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  • 4 Mar 2019 12:00 | Deleted user
    AML Best Practices for Life Insurance Companies. – Helping Life insurers guard against the wrong customers.
    Although life insurance products are not high on a money launderer’s shopping list, life insurers do promote flexible investment-type products which might be viable as a medium to launder illicit funds. Albeit a remote one, the threat cannot, therefore, be ignored.
    Establishing robust Anti Money Laundering & Combatting the Financing of Terrorism (AML & CFT) procedures and controls requires time, effort and investment in resources. With regulations continuously changing, the whole process may seem to be embarking on a never-ending journey.
    It is not my intention to cover all the details of the implementation of AML & CFT procedures, but simply to give an overview of the main best practices that may be adopted.
    1. Setting the Risk Appetite - Customer Acceptance Policy
    One of the first steps an insurer must make is to create a Customer Acceptance Policy which should, briefly, provide a description of the characteristics of customers that are likely to pose a higher-than-average risk and which therefore fall outside the customer acceptance policy of the company.  
    2. Understanding Potential Risks
    To mitigate the risks of doing business with potentially devious characters insurers need to understand threats, which might emanate from the main risk areas i.e. its Customer, Geographical, Transactional, Method of Payments, Product and Distribution Channel.
    This process requires a good dose of common sense and creativity on our part as we need to put ourselves in a money launderer’s shoes to identify potential vulnerabilities.
    The process by which money laundering vulnerabilities are identified includes:
    Analysing money laundering typologies facing the life insurance industry
    An insurer should adopt a proactive approach to identify current and new AML/CFT typologies by analysing its own internal reports, submitted Suspicious Transaction Reports (STR) and typology reports published by international or local authorities.
    Business Risk Assessment
    A Money Laundering Business risk assessment enables an insurer to identify and measure actual risk exposures emanating from the main business risk areas.
    This exercise can turn into a complicated one, but in very simple terms, the objective is to enable the insurer to implement adequate risk mitigation measures and controls to those risk areas where the actual exposures are deemed to be too close to or outside its risk appetite.
    This assessment needs to be reviewed at least annually to ensure that there are no material changes. It is good practice to review the process more frequently when new internal or external threats and vulnerabilities are identified, or to monitor the success or lack thereof of any risk mitigation measures applied.
    Customer Risk Assessment & Grading
    In order to ensure that Customer Due Diligence measures will reflect each customer’s risk profile insurers need to carry out a customer risk assessment covering, at least, the following steps:
    1. Know who is Your Customer and Your Customer’s Customer by ensuring that the Customer(s) (including the beneficiaries, Ultimate Beneficial Owners) have been satisfactorily identified.
    2. Know Your Customer’s source of funds and source of wealth by establishing the nature of the activity (e.g. occupation) which generated the payment.
    • Identify potential high-risk features:
    Geographical risks e.g., whether a customer’s nationality, residency or business activity is linked to a high-risk country.
    Occupational Risks e.g. whether the customer’s occupation/business is a high-risk one e.g. PEP.
    Customer’s behaviour e.g. if there is lack of cooperation in submitting KYC, source of funds/wealth information.
    Transaction risks e.g. transactions which do not seem to fit into the customer’s profile.
    Presence on an international Sanctions lists prohibits the insurer from offering any product to the targeted individual/entity.
    Presence on internal Watch lists. Maintaining an IT data base of High-Risk customers ensures an automated referral process to the MLRO. Such a list should include individuals or entities linked to:
    • A Suspicious Transaction Report;
    • Internal Reports submitted to the MLRO;
    • Requests for information from the FIAU, Police and
    • Attachment/Freezing Orders.
    3. Know your Distribution Channel
    Abnormal behaviour emanating from customers serviced by the same Intermediary should trigger the application of stricter monitoring, at least for an appropriate period. If the abnormal patterns persist then the insurer’s Compliance Unit should be informed to ensure that the Intermediary is subject to a compliance review at the earliest opportunity.
    4. Training & Guidance
    We are only as strong as our weakest link. For this reason, training cannot be approached with a ‘tick the box’ mentality and provide the same training to all staff, irrespective of the tasks they actually carry out. This approach is certain to create weak AML & CFT defences. Specific training is required for staff in different units reflecting internal procedures and potential money laundering risks relevant to each unit.
