Cash risk in gaming and banking singled out in Malta risk assessment

Cash risk in gaming and banking singled out in Malta risk assessment

The risk of money laundering and terrorist financing to the Maltese economy has reduced between 2018 and 2023, according to the country’s latest national risk assessment.

Highlighted by the Malta Gaming Authority (MGA), the 2023 National Risk Assessment found that the Mediterranean island nation’s overall money laundering residual risk had decreased in comparison to 2018.

This was due to mitigating measures adopted by authorities and the private sector, the MGA explained. It is certainly true that Malta has had to beef up its AML and counter terrorist financing (CTF) measures in recent years.

Much of this was due to the country’s listing on the grey list of the Financial Action Task Force (FATF), the AML and CTF unit of the G7 countries. Malta had to implement an extensive action plan to remove itself from the grey list, which was achieved in 2022.

The 2023 NRA has made a positive assessment of several key sectors of the Maltese economy. Improvements have been observed across betting and gaming, legal, virtual finance assets services, banking, investment, accountancy and auditing, trust and company service providers.

Lower levels of risk were also observed across financial institutions, real estate agents and high-value goods dealers, but these sectors were noted to be ‘susceptible to a higher risk of money laundering’.

Gaming – cash risks in a significant sector

The report also features a number of graphs and figures demonstrating the various risk levels faced by different sectors. Notably, although the report included remote gaming as a sector which has improved its AML and CTF measures, it is still considered at risk.

One graph in particular cited gambling having less efficient measures than financial institutions, tax advisors, real estate and display power management system accounting – on the other hand, these sectors were all classed as much higher risk than gaming.

Zeroing in on the Maltese gaming sector – which accounts for around one tenth of the island’s economy at a total of €1.5bn, and with over 350 operators and suppliers licenced there – the NRA identified five main threats.

These are the use of virtual financial assets as a payment method; the use of cash as a payment method; the use of prepaid cards and vouchers as a payment method; licensed institutions controlled by foreign criminal groups; and activity by unlicensed entities.

Gambling can often be a high cash business, which the NRA noted is often a high-risk form of payment method. This leaves the Maltese gambling sector at risk of smurfing – the use of mules who open accounts at land-based venues to deposit, transfer and withdraw illicit funds.

Additionally, the NRA highlighted unlicensed activity, widely referred to as the gambling ‘black market’, and criminal control of licensed gaming institutions using ‘complex structures’.

“While on the surface they may appear legitimate, these institutions serve as conduits for illicit funds,” the NRA explained.

“Criminals exploit their positions within the licensed establishments to manipulate transactions, disguise the origins of illicit proceeds, and integrate them into the formal financial system. 

“The presence of complex ownership structures and intricate networks further complicates the detection and prevention of money laundering activities. This not only compromises the integrity of the licensed gambling sector but also poses a broader risk to the financial system by facilitating the laundering of illicitly acquired funds.”

Finance and banking – risks in Malta’s ‘core’ industry

In general, it is noted that there is a higher level of residual risk associated with cash-based businesses, and the potential abuse of cash. There is also a risk posed by Maltese registered companies lacking sufficient links to  the country itself.

Looking away from gaming and towards other sectors, Malta’s e financial remittance sector was highlighted as facing the biggest risk of terrorist financing, more so than its banking sector.

Financial services institutions were judged to face a number of threats, notably due to the use of ‘varied business models’ by these companies. The use of non-traditional delivery channels and use of technology for remote onboarding of customers increases the sector’s risk, according to the NRA.

Money remittance services are particularly vulnerable to one-off type transactions without the opening of a payment account, the payments sector in particular – which has enjoyed significant growth in Malta – was singled out as facing some vulnerability.

This is because the growth of the sector, particularly in the aftermath of the COVID-19 pandemic, which accelerated use of contactless payments, has made application of  AML/CFT obligations more difficult.

Turning to banks, this sector was noted as being an important Maltese economic segment by the NRA. The island’s banks are involved in providing products to a range of retail, corporate, institutional, and private banking customers.

Again the use of cash was mentioned in the context of banking due to banks often being used as a medium for cash deposits. This could result in banks being used to deposit cash from the proceeds of crime.

Banks are ‘considered at the core of Malta’s financial system’, playing a significant role in financial flows in and out of the country, leaving banks exposed to ‘foreign jurisdiction risk’ as a possible channel for international movement of criminal funds.

Payment Expert Analysis: The FATF itself has judged that Malta has made significant steps in upgrading its AML and CTF standards, enough so that the country is no longer on its greylist. 

However, Malta’s 2023 NRA shows that the country’s government acknowledges risks are ever-present – something it is vital all stakeholders work to counter, given the significance of various high-risk industries and financial sectors to the island’s economy.