On the 1st April 2020, the Financial Intelligence Analysis Unit ("FIAU") issued for a very brief consultation, a series of significant amendments to the Prevention of Money Laundering and Funding of Terrorism Regulations ("PMLFTR"), and corresponding amendments to Chapter 5 of the Implementing Procedures, Part 1 ("IP1"). These proposals were published by the FIAU with tracked changes in order to facilitate review.
The FIAU explains that these proposed amendments to the PMLFTR seek to address technical compliance shortcomings that were identified by MONEYVAL Assessors during the 5th Round Mutual Evaluation of Malta. In this way the amendments ensure that the relevant provisions that were assessed as not being fully aligned with the FATF Recommendations are revised to ensure full adherence to the FATF's international standards.
The changes themselves are not voluminous – albeit, in some respects, quite far-reaching. The deadline set by the FIAU for feedback was the 17th April, 2020.
When considering the below-proposed changes and, in particular, the amendments to the timing for filing STR's, as elaborated in the IP1, one does have to keep in mind that these changes are being made to address shortcomings flagged by MONEYVAL who, in particular, remarked that the period applicable in Malta for the filing of STR's is significantly longer than many other EU MS (many of whom adopt a 24-hour or 48-hour timeline, with some distinguishing between reporting TF and reporting ML, treating the former as requiring more urgency, naturally).
Of particular importance are the following amendments:
(a) grammatical changes to the first proviso to Regulation 8(5) of the PMLFTR dealing with the obligation to consider filing an STR when verification procedures cannot be completed, without tipping off the customer (and now specifically referring to the offence of 'tipping off', in order to avoid any ambiguity that there may have been), which changes, however, do have some significance;
(b) significant amendments to Regulations 15(3) and (7) of the PMLFTR (the former applying to subject persons and the latter to supervisory authorities) to also catch an attempt to carry out a transaction or activity related to the proceeds of crime or the funding of terrorism and to eliminate the 5 working days within which STR's are to be submitted and to require, instead, that STR's be filed "promptly" as this is elaborated upon in the corresponding amendments to the IP. Of course, it is relevant that since the quality of the STR's also impacts the risk scoring by the FIAU of a subject person and is a contributing factor in determining the intensity of regulatory supervision by the FIAU, the significantly curtailed timeframes for filing STR's are very likely to impinge on the quality thereof; not to mention, of course, the increased risk of false alarms and the consequential strain on resources, both at subject person and at FIAU level, if subject persons end up rushing to file STR's;
(c) significant amendments to Regulation 21(7) of the PMLFTR which will enable the FIAU to impose administrative sanctions on persons who have a senior managerial role (or "executive management function" as the amendments refer to them) within a subject person and who are found to be responsible for breaches of AML/CFT obligations, including on the MLRO himself. The FIAU has also amended the reference to directors and officers as being responsible for the 'management' of a body or association of persons. To them being responsible for the 'administration' thereof, which although seemingly a matter of semantics, could have significant implications when one considers that administration is broader than management. Indeed, directors are usually concerned with policy-making, strategy and decision-taking, and not with the day-to-day administration of the company or the more mundane and humdrum routine administration;
(d) finally, the significant deletion of the defence that previously applied in Regulation 21(7) of the PMLFTR to the imposition of an administrative penalty when the director or officer can prove that "the contravention was committed without his knowledge and that he exercised all due diligence to prevent the commission of the contravention."
(e) section 5.4 of the current version of the IP1 states that the seeking of assistance by the MLRO should be done in a manner that does not disclose the identity of the subject of the STR. The new amendment clarifies that this applies when engaging external advisors after a new clarificatory proposal added to the IP1 states the MLRO can also seek assistance from internal staff. The proposed amendment has brought into evidence the impracticality of this requirement, all the more so with the significantly shortened timeframes for filing STR's. Indeed, if an MLRO essentially has 24 hours within which to file an STR and within this time he is expressly permitted to seek assistance from external advisors, it would seem rather impossible for him to be able to redact the relevant documentation and information so as to avoid the identification by the external advisor of the subject of the STR.
Besides the logistical difficulty of doing this, it is also relevant that invariably external advisors would specifically require the context of the file in order to be able to properly advise the relevant subject person. It should also not be forgotten that external advisors – and especially legal professionals – would be bound by professional secrecy (and, in the case of legal professionals, by legal privilege) and therefore to preclude lawyers from being given the full picture, as in order for them to be able to properly advise their client would seem to affect the autonomy of the legal profession.
Originally published 24 April 2020
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