    Best practice also dictates that insurers should train their intermediaries even though these are separately responsible for compliance with AML & CFT legislation. Intermediaries are an insurer’s first line of defence because they know and have met the customer.
    5. Create an effective and efficient AML & CFT Structure
    Abiding with AML & FT Legal obligations must never be the sole responsibility of the MLRO.  Internal technical expertise in the areas of Compliance, Risk and Internal Audit needs to be actively involved to provide the necessary high-quality oversight and controls. It is also advisable that external specialists are engaged to periodically review internal procedures.
    6. Amalgamating Anti- Insurance fraud and Money Laundering functions
    An insurer’s anti-fraud measures are similar to those employed for AML/CFT e.g.  establishing financial capabilities/wealth of clients and monitoring business. Moreover, life Insurance fraud red-flags have similar characteristics to those relating to money laundering e.g. unreasonableness of transactions or abnormal customer behaviour.
    Consequently, consideration should be given to amalgamate the MLRO & Anti-Fraud functions into one function which can also be tasked with the responsibility of complying with International Sanctions, Court Orders and requests for information from the FIAU or Police. This consolidated approach will also be beneficial in identifying potential high-risk customers and suspicious transactions.
    In an ever-changing regulatory environment and the eagerness to protect reputation, the ongoing challenge is to strike a balance between fulfilling legal obligations and ensuring that we do not make it difficult and frustrating for legitimate customers to do business with us.
    Insurers need to remain vigilant to ensure equally robust AML & CFT defences to avoid attracting the wrong type of customers.  Money laundering, after all, is like water -- it chooses the path of least resistance.
    Mark Camilleri FCII, CAMS, is the Chief Underwriting Officer at MAPFRE MSV Life p.l.c.. He is also the Money Laundering Reporting Officer for MAPFRE Middlesea p.l.c. and MAPFRE MSV Life p.l.c. . He is a member of the Association of Certified Anti-Money Laundering Specialists (ACAMS) and represents the Malta Insurance Association on the Joint Committee for the Prevention of Money Laundering & Funding of Terrorism. He may be contacted on markc@msvlife.com 
  • 4 Feb 2019 12:00 | Deleted user
    Malta has set its sights on becoming the blockchain hub of the world, and was the first country to establish a regulatory framework for the booming industry. The Malta Digital Innovation Authority Act, the Innovative Technology Arrangements and Services Act, and the Virtual Financial Assets Act come into effect on November 1, 2018, following a period of consultation. On the same date, the Inland Revenue issued guidelines for the Income Tax Treatment of transactions or arrangements involving Distributed Ledger Technology (DLT) assets.
    The guidelines provide definitions of coins and tokens, the latter split in two categories, utility and financial. It also emerges from the guidelines that generally applicable tax principles will apply to DTL transactions. In particular, the nature of the transaction, the statues of the taxpayer and the specific circumstances of the case at hand would all need to consider in arriving at a decision as to whether the transaction is taxable or not. The use being made of the DTL asset will be fundamental to determine the Malta tax treatment

    Classification of DTL Assets
    According to the guidelines coins are similar to any other means of payment, in that they serve as a medium of exchange and are in no way connected to the issuer.
    The characteristics of financial tokens are similar to those of equities, debentures, units in collective investment schemes, or derivatives including financial instruments, in that they may grant rights to dividends, rewards based on performance, voting rights, ownership or rights secured by an asset as in asset-backed tokens.
    On the other hand, the value and application of utility tokens is restricted to the acquisition of goods or services within the DLT platform, within a limited network of DLT platforms or in relation to which they are issued, but they have no connection with the equity of the issuer.
    A token can contain the features of both financial & utility tokens, referred to as a Hybrid token. Where a hybrid token is used in a particular case as a utility token then it is to be treated as such. If the same token is used as a coin, then it is treated as a coin.
    Reference Value
    Values expressed in cryptocurrencies will need to be converted to the reporting currencies in which the taxpayer presents its financial statements, in order for the chargeable income to be calculated. The market value of a DTL asset is determined by the rate established by the relevant Maltese authority or where such is not available by reference to the average quoted price on reputable exchanges, on the date of the relevant transaction or event, or such other methodology to the satisfaction of the Commissioner for Revenue.
