The Government of Malta has announced that it will be establishing new controls on cash transactions to intensify the pressure on tax evasion and money laundering. A cash transactions limit of a maximum of €10,000 will be applied.
The controls will illegalise cash transactions exceeding €10,000, where such transaction is in one single payment or in broken-down payments (a practice referred to as “smurfing”) that appear to be linked to try to circumvent anti-money laundering scrutiny. The penalty for exceeding the threshold imposed by law will be between 15% to 40% of the amount paid in excess of the €10,000 threshold.
Malta’s Financial Intelligence Analysis Unit (FIAU) has revealed that the risk of money laundering in certain sectors of the economy remains considerable. The new regulations will affect businesses that have a proclivity for transacting in high cash volumes. However, according to the FIAU, such businesses have the biggest potential of effecting large-scale payments for other goods or services while maintaining the provenance of the money untraceable.
Cash-front businesses such as restaurants, massage parlours, nail bars, petrol stations, salons and other service businesses that traditionally deal with high cash volumes can also furnish the ideal cover for the source of otherwise-inexplicable cash.
The FIAU reports that Suspicious Transaction Reports (STRs) increased in number in 2014, with a record 202 reports registered, up by 59 disclosures on 2013. The 202 STRs instigated 168 new investigations by the FIAU. This increase is mainly due to credit institutions, possibly reflecting a raised awareness by banks and financial institutions. In six cases that the FIAU referred to the police, persons known to be connected to drug trafficking effected cash deposits into the accounts of individuals whose known profile did not tally with the volume of deposits. The 180 cases dealt with by the FIAU during 2014 concerned a total of 395 persons.
Money Laundering Trends
In several of the cases referred by the FIAU to the police, there is a clear trend where foreign nationals incorporate a Maltese company, opening accounts with Maltese banks. Substantial amounts of money are then transferred to these accounts. These are subsequently, either immediately or after some time, remitted to bank accounts held by other companies in other jurisdictions.
In most cases, the funds are received in one transaction and are then remitted out of the recipient bank account in separate transactions of different values. In most cases, the purported reason for the transaction is a shareholder’s loan. Malta-held bank accounts have also been used as conduits to channel money generated from the suspected illegal activity on some occasions.
In other cases of fraud, the money is placed with a remote gaming company through the use of credit cards or using pre-paid card information that is in the first place fraudulently acquired. In most of these cases, the remote gaming company clients hold bank accounts in their country of residence and request the remote gaming company to transfer the funds held in their remote gaming account to their bank account.
Malta a ‘Cash Society’
Maltese people are very fond of using cash for their transactions, with a recent Central Bank study having found that 88% of payment transactions are in cash, and with credit cards and debit cards accounting for 4% each. €20 and €50 cash denominations are used for daily transaction purposes, with only 1.8% of respondents holding that they do not carry any cash. In Malta, about €15 million of daily transactions are transacted in cash. This covers transactions like consumer goods such as white goods, cars, electronics and furniture. Cash accounts for 62% of total daily transactions, followed by debit cards (13.6%), credit cards (9.7%), and cheques (5.3%). Internet banking was used for higher-value transactions.