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The Financial Intelligence Analysis Unit (FIAU) of Malta has fined Pilatus Bank a record €4,975,500 for "systemic failures in the implementation of AML/CFT controls."
These include transaction reporting failures that ought to be of interest to payments firms. The fine may, additionally, represent a first attempt by the jurisdiction to escape the Financial Action Task Force's (FATF's) grey list "of jurisdictions under increased monitoring".
The FIU has found the bank — now in administration — to be in breach of the Prevention of Money Laundering and Funding of Terrorism Regulations, which are subsidiary to the Prevention of Money Laundering Act (Cap 373). In 2020, its administrator, Lawrence Connell, referred to it as “a money-transfer operation” rather than an ordinary bank.
Following the Pilatus Bank episode in 2018, the FIU had to undergo an image change in 2019. Its press release at the time stated: "We are pleased to announce the launch of our brand new website fiaumalta.org together with fresh branding for the Unit. The new brand better reflects the FIAU’s identity and comes at an opportune moment."
The FATF, the world's anti-money-laundering (AML) standard setter, placed Malta on its so-called grey list in June.
In yesterday's "Administrative Measure Publication Notice" on the subject of the fine, the FIU outlined the findings of an unnamed committee that analysed information that regulators collected at the bank during a visit in 2018.
The committee observed extensive failures in 86 percent of the customers' files that it inspected in relation to the bank’s obligation to carry out internal reviews of anomalous activities and transactions on the part of customers.
Of particular concern was the bank’s "lax approach" to its AML duties even though it was set up purely to provide banking services to high-risk customers, many of whom were "figures from the Caucasus region considered to present extreme risks of money laundering".
The bank was also found to service politically-exposed persons (PEPs) and high-net-worth (HNW) individuals from risky jurisdictions, dealt with complex corporate structures, complex transactions, "transactions of extreme high value," money movements atypical of any business or trade and an unusual high number of loans for significant amounts between its own customers, third parties and/or the bank itself.
One of the bank’s customers transferred more than US$3m to an external company by way of a loan. The only document available was a letter confirming that the external company had been appointed by the customer to act as its agent in the UAE but it made no reference to said loan.
Other failures related to customer due diligence and reporting procedures included: loan agreements using vague language; lack of evidence gathering by the bank; a dearth of supporting documents for loans and transfers; and the transfer of monies despite unanswered requests for additional information.
VIXIO asked Professor Louis de Koker of La Trobe University in South Africa, an expert on the FATF, about the prospect of Malta being de-listed.
"It is a bit of mixed bag. Malta is interesting, especially as their technical compliance levels improved in the April re-rating. Their weaknesses are primarily in effectiveness but those are weaknesses shared by most other countries.
"It seems as if the FATF countries lost patience with Malta's role in tax evasion and their attempt to create a crypto-haven. Showing improvements in effectiveness on tax enforcement can be tricky. A few token cases may not do the trick.
"The skewing impact of the listing on policing priorities and resources also needs to be considered. It is not clear how FATF considers broader impacts when it decides whether or not to list a country," de Koker said.
As if on cue, Malta does indeed seem to be bracing itself for a flurry of fresh suspicious transaction reports (STRs) as it attempts to persuade FATF to de-list it.
