Money laundering is the generic term used to describe the process by which criminals attempt to camouflage the true origin of the crime and ownership of the proceeds of their illicit activities. Such process consists in the conversion of the proceeds into assets which appear to have a legitimate origin, whereby if undertaken successfully, it enables criminals to maintain control over and to enjoy these proceeds, without jeopardizing their source.
This process enables the launders to place the illicit proceeds into the financial system engaging into formal financial institutions and legitimate businesses, both locally and internationally. Generally, money launderers tend to seek out countries or sectors in which there is a low risk of detection due to weak or ineffective anti-money laundering programmes. They do this for a number of reasons: not to have the funds clawed-back to their illicit origin and traced back to them, to enjoy the proceeds of their crimes, and to “reinvest” the money in further crime. Nevertheless, such an activity has its repercussions and detrimental effects on several legitimate entities, most notably Financial institutions.
The integrity of the banking and financial services marketplace depends heavily on the perception that it functions within a framework of high legal, professional and ethical standards. If funds from criminal activity can be easily processed through a particular institution – either because its employees or directors have been bribed or because the institution turns a blind eye to the criminal nature of such funds – the institution could be drawn into active complicity with criminals and become part of the criminal network itself. Evidence of such complicity will have a damaging effect on the attitudes of other financial intermediaries and of regulatory authorities, as well as ordinary customers. As with the damaged integrity of an individual financial institution, there is a damping effect on foreign direct investment when a country’s commercial and financial sectors are perceived to be subject to the control and influence of organised crime.
As for the potential negative macroeconomic consequences of unchecked money laundering, one can cite unexplainable changes in money demand, prudential risks to bank soundness, contamination effects on legal financial transactions, and increased instability of international capital flows and exchange rates due to unanticipated cross-border asset transfers. Also, as it rewards corruption and crime, successful money laundering damages the integrity of an entire society and undermines democracy and the rule of the law.
As a European Union member state, Malta has adopted all EU Regulations and Directives regulating the prevention of money laundering, including Directive (EU) 2015/849 on preventing the use of the financial system for money laundering or terrorist financing (4th Anti-Money Laundering Directive, now amended by the 5th Anti-Money Laundering Directive of 2018) and Regulation (EU) 2015/847 on information on the payer accompanying transfers of funds.
Moreover, Malta’s prevention of the money laundering regime is capped in two statutory instruments, namely the Prevention of Money Laundering Act (PMLA) (Cap. 373) augmenting other provisions entrenched in the Criminal Code and the Prevention of Money Laundering and Funding of Terrorism Regulations (PMLFTR).
The PMLA establishes the basis for the legal framework by instituting basic legal definitions, setting up procedures for the investigation and prosecution of money laundering offences, and establishing the Financial Intelligence Analysis Unit (FIAU). On the other hand, the Regulations serve to elucidate the substantive provisions relating to the offences, shedding light on the systems and procedures to be ratified by subject persons in the course of their business activities.
It is also vital to mention the several instruments assisting in the investigation and prosecution of money laundering activities as adopted in the PMLA namely, the Investigation Order, which is usually accompanied by the issue of an Attachment Order, Monitoring Order, Freezing Order and Confiscation Order.
Drug-related money laundering is additionally criminalized through the Dangerous Drugs Ordinance (Cap. 101) and the Medical and Kindred Professions Ordinance (Cap. 31).
