News & Events

Malta News - 12/04/2019

Pushing our fate with Greco, Moneyval, IMF and Venice Commission reports

Author: George Mangion
Published on Business Today 11th April 2019

A dark cloud floats over the island. One may blame climate change and hope it will pass away to let in the sunshine. Realistically, we know that living in hope is a chancy habit so let us collectively take the bull by the horns and start analysing the above-mentioned reports issued by international institutions.

Why did they hit us this year as if the administration does not merit some reprieve given that the economy has manifested an exemplary performance? For some time, since the Pilatus bank saga, one reads about critics pointing to a reform of FIAU and MFSA.

It is true that EU countries have not escaped the incidence of financial scandals such as the Russian monies laundered through Danske bank with a number of branches in Estonia, yet in Malta practitioners pride themselves that the regulatory net has always been effective to keep out the bad wolf.

Recent reports such as Greco, Moneyval (still in the interim stages) the IMF and the Venice Commission have tightened the noose on the administration to stem the leaks. While as a country our demeanours are spotted and sometimes over-amplified in Brussels, yet one must admit that the closure of three local banks last year has taken its toll on public opinion.

Practitioners are still feeling the cold blast of negative publicity. Moving on, femme fatale was the passport scheme. This was criticised at European level where media sources reported on the adverse comments by the Chairman of the PANA Committee who claimed that the IIP should be stopped.

Last year, the European Commission was reported stating that passport buyers must have a clear and permanent link to host countries. But the prime minister, showered positive comments on the IIP scheme whenever he was addressing delegates at various global events organised by the sole concessionaire – Henley & Partners.

He proudly announced the due diligence structure as administered by the government to classify as the gold standard. More comfort was showered by the General Counsel for Thomson Reuters attesting that the scheme is a textbook example of how to conduct effective and reliable due diligence.

Today, there are approximately a hundred countries offering investment migration programmes. Quoting Bruno Lecuyer chief executive of Investment Migration Council, he reminds critics of investment migration schemes that IMC has been diligent in establishing a code of ethics and professional standards for its members.

An initiative was launched four years ago to create a culture of professional excellence and some governments (Malta included) are also taking it onboard. Yet the excitement for the finance minister does not stop here since the recent publication of the IMF report has tinged some raw nerves. The report goes to recommend a number of steps to help ensure a sustained future growth.

Among such recommendations, one finds the standard advice urging 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. Equally important, is the need to improve training of the labour force to be able to attract more international companies to Malta.

Perhaps, an ideal way to improve the quality of the local talent is by setting up an innovation hub of international repute supported by venture capital. One cannot omit to caution against the breakneck speed that gripped the imagination of construction and property developers with an unprecedented increase of 24% in property prices.

Top estate agents never had it so good with some employing over 400 full-time property negotiators on generous commission basis. Naturally, when a property mismatch occurs this always leads to a bust – and without exception politicians rushed cap in hand to IMF. To mitigate this potential calamity happening in Malta, the IMF report notes that while local banks are adequately capitalised yet it calls for more prudence in lending and a programmed reduction in non-performing loans.

Again, it recommends an extra effort by government agencies to cut red tape and effectively support start-ups. The culture concerning the adulation of mega business appears grand on the political bandwagon yet it pays to create a culture that small can also be beautiful. Another topic, in the IMF report is the need for more social housing. There is a waiting list of 3,500 families seeking decent habitation.

This human malady is partly caused by the onset of gentrification which forces house prices to escalate. It is no surprise, that low-income workers cannot afford the rents on offer. For vulnerable households, the IMF recommends more rent subsidies granted by the State to deserving families and the acceleration of investment in affordable accommodation by Housing Authority.

Sadly, it does not rain, it pours and last week 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 concluded last October 2018. Some comments are not entirely salubrious. While progress was made on a reform of a number of institutions yet 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 fly in the ointment was the remark that “certain institutions have also turned out to have no real added value after 30 years of existence, such as the Permanent Commission against Corruption”.

On a positive note, it reported that for a country of Malta’s size, it had an “impressive arsenal of public institutions involved in checks and balance”. Another smart move was the appointment last year of Dr George Hyzler as a Commissioner responsible for Standards in Public Office. Party apologists point that most of the recommendations by GRECO are on the same lines of the Venice Commission’s opinion and that weaknesses are already being addressed.

This can be seen on the action taken by the Tax Compliance Unit since the publication of Panama Papers in 2016/7 to try recovering taxes on undeclared earnings in tax havens.

This exercise yielded a princely sum of €9 million involving the audit of 237 taxpayers.

In conclusion, not everything is doom and gloom and one must congratulate government for creating financial stability, a reduction in public debt, a remarkable 6.5% increase in GDP, jobs for all, a community where 80% are property owners and instilling a general feel-good factor.

George Mangion

Author: George Mangion
Published on Business Today 11th April 2019
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