The Noose Tightens Around Malta and What it Means for the Island of Crypto

Patrick Tan
Oct 4, 2018 · 4 min read
Malta has over 7,000 years of history and a questionable reputation as a haven for money laundering. The European Union looks set to put an end to that.

The sun-kissed island of Malta is famous for its dramatic coastlines, gorgeous beaches, azure blue waters, and ancient city. It’s also famous in the crypto world as the home to one of the biggest cryptocurrency exchanges on the planet — Binance. Fair disclaimer, Compton Hughes trades on Binance as well. But Malta also has a darker side, one that many visitors to its instagrammable shores may not know about — as a gateway to Europe, with perhaps, less than robust enforcement of anti-money laundering laws.

All that looks set to change however as the European Union, in an unprecedented move will order Malta (an E.U. member) to strengthen its anti-money laundering rules after a string of high-profile scandals involving Denmark’s Danske Bank, Dutch bank ING and Latvia’s ABLV. The scandals exposed a lack of cooperation between financial watchdogs between E.U. member nations — raising security concerns about illicit foreign money entering the bloc through members such as Malta.

The move comes after Malta failed to address concerns raised by the European Banking Authority (EBA), a pan-E.U. banking watchdog in July this year. The EBA’s report warned of “general and systemic shortcomings” in the work of Malta’s Financial Intelligence Analysis Unit (FIAU), an independent government agency tasked with combating money laundering and terrorist financing.

So far, Malta has indicated it will comply with the EBA’s orders and comes at a time when Malta is positioning itself as the cryptocurrency capital of Europe. The move by the EBA will have wider implications for the island member of the E.U. which many in the cryptosphere have long viewed as a foothold into the rest of the European Union. With a clear regulatory environment governing cryptocurrencies, as well as clear rules on cryptocurrency exchanges and how different stakeholders should operate, Malta has attracted the likes of Binance and other cryptocurrency exchanges have also eyed setting up operations there.

With a tax rate for international companies operating in Malta no more than 5%, there are other attractions to setting up a cryptocurrency shop in Malta as well.

Malta’s Prime Minister Joseph Muscat has embraced the cryptocurrencies and welcomed cryptocurrency exchanges such as Binance to its historic shores.

Malta’s Prime Minister, Joseph Muscat, said he believes cryptocurrencies are “the inevitable future of money” and will form the base of a new economy in the future, but with the EBA’s greater scrutiny on Malta’s checkered reputation for money laundering, it’s only a matter of time before Brussels starts looking more closely at cryptocurrency exchanges and other crypto players in Malta.

Unlike with traditional money flows through banks and other intermediary financial institutions, cryptocurrency transfers and transactions are far more difficult to trace and to ascertain their source. Companies like Chainalysis and others have developed tools to inspect the blockchain to determine if cryptocurrencies have come from hacked sources or from the proceeds of criminal activity, but even then, it is not an exact science.

One of the problems lies with the cryptocurrency exchanges themselves. When trading on a cryptocurrency exchange, it’s possible to transfer cryptocurrency from “tainted” sources and route them through the exchange, where the “tainted” cryptocurrency is now admixed with others and redirected outwards to “clean” public addresses. And while larger cryptocurrency exchanges do their utmost to ensure that their exchanges are not used to launder cryptocurrency, the approach is not consistent and piecemeal at best.

With the EBA now coming down on Malta, it’s only a matter of time before it starts sniffing around Malta’s relatively (compared to the rest of the E.U.), pro-cryptocurrency approach. Malta’s embrace of cryptocurrencies as well as the ill-deserved reputation of cryptocurrencies among regulators as a vehicle for money laundering will no doubt attract the interest of E.U. watchdogs eventually. What this means is that cryptocurrency exchanges, funds that accept crypto, as well as other stakeholders in Malta may need to strengthen their AML and KYC processes moving forward or consider re-locating operating jurisdictions once again. Much of the benefit of using cryptocurrencies also lies in their pseudonymity, allowing the transfer of value in relative secrecy, but that could also be its Achilles’ heel when it comes to being regulated by lawmakers. Either way, Malta may no longer be the crypto sanctuary it once was, nor does it seem likely that Brussels will allow Malta to continue with “business as usual.”

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Patrick Tan

Written by

CEO of Novum Alpha, an all-weather digital asset trading firm that uses Deep Learning tools to deliver dollar-returns in all market conditions.

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where the future is written

Patrick Tan

Written by

CEO of Novum Alpha, an all-weather digital asset trading firm that uses Deep Learning tools to deliver dollar-returns in all market conditions.

Predict

Predict

where the future is written

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