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Money Laundering States Part 1: How Malta's Scandals Could Hinder Cryptocurrency




Malta has set out to become a hub for business and investment into cryptocurrency and blockchain development. But could its murky past and present spell disaster for adoption?

The small Mediterranean island of Malta has made quite a name for itself in the crypto community so far this year. Its pro-business government recently passed three new acts that are intended to provide much-needed clarity for regulations surrounding virtual currencies, blockchains, ICOs, and related service providers. The Virtual Financial Assets Bill is particularly inviting to exchanges.

Shortly after the bills were announced earlier this year, several cryptocurrency exchanges, including Binance, OKE-x, and BitBay, revealed plans to open offices in the tiny EU member state – a huge vote of confidence for both crypto and the Maltese government.

While many believe that the pro-crypto and pro-regulation stance taken by the Maltese government is a boost for the market, shady figures behind the scenes are working overtime to downplay the dark and disturbing secrets that plague the tiny European country.

For over a decade, Malta has been a leading jurisdiction for the iGaming, FinServ, and FinTech industries, but a recent scandal involving Prime Minister Joseph Muscat, his wife Michelle, a private Maltese bank, and dead journalist is causing waves locally and across the EU. These individuals stand accused of money laundering, bribery, and according to some, even murder. Despite the evidence piling up against them and multiple interventions from the EU, the PM, otherwise known as "The Artful Dodger of Europe," remains defiant in his declaration of innocence.

The prime minister's wife and the two senior members of government are accused of setting up complex offshore structures to receive large amounts of money from members of the ruling family of Azerbaijan shortly after a money-losing energy deal was struck with the Asian republic. Daphne Caruana Galizia, who was the first journalist to break the story, was the victim of a car bombing in October 2017 that took her life. Those that ordered her murder have yet to be identified.

Another grave concern for Malta's credibility is the scandal surrounding the privately-owned Pilatus Bank, which also involved PM Muscat and Galizia. Iranian-born Seyed Ali Sadr Hasheminejad managed to open the bank in Malta despite being under investigation by the FBI, with little to no oversight by the Malta Financial Services Authority. However, Muscat's chief of staff, Keith Schembri, apparently took a personal interest in the licensing process. The bank was host to accounts belonging to the Azerbaijani president's family. Further entangling the web, it was expected that a former employee at Pilatus Bank leaked the documents to Galizia which connected Michelle Muscat to the Azerbaijani money laundering scandal.

Amid all of this, the Financial Intelligence Analysis Unit, the government's anti-money laundering agency, gave the Pilatus Bank "clean bill of health."

Sadr was arrested in the US in March 2018 on suspicion of evading US sanctions against Iran and funneling over $115 million from a Venezuelan company into the US financial system. If convicted, he faces up to 125 years in jail.

Member of European Parliament (MEP) David Casa, when presenting evidence of money laundering to the European Central Bank, stated:

"[Pilatus] bank appears to have been conceived from the very start as an organisation designed to launder money, with banking staff instructed to fabricate paper trails justifying suspicious transactions after they have been carried out."

These incidents do not paint a pretty picture of this Mediterranean idyll, but one of the biggest concerns is around links to money laundering. The anonymous nature of some cryptocurrencies, such as Monero, Zcash, and other privacy coins, makes it an extremely interesting option for those looking to clean up dirty funds. Not only are the highest levels of the Maltese government embroiled in accusations of money laundering, kickbacks, and bribery on a multimillion-euro scale, but the authorities that are supposed to monitor these types of activities are clearly compromised.

The concern is whether an industry that so desperately needs a vote of confidence and reputability should be putting its trust in a country that is besieged with allegations of government corruption and money laundering. Should big players in the crypto world be risking their reputations by being regulated by governments with departments (Malta Financial Services Authority, Financial Intelligence Analysis Unit, and other law enforcement) that are the subjects of multiple corruption scandals? Should businesses be relocating to a jurisdiction under an anti-money laundering agency that is the subject of an EU probe? The answer is quite clearly, probably not.

While Malta's PR machine may be going into overdrive to promote the country as the new "Blockchain Island" (and, of course, the country is full of many talented and forward-thinking individuals), unfortunately, its reputation does not do crypto any justice. At this crucial time in the maturity of the crypto market, ICOs, and blockchain technology, can stakeholders take the risk of placing their futures in the hands of a nation that is caught up in criminal scandals? With authoritarianism on the rise, multiple wrongdoings by senior government officials, and the integrity of Malta's most important regulatory authorities called into question – should we be looking elsewhere?

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