICATING WHICH LAWS ARE APPLICABLE TO LAWYERS.

Prevention of Money Laundering and Funding of Terrorism Regulations, 2008 is the legislative instrument which, inter alia, specifically applies to lawyers who are Subject Persons for the purposes of the said Regulations. The PMLFTR essentially lay down the various obligations that lawyers have insofar as they are Subject Persons under the Regulations. It must be understood, however, that the other laws mentioned above apply to all persons generally, irrespective of their profession, insofar as they are aimed at combating money laundering and the funding of terrorism (which, ultimately, are criminal offences that every person is obliged not to commit).

ARE VISITING LAWYERS SUBJECT TO LOCAL LAWS REGARDING ANTI-MONEY LAUNDERING, AND, IF SO, TO WHAT EXTENT?

A Subject Person is defined in the PMLFTR as meaning “any legal or natural person carrying out either relevant financial business or relevant activity.”

“Relevant activity” is then defined as meaning “the activity of the following legal or natural person when acting in the exercise of their professional activities:

  1. ... notaries and other independent legal professionals when they participate, whether by acting on behalf of and for their client in any financial or real estate transaction or by assisting in the planning or execution of transactions for their clients concerning the-Buying and selling of real property or business entities;
  2. Managing of client money, securities or other assets, unless the activity is undertaken under a license issued under the provisions of the Investment Services Act;
  3. Opening or management of bank, savings or securities accounts;
  4. Organisation of contributions necessary for the creation, operation or management of companies;
  5. Creation, operation or management of trusts, companies or similar structures, or when acting as a trust or company service provider.

Therefore, while in Malta, as long as a visiting lawyer is acting in the exercise of his or her professional activities and participating in one of the above transactions (to the extent permitted by Maltese law and by the law regulating his or her profession), it is reasonable to conclude that she or he would be subject to Maltese laws regarding AML and CFT insofar as the obligations of a Subject Person are concerned. 

LIST ANY MONEY LAUNDERING GUIDANCE FOR LAWYERS (FOR EXAMPLE, LAW SOCIETY OR BAR ASSOCIATION GUIDELINES) CURRENTLY IN PLACE.

No official guidelines have been issued yet by the FIAU that relate or otherwise explain the applicable law. We understand that it is the intention of the FIAU to issue such guidance, in collaboration with the Chambers of Advocates and the College of Notaries in due course.

The Malta Institute of Financial Service Practitioners (the “IFSP”) has issued Guidance Notes that would apply to lawyers insofar as these are members of the IFSP.

IS THE LAW SOCIETY/BAR ASSOCIATION INVOLVED IN SUPERVISING OR ENFORCING COMPLIANCE WITH ANTI-MONEY LAUNDERING REGULATIONS?

The Chamber of Advocates has a vested interest in ensuring that its members comply with their AML and CFT obligations. The Chamber may also take disciplinary action against its members in various instances.

However, the Chamber has no regulatory role as such and it is the FIAU that retains the primary responsibility to supervise and enforce compliance with the PMLFTR and the PMLA.

DESCRIBE CLIENT DUE DILIGENCE REQUIREMENTS, INCLUDING WHEN IT MUST BE UNDERTAKEN BY LAWYERS.

Customer due diligence measures must be applied both to new customers as well as to existing ones. In addition, when doubts have arisen in the lawyers’ minds about the veracity or adequacy of the previously obtained customer identification information or changes have occurred in the circumstances surrounding that established business relationship, then the customer due diligence measures must be repeated.

Generally, Lawyers are obliged to:

  • Determine and verify the identity of the potential client on the basis of documents, data or information obtained from a reliable and independent source;
  • Determine and verify the identity of the beneficial owner so that the lawyer is satisfied that he or she knows who the beneficial owner is, including, in the case of bodies corporate , trusts and similar legal arrangements, the taking of reasonable measures to understand their ownership and control structure;
  • Obtain information on the purpose and intended nature of the business relationship, such that the lawyer is able to establish the business and risk profile of the customer.

Lawyers are also bound to carry out ongoing monitoring in the case of an existing business relationship which shall include:

  • The scrutiny of transactions undertaken throughout the course of the relationship to ensure that the transactions being undertaken are consistent with the Subject Person’s knowledge of the customer and of his business and risk profile, including, where necessary, the source of funds;
  • Ensuring that the documents, data or information held by the Subject Person are kept up to date.

