FATF suspicious of $70B in crypto flowing through 'blockchain island' Malta

FATF has voted Malta onto its 'grey list' of nations failing to enforce anti-money laundering laws, alongside Barbados, Syria, and Pakistan.

Malta has seen around €60 billion (over $70 billion) in crypto flow through its shores in the past four years. Now, it’s attracting suspicion from the global Financial Action Task Force (FATF).

The small Mediterranean nation has played home to crypto exchanges and service providers like Binance and OKEx after its government adopted a crypto-friendly stance on tax and regulation in early 2017.

According to Times of Malta, FATF officials held a closed door meeting in Paris last Tuesday to decide if Malta should be “grey listed” — which denotes the country isn’t taking money laundering concerns seriously.

By the following Wednesday, the FATF had voted Malta — dubbed “blockchain island” — onto its grey list.

The country is the only European Union member state on it.

FATF names 19 other nations with “strategic deficiencies,” including Barbados, Nicaragua, the Cayman Islands (where Binance is now headquartered), Syria, and Pakistan.

FATF doubts Malta takes financial crime seriously

In 2018, Malta enacted a trio of acts to define a legal framework for crypto and other digital assets.

Among the bills, the Virtual Financial Assets Act (VFA) applied regulatory guidelines to crypto exchanges. The rules also govern ICOs and advisers, wallet providers, as well as digital asset managers and brokers.

But FATF evaluators on Tuesday alleged inadequacies in Malta’s law enforcement at a structural level, particularly in relation to financial crimes.

Malta was huge for blockchain in 2018.

Criminal prosecutions have risen in recent years. However, FATF members reckoned not enough were major cases, said Times of Malta’s government sources.

Malta had granted crypto companies and the like one year’s grace to operate without standard licenses. This contributed to a sharp increase in high-risk transactions on locally-based exchanges.

FATF members reportedly suspect the nation hasn’t given enough oversight to the large crypto volumes processed inside Maltese jurisdiction.

Chamber of Commerce denies all

For what it’s worth, Maltese regulators denied the FATF’s concerns in statements shared by Times of Malta.

“With such an innovative sector, it is counter-intuitive to set a hard-line approach,” wrote Malta’s Virtual Financial Assets Agents’ business unit, part of the country’s Chamber of Commerce (our emphasis).

“One needs to keep in mind that up until 2018, the crypto industry was largely unregulated, with Malta being the first EU Member State to step forward and regulate it at a high standard.”

FATF grey listing is very serious for Malta. It’s the only EU country on the list.

I spoke to @mcaruanagalizia recently about how his mother Daphne uncovered elite corruption and exposed Malta’s descent into becoming a global money laundering hub. https://t.co/6tWK12jDCZ
— Nate Sibley 💸🦅 (@NateSibley) June 24, 2021

Hudson Institute’s Nate Sibley says Malta is on its way to “becoming a global money laundering hub.”

The rep went on to say it’s “absolutely incorrect, both in fact and in substance” to claim Malta has skirted responsibility.

“The Malta Financial Services Authority (MFSA) carries out extensive oversight over operators in this sector with regular compliance visits and other oversight mechanisms in place to ensure proper supervision of this sector.”

In 2019, the MFSA enlisted US blockchain analytics crew Ciphertrace to help compliance monitoring on crypto exchanges.

Edit 19:35 UTC, June 24: Clarified timeline of FATF vote in first section.