Just a day after being issued with a warning by the Japanese Financial Services Authority over its lack of registration in the county, the Japanese crypto exchange Binance announced it would close its Tokyo office and set up in Malta.
The jump from Japan to the small Mediterranean nation is a big change in financial culture for the world’s largest cryptocurrency exchange: from the home of prudence and obeisance to a country renowned for money laundering and tax evasion.
Warmly welcomed by the country’s Prime Minister Joseph Muscat who has aspirations to turn it into the “blockchain island” the Mediterranean outcrop is as well known for its balmy climate as it is for lax financial regulation, cavalier granting of bank licences, selling its EU passports and as a tax haven for the retired rich.
Its lax regulatory climate and low corporate tax rate is conducive to financial services and especially those industries that have reason to avoid too much scrutiny — references to Malta abound in the Panama and Paradise papers leaks.
It has also become home to the world’s largest online gambling industry and is a top location for binary options companies. Google has agreed to the latest call from the Australian Competition and Consumer Commission to ban the advertisement of binary options across its services after Australian authorities saw a nine-fold increase in binary option scams in the last four years, with losses estimated to be in the hundreds of millions of dollars.
Dark money and the online gambling industry
The gambling industry makes a disproportionate contribution to Malta’s economy, 12 percent of GDP and employs 9,000 people, which in a country of around 437,000 is about 2 percent of the population, plus all the spin-off benefits to others not directly employed in the industry.
Just last week five Italian gambling companies exited the country after an investigation by the Malta Gaming Authority and Italian police into illegal betting shops associated with the Mafia. One business had its licence cancelled, one suspended and the other three terminated their own contracts to avoid further scrutiny.
Italy’s anti-Mafia chief of police Palermo Salvatore de Luca late last year said that they had evidence that organised crime bosses were planning on moving their operations to the Maltese online gambling industry. “Malta has recently become the capital of online gambling and the Mafia bosses thought that this would be a good financial vehicle for them and less risky than making their money from extortion,” de Luca said.
Also the chair of the anti-Mafia commission, Italian Democratic Party senator Rosy Bindi expressed concern on a recent visit to Malta that the country wasn’t doing enough to close the financial loopholes that attract organised crime. “Financial services practitioners and lawyers facilitating the opening of companies in Malta may also be part of the problem,” she said.
Prime Minister caught up in political corruption
The Prime Minister has been embroiled in financial corruption allegations since his wife Michelle was implicated in the Panama Papers in which she is linked to Panamanian shell companies – the evidence of which was sought to be destroyed by the Maltese private bank, Pilatus. The controversy was further enhanced after the death of the country’s top investigative journalist Caruana Galiziawho doggedly followed the paper trail before she was blown up in a car bomb in October 2017.
Galizia had alleged that Muscat’s wife had a bank account in Panama into which Pilatus bank, led by Iranian Ali Sadr Hashemi Nejad, funneled millions in exchange for keeping the bank protected in Malta. Nejad, resident in the US, was indicted on charges of evading US sanctions against Iran by funnelling money through Venezuela and Malta through the Pilatus bank.
At the time of Galizia’s death, Nejad had an outstanding $40 million libel case against the former journalist — one of over 40 cases against her. The investigation into the Panama revelations hasn’t disappeared, however, as Galizia’s son, also a renowned journalist, has continued her work.
Nation for sale: Selling passports to the rich
The Maltese appear to be a bit of a bane to the EU as the only member country to sell its passport, which allows them visa-free travel not only within the bloc but to 160 countries in total.
For €650,000 plus the purchase of €150,000 in government bonds the offer is reserved for the world’s elite and is particularly popular with Russian millionaires and billionaires who have been siphoning money out of the country since the fall of the USSR.
Binance’s move to Malta will arguably give it more leeway to be innovative and creative with its products — it’s currently working on moving away from a centralised exchange to a decentralised one — but if the exchange is concerned about enhancing its reputation, setting up in same neighbourhood as the Italian Mafia isn’t necessarily a good look long term.