There are additional obligations in the case of the potential customer being or appearing to be acting otherwise than as principal.

According to Regulation 4 of the PMLFTR, a Subject Person is precluded from forming a business relationship or carrying out an occasional transaction with an applicant for business unless Customer Due Diligence measures are maintained and applied. Customer due diligence is required to be applied to all new clients for business when contact is first made between the Subject Person and the client concerning any particular business relationship or occasional transaction.

According to Regulation 8 of the PMLFTR, the Subject Person is obliged to verify the identity of the applicant for business and, where applicable, the beneficial owner, before the establishment of a business relationship or the carrying out of an occasional transaction. Under the new PMLFTR, however, it is specifically provided that certain Subject Persons may complete the verification process during the establishment of the business relationship where this is necessary for the continued normal conduct of business provided that the risk of money laundering or funding of terrorism is low and that verification procedures are completed as soon as is reasonably practicable after initial contact.

DOES YOUR COUNTRY FOLLOW A RISK-BASED APPROACH TO CLIENT DUE DILIGENCE BY LAWYERS?

Yes. Lawyers, as Subject Persons, must apply customer due diligence measures to all new customers as well as to existing customers on a risk-sensitive basis – Subject Persons (including lawyers) are also specifically authorised by the PMLFTR to determine the extent of the application of customer due diligence requirements on a risk sensitive basis (depending on the type of customer, business relationship, product or transaction). This notwithstanding, Subject Persons must be able to demonstrate to the FIAU (or any other supervisory authority acting on its behalf) that the extent of the application on a risk-sensitive basis is appropriate in view of the risks of money laundering and the funding of terrorism.

Lawyers are also obliged to develop and establish customer acceptance policies on a risk based approach. This will include:

  • A description of the type of customer that is likely to pose higher than average risk;
  • The identification of risk indicators such as the customer background, country of origin, business activities, products, linked accounts or activities and public or other high profile positions;he requirement for an enhanced customer due diligence for higher risk customers.

Lawyers, as Subject Persons, are also required to establish policies and procedures on, inter alia, internal control, risk assessment and risk management, which are adequate and appropriate to prevent the carrying out of operations that may be related to money laundering or the funding of terrorism. These policies and procedures will clearly assist lawyers in implementing a risk-based approach to customer due diligence.

ARE THERE ENHANCED DUE DILIGENCE MEASURES FOR CERTAIN TYPES OF CLIENTS, FOR EXAMPLE, POLITICALLY EXPOSED PERSONS?

Yes. Enhanced due diligence measures are required for persons who, on a risk- sensitive basis, have been determined to present a higher risk of money laundering and in situations which, by their nature, can present a higher risk of money laundering or the funding of terrorism. Subject Persons (including lawyers) are also expected to apply one or more additional measures in order to compensate for the higher risk presented where the applicant for business has not been physically present for identification purposes. Politically Exposed Persons are typically included in the category of higher risk clients and therefore enhanced customer due diligence measures must be carried out in their respect.

ARE THERE SIMPLIFIED DUE DILIGENCE MEASURES FOR CERTAIN TYPES OF CLIENTS, FOR EXAMPLE, LISTED COMPANIES?

Yes. Simplified due diligence measures do apply to clients who are considered to be low-risk. These low-risk clients include persons who are authorised to undertake relevant financial business or persons who are licensed or otherwise authorised in Malta, in another EU Member State (or under the laws of a reputable jurisdiction) to carry out an activity which is equivalent to relevant financial business, as well as authorised legal persons listed on a regulated market.

The full list of clients considered to be low-risk is found in Regulation 10 of the PMLFTR and generally includes (subject to certain conditions being met) any other applicant for business who is a legal person and who represents a low risk of money laundering or the funding of terrorism.

Clearly, simplified due diligence does not apply to situations where suspicions of money laundering or the funding of terrorism exist.

ARE LAWYERS PERMITTED TO RELY ON THIRD PARTY DUE DILIGENCE? IF YES, PLEASE DESCRIBE.

Lawyers may rely on another Subject Person or on third parties to carry out due diligence measures provided, in the latter case, that the third party is a person undertaking activities equivalent to “relevant financial business” or certain categories of “relevant activity” who is situated in a European Union Member State or in a reputable jurisdiction and who is subject to authorisation or to mandatory professional registration recognised by law.

