Grey DNA

It's been some 15 months since I last posted anything on my blog, which has largely assumed the role of a library rather than a live blog.   You may correctly say that I lost the verve to express any opinion  as a combined result of the consequences of the pandemic as well as political developments, which to say the least,  have turned me largely uninterested in what's going on in the local political scene. 

The recent grey-listing by the FATF sort of tickled me to revive my interest and express an opinion, and finally I have been overcome. But I will keep it short and cryptic.

What has been grey listed is not the government, the financial sector or the country.  What has been grey-listed is our deep-rooted DNA;  our strong inclination to approach corporate governance and self-discipline in general in a tick box manner.  We do what needs to be done on the surface by building institutions and passing laws, but in general it is all skin deep.   There is generally no inner conviction to render these institutions and laws truly effective where it matters, in their impact on what actually is going on the ground.

It must be more than 5 years since  I attended a seminar where the then head of the FIAU warned that the next Moneyval inspection will not be a tick box exercise, but we will be judged by how many cases have been investigated, charged and brought to courts' judgment.  The warning went unheeded for several years before we were shocked by the first thumbs down by Moneyval. 

Then we truly started throwing resources into building institutions to render them duly effective but this can only be done over a period of several years; resources have to be recruited and trained, and systems have to be built to detect suspicions and convert them into cases that can standup in a court of law that has to deliver judgments in matter of months not years.

So when the matter went in front of the FATF it was always going to be a 50:50affair.   Were we to be judged by the considerable effort done during the previous 2 years to build institutions and structures or by the fact that such efforts are yet some distance from being sufficiently effective to deliver the expected results?  While Moneyval seemed willing to give us the benefit of the doubt by opting for the first fifty, FATF, where politics get in the mix more than at Moneyval, thought we deserved the second fifty to ensure we keep up with our efforts until they can see results.  The length of time we spend in the grey depends on how long we can show such results not in one or few particular cases, but in a normal business as usual rhythm.

I personally was quite sure  that FATF will hold us more to account than Moneyval.  And I can hardly blame them for harbouring doubts about our true intentions to carry on with the job till we really have a functioning AML system.  I base my views on two simple examples.

First: it took us years to introduce cash limits for commercial transactions and when we did it was set at a very high threshold of Euro 10,000.   Do you ever see anyone who has no tax evasion/money laundering  in mind paying for anything over say Euro 3,000 in cash?   Many countries have limits as low as Euro 1,000 but Euro 3,000 is somewhat the acceptable limit.   So why we kept Euro10,000 if not in clear demonstration of our willingness to tolerate a brisk dose of tax evasion/money laundering?

Second: We maintain the system that whoever pays 15% of investment income/bank interest will not be subject to automatic disclosure to tax authorities.   But if tax is being paid what's the scope of non-disclosure if not to keep out of tax enforcement sight the capital which is generating such income?  Why have we rendered the offshore onshore?

Such and other instances shows that our DNA is still largely oriented to skin deep changes but we are not yet sold on the need to get serious and build  a truly functional tax efficient structure and AML system.