On 14th December 2023, the Financial Intelligence Analysis Unit (“FIAU”) published the results of a thematic review carried out during the first quarter of 2023 on Corporate Service Providers (“CSPs”) adherence to Regulation 7(1)(c) of the Prevention of Money Laundering and Funding of Terrorism Regulations (‘PMLFTR’) following the issuing of the IPs Part II for CSPs in December 2020.

Scope

The main scope of the thematic review was to determine how CSPs appropriately assess and obtain information on the purpose and rationale of companies, and other legal entities, being set-up. The thematic review involved fifteen (15) CSPs providing company formation services and included checks on seventy-five (75) companies and other legal entities registered locally during 1st July 2021 till 31st December 2022.

Key Findings

Whilst the findings identified following the thematic review demonstrated that in general CSPs perform sufficient CDD measures when providing company formation services, the FIAU highlighted specific areas for improvement to be addressed by CSPs, including the following:

  1. Policies and procedures
    • CSPs should update their written policies and procedures to reflect that Regulation 7(1)(c) of the PMLFTR also applies when providing solely company formation services;
    • Policies and procedures should be reviewed in a timely manner, sufficiently explain the measures to be applied by the CSP’s employees to fulfil AML/CFT obligations; and
    • CSPs should inform and train employees on how procedures are to be applied.
  1. Information on the rationale for setting up a company in Malta and/or for the provision of the requested service/s
    •  CSPs should adequately gather and record information relating to the rationale behind the setting up of newly formed companies; and
    • CSPs should ask for further clarifications and, where applicable documentation, when information collected does not provide a clear understanding behind the setting up of a company in Malta.
  1. Information on the activity or purpose
    • CSPs should adequately gather and record information, and where necessary documentation, on the activity or purpose of the company to be formed as well as its trading/commercial activities.
  1. The profile of the shareholders or the beneficial owners (“BOs”)
    •  CSPs should ask for further clarification and information in instances where there is a mismatch between the shareholders’ or BOs’ profiles and the proposed activities or purpose of the company.
  1. Value of share capital or assets of the prospective company or entity
    • CSPs should apply a risk-based approach and consider the risks identified from the CRA carried out, and only if it is assessed that there are higher risks in this context, should they resort to asking for supporting documentation to verify the source of funds in relation to the share capital or assets of the company; and
    • CSPs should collect information as to how a company will continue to be financed, and whether there will be any future capital injections when the initial share capital is minimal.

Moving Forward

CSPs providing company formation services are encouraged to consider the findings emanating from this thematic review and ensure that the adopted policies, procedures, systems and controls are in line with the recommended areas for improvements to ultimately ascertain that the services provided are not being used for money laundering and/or financing of terrorism activities.

Authors: Mario Zerafa & Jonathan Camilleri

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