However, it must be noted that the ultimate responsibility for compliance with the required customer due diligence measures lies not with the third parties but with the lawyers as Subject Persons.

WHEN IS A LAWYER UNDER AN OBLIGATION TO REPORT SUSPICIOUS TRANSACTIONS?

Article 28 of the Prevention of Money Laundering Act states that when a Subject Person is aware of or suspects that a transaction which is to be executed may be linked to money laundering or the funding of terrorism that Subject Person must inform the FIAU before executing the transaction, giving all the information concerning the transaction including the period within which it is to be executed. Such information may be given by telephone but must be forthwith confirmed by fax or by any other written means and the FIAU is obliged at law to promptly acknowledge the receipt of the information.

Where the matter is serious or urgent, the FIAU may even oppose the execution of such transaction before the expiration of the period within which the transaction is to be executed. This will halt the execution of the transaction for twenty-four hours from the time of the notification to the FIAU. However, according to article 29 of the PMLA, where any Subject Person is unable to inform the FIAU before the transaction is executed, either because it is not possible to delay executing the transaction due to its nature, or because delay in executing the transaction could prevent the prosecution of the individuals benefiting from the suspected money laundering or funding of terrorism, the Subject Person is obliged at law to inform the FIAU immediately after executing the transaction, giving the reason why the FIAU was not so informed before executing the transaction.

Regulation 15 of the PMLFTR also provides for the setting up, by a Subject Person, of internal reporting procedures. In this case, it is the responsibility of the person who first became suspicious (that a person may have been, is or may be engaged in money laundering or the funding of terrorism) to inform the Money Laundering Reporting Officer within the organisation. The Money Laundering Reporting Officer will then consider the internal report and will need to decide whether or not to inform the FIAU about it by filing a suspicious transaction report. Any such report must be filed with the FIAU as soon as it is reasonably practicable to do so, but not later than five working days from when the suspicion first arose. Subject Persons must therefore act fast.

An exemption from the obligation to report exists for lawyers if “such information is received or obtained in the course of ascertaining the legal position for their client or performing their responsibility of defending or representing that client in, or concerning juridical proceedings, whether such information is received or obtained before, during or after such proceedings.”

A lawyer is obliged to report a suspicion of money laundering (Regulation 15 (10)) only when carrying out certain activities (namely the relevant activities defined in subparagraphs c (i) to (v) of regulation 2 of the PMLFTR).

DOES ATTORNEY/CLIENT PRIVILEGE AND/OR DUTIES OF CONFIDENTIALITY PROVIDE A DEFENCE OR PARTIAL/TOTAL EXCEPTION TO THE REQUIREMENT TO REPORT SUSPICIOUS TRANSACTIONS?

This is, understandably, a controversial and delicate matter in legal circles where attorney/client privilege is held in high regard and considered to be a fundamental pillar of the legal profession. It is clear that the exemption for information if “such information is received or obtained in the course of ascertaining the legal position for their client or performing their responsibility of defending or representing that client in, or concerning juridical proceedings, whether such information is received or obtained before, during or after such proceedings” is based on the concepts of attorney/client privilege and confidentiality.

DOES LOCAL LAW PROVIDE ANY CRIMINAL AND/OR CIVIL INDEMNITY TO A LAWYER WHO HAS REPORTED A SUSPICIOUS TRANSACTION?

The PMLFTR provide that any bona fide communication or disclosure made by a Subject Person, which includes lawyers, in accordance with the Regulations, shall not be treated as a breach of the duty of professional secrecy or any other restriction (whether imposed by statute or otherwise) upon the disclosure of information and shall not involve that lawyer in any liability of any kind.

ONCE A SUSPICIOUS TRANSACTION REPORT HAS BEEN FILED, IS A LAWYER ALLOWED TO PROCEED WITH THE LEGAL ADVICE/TRANSACTION, AND, IF SO, MUST CONSENT FROM AUTHORITIES BE OBTAINED FIRST?

