Malta’ reputation: polishing faded jewellery

A dark cloud floats over the island. One hopes it will quickly pass away to let in the sunshine. Sadly, it does not rain, it pours and last year saw the publication of the Council of Europe’s Group of States against Corruption (GRECO).

This is an evaluation based on an expert assessment of local institutions and the measurement of their effectiveness. Some comments are not entirely salubrious.

While progress was made on a reform of a number of institutions, the experts did not mince words saying inter alia that Malta “clearly lacks an overall strategy and coherent risk-based approach when it comes to integrity standards for government officials”.

Furthermore, the Greco report stated that “a system of sanctions is also clearly lacking” adding in their opinion that the criminal justice system was at risk of paralysis and that a redistribution of responsibilities between the Attorney General’s Office, the Police and the inquiring magistrates was required to avoid this situation.

The recommendation to split the office of the AGM from the public prosecutor is about to start being implemented.

The recent news about a probe concerning a scandal concerning abusive overtime charged by the traffic police squad discovered more irregularities to have taken place in other sections and units within the police force. A source familiar with the internal police investigation told the media how 42 officers within the 50-strong traffic unit had been arrested and interrogated.

The Criminal Investigation Department, anti-fraud and internal affairs units are jointly investigating what has been described as a “web of fraud, misappropriation and corruption” by officers. The whistle-blower alleged the abuse had been happening for years.

This scandal followed that of the criminal investigation concerning the assassination in 2017 of Daphne Caruana Galizia (a journalist) allegedly masterminded by a property magnate with close links to Castille – revelations which shocked the nation and led to the resignation of the prime minister, his chief of staff and the tourism minister.

Add to this, the detection of Pilatus, Nemea, Satabank, Settanta insurance, Falcon funds and De Santos scandals, which leads one to question the tolerant attitude taken in the course of inspections by FIAU and MFSA. For example, during the Caruana Galizia inquiry when testifying under oath the MFSA chairman Joe Bannister was asked about the approval of a bank license issued in 2014 to the Iranian owned Pilatus bank.

The former Pilatus chairman is facing a 125-year imprisonment in the US on money-laundering and sanctions-busting charges (he denies the charges).  In his testimomy, Joe Bannister, MFSA chairman for over 20 years, expressed full faith in the integrity of his staff responsible for authorisation.

In fact, he recalls having got reassurance from Juanita Bencini, a partner at KPMG informing him that FIAU had sent a letter saying that everything was in order and he was not told of any deficiencies.  KPMG and another top law firm had submitted their written clearance about Pilatus bank status in an ad hoc report commissioned by their client.

Prof Bannister finally exonerates himself by saying “I was not privy to anything the supervisory council did”.  To which judge Michael Mallia replied “I’m sorry, but I don’t believe you”.  The Pilatus saga continues….

While, as a small country, our demeanours are spotted and sometimes amplified in Brussels, yet one must admit that the closure of three local banks last year smeared with unauthorised payment of overtime cheques to traffic police has taken its toll on public opinion.

Practitioners who tour the world promoting the island are now feeling the cold blast of negative publicity.  Bulgaria, Cyprus and Malta were singled out by the EU in a recent report which inter alia complained that passport buyers do not manifest a clear and permanent link to host countries.  Yet, the outgoing prime minister Joseph Muscat had always showered positive comments on the IIP scheme administered by Identity Malta.

For some surreptitious reason, he exclusively offered his time and presence - free of charge – to personally address all international events organised by the sole concessionaire, Henley & Partners.

Muscat (who voluntarily resigned on 12 January this year) proudly publicised the “four-stage” due diligence technique administered by Identity Malta.  He classifies it as the gold standard.

But more grey clouds loom over our horizon when one reads the content of the IMF report. Among shortcomings, one finds the need for government to improve support to start-ups. These are finding access to credit being hindered by red tape and the perennial demand by banks for tangible collateral.  No venture capital thrives in Malta.

Equally important is the need to upgrade training of the labour force to be able to attract international companies such as the much-hyped Blockchain, Fintech, DLT and ICO’s to Malta. The mantra of “Blockchain island” was pompously heralded by government in 2018 which sponsored mega conferences but alas the dash seems to have pattered down. There are 20 licensed VLT agents with less than one client each when countries like Estonia boasts of two thousand entities.

The fact that no bank in Malta dares open an account for such crypto business has resulted in entrepreneurs seeking other shelters such as Estonia.  Many observers had counselled the authorities that a superior way to attract talent is by setting up an innovation hub of international repute supported by venture capital.

It is true that the economy based on domestic demand has galloped ahead of other EU countries.  The trophy goes to the burgeoning property development sector which has flourished aided by pro-business policies set by the Planning Authority.  Top estate agents never had it so good, reaping millions with some employing over 400 full-time property negotiators on generous commission basis.  Naturally, as any cycle in business that goes up, goes down - so when the tide turns many expect a property mismatch and the sector for luxury properties suffers.

To mitigate the fallout from this potential blow, the IMF report recommends that local banks show prudence in lending and call for a programmed reduction in non-performing loans.

At the same time, the IMF warns about the need for more social housing. There is a waiting list of 3,500 families seeking decent habitation albeit two years ago an allocation of €50 million from the development and social fund was made towards building more affordable houses.

Some say this is only a token gesture as the problem needs a higher allocation of resources. To temporarily alleviate the problem, the IMF recommends more rent subsidies granted by the State to deserving families.

On a positive note, IMF reported that for a country of Malta’s size, there is an “impressive arsenal of public institutions involved in checks and balance”. A smart move was the appointment of Dr George Hyzler as a Commissioner responsible for Standards in Public Office with regular alerts on how to fine-tune the public administration.

Let us augur that with his advice and a new energetic prime minister, we can start a new page.