‘Unacceptable’ lack of FIAU law updates despite millions in canceled fines

The government remains unwilling to update legislation governing how fines are issued by the Financial Intelligence and Analysis Unit (FIAU), despite a string of court cases that have ruled them unconstitutional and seen millions of euros in fines cancelled.

In response to The Shift’s questions, FIAU Chair Kenneth Farrugia said the unit would continue operating as usual until an appeals process “seeking a final determination” before the Constitutional Court was concluded.

Experts who spoke to The Shift said the situation was “disturbing” and “unacceptable.”

The FIAU’s fines are repeatedly being challenged because the unit acts as ‘judge, jury and executioner,’ offering no appropriate remedy for appeal as is constitutionally required.

In the eighth and most recent ruling of such a case last month, Judge Joanne Vella Cuschieri described the fines as “dictatorial.”

The cases typically claim the FIAU’s breach of Article 39(1) of the Maltese Constitution and Article 6(1) of the European Convention on Human Rights (ECHR).

The articles relate to proper independence issuing in penalties and adequate opportunities for appeal for those charged.

The court judgments have resulted in millions of euros in fines being revoked and have set a precedent for countless other penalties.

Farrugia told The Shift, “The FIAU and State Advocate have submitted appeals from the decisions of the Civil Court to the Constitutional Court to seek a final determination on the matter,” which will ultimately determine whether there is a need for “possible reforms.”

In an unorthodox government decision, Farrugia, who is also the CEO of the Malta Financial Services Authority, was appointed as chairman of FIAU last year after previously holding a directorship position at the unit.

Speaking to The Shift on condition of anonymity, a University professor said the unit was taking “a peculiar and unacceptable position” on the matter.

He said the FIAU’s statements signal that “it does not care or accept the findings of the Civil Court and will only act if they lose on appeal.”

Such a situation, he said, may have “massive” consequences.

In comments to The Shift, financial expert Paul Bonello said the situation was “manifestly evident, the FIAU’s current structure goes against the basic tenets of both the Constitution and the ECHR where they refer to a fair hearing.”

Bonello liked the court’s judgments to those made about administrative fines dished out during the COVID-19 pandemic in 2022 and the Federation of Estate Agents in 2015.

In 2022, the courts ruled that fines the Local Enforcement System Agency issued could not be enforced.

In another case instituted by the Federation of Estate Agents, the court ruled in 2015 that fines issued by the Director General for Competition were unconstitutional, nullifying them.

Bonello said the government “should not waste time and taxpayer funds and should enact the reforms needed for such laws”.

He claimed the recent increase in fines by the unit came about in the wake of Malta’s greylisting by the Financial Action Task Force between 2021 and 2022 in a “zealous attempt to show the unit’s effectiveness”, which often “targeted small fry while ignoring politicians or cabinet members”.

The government’s reluctance to update the legislation underpinning the FIAU “also means that those who are truly guilty of the underlying [money laundering] defaults are allowed to go scot-free” since the court is nullifying the fines based on their non-constitutionality, not their merit, he said.