Subject Persons are only specifically obliged by the PMLFTR to refrain from carrying out transactions which are suspected or known to be related to money laundering or the funding of terrorism until they have informed the FIAU. No specific mention is made of their obligations after a suspicious transaction report has been filed with the FIAU (other than their obligation to collaborate with the FIAU). This notwithstanding, article 28(4) of the PMLA does specifically provide that where, within the period during which the FIAU has the authority to oppose a transaction, no opposition has been made by the FIAU, the Subject Person concerned may proceed to the execution of the transaction in question. It also provides that even where opposition has been made by the FIAU, the Subject Person concerned may proceed to the execution of the transaction in question upon the lapse of the twenty-four hours referred to above, unless in the meantime an attachment order has been served on the Subject Person. Clearly, however, whilst guarding itself against the risk of tipping off, in considering whether to proceed with the execution of a transaction (or whether to provide assistance in relation thereto) Subject Persons need to be careful that they will not end up being deemed to be an accomplice in a money laundering or funding of terrorism offence.

The Financial Intelligence Analysis Unit, in acknowledging receipt of a disclosure, will usually provide guidance as to how to proceed.

IS THERE A TIPPING-OFF PROHIBITION? IF YES, PLEASE DESCRIBE.

Tipping-off is not permitted and constitutes a criminal offence; a specific regulation exists in this sense: Regulation 16(1) of L.N.180.2008.

The offence of tipping off does not apply only in respect of suspicious transaction reports that may have been filed by a Subject Person but also in respect of various judicial orders that may have been issued in connection with money laundering or funding of terrorism investigation.

DESCRIBE ANY RESTRICTIONS ON ACCEPTING A NEW CLIENT.

There are requirements to obtain satisfactory evidence of identity (and verification thereof) and of the client’s background, including that of the beneficial owner, where applicable.

Also, there is a requirement to gather sufficient information on the structure of the group to which a corporate entity belongs as well as on the purpose and intended nature of the transaction or of the business relationship (such that a Subject Person is able to establish the business and risk profile of the customer).

Generally, lawyers as Subject Persons must comply with the customer due diligence procedures provided for in the PMLFTR, including by paying special attention to complex or high risk situations, products, transactions or clients.

ARE THERE ONGOING MONITORING REQUIREMENTS FOR EXISTING CLIENTS? IF YES, PLEASE DESCRIBE.

Yes. Regulation 7(2) of L.N.180.2008 states that ongoing monitoring of a business relationship shall include:

  • "The scrutiny of transactions undertaken throughout the course of the relationship to ensure that the transactions being undertaken are consistent with the Subject Person’s knowledge of the customer and of his business and risk profile, including, where necessary, the source of funds; and
  •  Ensuring that the documents, data or information held by the Subject Person are kept up to date.”  

DESCRIBE ANY OTHER WAYS IN WHICH LAWYERS ARE AFFECTED BY ANTI-MONEY LAUNDERING LEGISLATION.

Clearly lawyers, just like any citizens, are themselves obliged to comply with the provisions of the PMLA and the Criminal Code and to refrain from committing the crime of money laundering or the funding of terrorism (and not only, therefore, in their capacity as Subject Persons for the purposes of the PMLFTR, to assist the authorities in combating money laundering and the funding of terrorism).

HAVE LAWYERS IN YOUR JURISDICTION BEEN IMPLICATED IN MONEY LAUNDERING, INCLUDING ANY TYPE OF COMPLAINT, ARREST OR PROSECUTION?

Not that we know of. However, these matters are highly confidential and would not be in the public domain.

HAS THE FINANCIAL ACTION TASK FORCE (FATF) CONDUCTED A MUTUAL EVALUATION OF THIS COUNTRY, AND, IF SO, WHAT WERE THE FINDINGS CONCERNING LAWYERS’ COMPLIANCE WITH THE FATF 40+9 RECOMMENDATIONS?

Malta is not a member of the FATF. However, it is a member of the Council of Europe Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (MONEYVAL). MONEYVAL has conducted a number of assessment reports on Malta, the latest being in 2007 (click here to see the report). This report concluded that Malta was Compliant or Largely Compliant with the vast majority of the FATF 40+9 Recommendations.

However, the eight recommendations where Malta was found to be “Non-Compliant” and the 4 recommendations where Malta was found to be “Partially Compliant” were addressed in both the 2006 and the 2008 amendments to the PMLFTR.

Therefore, Malta can be said to be compliant with the FATF’s 40+9 Recommendations.

Information Supplied By:

Dr Anthony Cremona
Ganado & Associates – Advocates
Website: www.jmganado.com
Email: acremona@jmganado.com
171 & 176 Old Bakery Street
Valletta
VLT 1455
Malta
Tel: (+356) 21 235 406
Fax: (+356) 21 225 908

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