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EXPLAINED: Malta Is Grey listed, Here Are The Answers To Your Essential Questions

Updated: Aug 20, 2022

Malta is a greylisted country. Let that sink in. The nation is still reeling from the news that Malta has been downgraded to the infamous Financial Action Task Force (FATF) greylist, which counts Panama, Zimbabwe, and Syria as its partners.

Still, uncertainty is rife about the prospect of greylisting – with many still puzzled as to what greylisting means and how it could affect our everyday lives.

It may not be the country’s death sentence but the effects will be felt for years to come. So here are your answers to essential questions surrounding greylisting.

What is the grey list? The FATF grey list – officially referred to as Jurisdiction Under Increased Monitoring – includes countries determined to have strategic weaknesses in their anti-money laundering and terrorism financing framework, with a clear intention to address concerns shown.

It is different from being blacklisted – with greylisting binding the country to working with FATF to implement the necessary reforms. The FATF’s associates will also regularly monitor the country’s progress.

On 23rd June 2021, members of FATF voted to include Malta in the greylist, along with Romania, in a secret vote. They are the first EU countries to be added to the list.

Malta was not able to make its case in the meeting but had been lobbying vociferously in the previous weeks and days.

No official announcement has yet been made, but the FATF will be holding a press conference on Friday.

Which are the greylisted countries?

Malta, Albania, Barbados, Botswana, Burkina Faso, Cambodia, Cayman Islands, Ghana, Jamaica, Mauritius, Morocco, Myanmar, Nicaragua, Pakistan, Panama, Romania, Senegal, Syria, Uganda, Yemen, Zimbabwe

Why was Malta put on the greylist?

There are a myriad of reasons as to why Malta was greylisted. For years, the country was digging its head in the sand over growing regulatory and enforcement concerns – spitting in the face of our EU counterparts who were working had to close major loopholes in the financial system.

Whether we care to admit it or not – Malta has become a hotbed for financial crime – which has only just started being addressed, with the FIAU and Financial Crimes Unit working hard to address the significant shortcomings of their predecessors.

Unfortunately, Malta only began working on getting in line once it was too late. The country did not enact reforms on its own accord but instead waited to fail a crucial Moneyval test before acting.

Scrambling to get in line with Moneyval within the space of a year and a half is admirable. However, it clearly was not enough to convince key players in the FATF that Malta was serious in tackling money laundering and the financing of terrorism in the long term.

To his credit, Prime Minister Robert Abela inherited this mess, and his Finance Minister Clyde Caruana has been working hard to avoid greylisting. Still, their massive lobbying efforts counted for nought.

Both must realise that much more work needs to be done – and changes must be followed up with direct action, regardless if it hurts party loyalties.

Does greylisting affect me?

In short, yes. Being greylisting is not a death sentence in the country, but it will undoubtedly impact your life in varying degrees.

If you’re based in Malta and deal directly with foreign financial institutions, greylisting might make your life more difficult. This is because Greylisting means that you’ll be assumed to pose a higher risk and will be subject to more procedures.

This applies to all Maltese people. With bank de-listing, which is a result of greylisting, you might find that opening a bank account abroad might be far more troublesome. Some may simply refuse your custom based on your nationality because of the high compliance costs associated with overseeing Maltese accounts.

In some cases, banks might terminate relationships with customers altogether because they are now considered based in a high-risk jurisdiction.

There is some hope. Malta’s regulatory authorities have been working hard to get Malta up to scratch and have systems in place that will hopefully put many minds at ease.

Many foreign countries and institutions may also be more hesitant to direclty deal with Malta – which might translate to an increase in everyday costs, a by-product of increased scrutiny, regardless if your business is legitimate.

On a local level, authorities will be working tirelessly to fall back into the good graces of FATF. Unfortunately, this will translate to increased inspections on local business and, therefore, increased costs, which will likely be burdened onto the consumer.

Authorities are trying their best to ensure businesses is not stifled. However, nothing can be guaranteed.

The country is yet to recover from a pandemic-driven recession. Greylisting will not aid in our recovery.

What will happen to key sectors like financial services and gaming?

What happens to the financial services and gaming industries is all up in the air. Both industries operate in Malta on the basis of a competitive tax rate and a highly beneficial regulatory system. Association with a greylisted country is something both are keen to avoid.

Jobs in that sector might feel the pinch – with the costs of operators in the industries likely to increase, despite the bests efforts of authorities.

A drop in employment in the sector or companies leaving altogether could be devastating for Malta – with a whole ecosystem of employment, not to mention the rental sector, depending heavily on both financial services and gaming.

The news will certainly be a serious blow to foreign investment in Malta. Beyond sewing seeds of doubt in investor confidence, foreign investors might be hesitant to promote their business in a country with weak anti-money laundering measures.

An IMF study discovered that the impact is significant, with capital flows declining by 7.6% of GDP and foreign direct investment dropping by around 3% of GDP.

Can Malta be removed from the grey list?

Yes. The grey list is regularly updated, and countries can be removed if they put in the necessary work and prove their commitment to fighting money laundering.

Iceland, for example, was greylisted in 2019 but was removed in 2020 after it enacted vital reforms.

Malta has already been working overdrive to push through reforms after the country failed its first Moneyval test in 2019. Since then, a lot of work has been done, but FATF feels it does not go far enough.

Worryingly, it appears that while Malta has been able to beef up its enforcement and regulation, a lack of faith and trust in authorities damned the country to the grey list.

A plenary will take place later in the year – and the government will be hoping to have turned the tide by then. However, this seems unlikely, despite the best intentions from the Prime Minister and the Finance Minister.

How long will Malta be on the grey list?

That’s impossible to say. Malta could be removed within a year, as what happened with Iceland, but this will only occur once FATF is satisfied that the necessary reforms have been implemented in the country.

However, if Malta’s descent to the greylist is based on trust rather than regulatory concerns, being removed from the list presents an altogether different challenge. The country has shown it is willing to tackle financial crime, with the arrests and charge of key political figures fresh in memory.

Still, concerns remain over continued inaction against current and former Cabinet members in the face of damning allegations.

Malta may also be forced to make significant concessions to key players in the FATF, with sources suggesting that Malta’s controversial citizenship-by-investment scheme is in their crosshairs. Meanwhile, questions will be asked if Malta will be forced to sign a SOFA agreement with the USA.

What happens next?

Malta’s prospective greylisting will now be voted in by associate members. Once that happens, the FATF will draw up an action plan, and Malta will be required to follow.

Should Malta satisfy those criteria, it will be removed from the grey list. However, this will mean that the government’s priorities will be focused on FATF, despite an ongoing pandemic and economic downturn. Meanwhile, an election is just a year away.

The news should be devastating to every Maltese citizen – and should definitely not be a cause for celebration. We are all in this mess – and we all need to work together and play our own part if we don’t want Malta to be greylisted forever.

*DISCLAIMER: This article and its publication are intended to provide a brief introduction and act as a general guide. This is provided for information purposes only and cannot be utilized as a substitute for professional advice. This document does not represent a legal opinion and one must not rely on it without receiving independent advice based on the particular facts of its own case. No responsibility is accepted by the author or the publishers for any loss suffered from acting or refraining from acting based on the contents of this publication.

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