    It has yet to be determined what can be considered as a reputable exchange for DTL assets. For example, Coinbase is one of the most popular bitcoin exchanges in the United States of America.  One of the reasons is that it charges a relatively small fee for exchanges.[1] Would this be considered a reputable exchange for Malta tax purposes?
    Application of the General Tax Principles
    Profits realised from the trading of coins are treated like the profits derived from the exchange of fiat currency. Therefore, proceeds from the sale of coins held as trading stock in a business are taxed as ordinary income. It must be noted that gains or profits from the mining of cryptocurrency also represent trading income. However, capital gains derived on the disposal of coins held as capital assets fall outside the scope of capital gains taxation.
    The return derived from the holding of a financial token such as interest, premiums, payments equivalent to dividends whether in cryptocurrency or in kind is treated as income for tax purposes.
    When dealing with the transfer of either financial or utility tokens it needs to determine whether such tokens are being held for trade or whether the intention was to hold such tokens for capital appreciation.
    If the tokens are deemed to be capital assets in order to determine whether there is a capital gain on sale of such assets on needs to refer to article 5 of the Income Tax Act Chapter 123 of the Laws of Malta (ITA). Article 5 provides an exhaustive list of what is taxable.  Anything which does not fall under this list would be outside the scope of Malta taxation. The list under article 5 includes the crystallisation of capital gains on:
    • Any immovable property;
    • Any securities, business, goodwill, business permits, copyright, patents, trademarks and trade-names;
    • Any interest in a partnership;
    • The beneficial interest in a trust.
    The question which needs to be answered is whether these tokens fall under the definition of securities.  Article 5 ITA defines securities as shares and stocks and such like instrument that participate in any way in the profits of the company and whose return is not limited to a fixed rate of return. The definition includes units in a collective investment scheme as defined in article 2 of the Investment Services Act, and units and such like instruments relating to linked long term business of insurance.
    There is a valid argument that certain tokens would have the characteristics similar to those of shares and stocks. However, few tokens grant rights to participate in the companies profits. Also, very few tokens grant a limited rate of return in a similar fashion to bonds or preference shares.
    For most tokens which are held for capital appreciation, it can be argued that these do not fall within the definition of securities as per Article 5 ITA.  Any capital gain derived from such assets would this fall outside the scope of Malta taxation and not be taxed in Malta.  Any equivalent capital loss would also fall outside Malta taxation and cannot be taken into consideration for Malta tax purposes.
    Where on the other hand a taxpayer trades in tokens, this would be considered as his trading activity. Any income derived from such activity would be trading income which falls within the scope of article 4 ITA and taxed accordingly.  It stands to reason that any losses from such an activity would be considered as trading losses. 
    In determining whether a particular transaction is of a trading or capital nature the same procedure as with any other transaction would need to be adopted.  The Badges of Trade would be applied to the particular transaction in order to determine whether this is a transaction of a capital or trading nature. The fact that one would be dealing with DTL assets does not envisage a different treatment in assessing whether a transaction is of a capital or trading nature.
    Finally, a small note on initial coin offerings (ICO’s). Where an ICO involves the raising of capital, the proceeds of such an issue are not treated as income of the issuer.  If an ICO of utility tokens entails an obligation of the issuer to perform a service or to supply goods or benefits to the token holder, the gains or profits realised from the provision of the services or the supply of the goods will represent income for the issuer and be taxed accordingly.
    The Inland Revenue guidelines on the taxation of DTL assets have helped to shed some light on the taxation of these assets but especially have confirmed that the most important aspect of any transaction is its use to which the general tax principles under the ITA need to be applied.
    About the Author: 
    Dr Jeanette Calleja Borg is a practitioner in the area of tax compliance. She obtained a Bachelor of Commerce, a Bachelor of Accountancy (Hons.), a Masters in Financial Services from the University of Malta and subsequently a PhD in Taxation from the School of Law, within the Centre for Commercial Legal Studies at Queen Mary, University of London. Her area of research was Cross Border Group Loss Relief in the EU. Dr Jeanette Calleja Borg has also been a guest researcher at the Institute for Austrian and International Tax Law in Vienna during 2011 and 2012/2013. Dr Jeanette Calleja Borg is a member of the Malta Institute of Taxation Council.  She is also a member of the Malta Institute for Accountants.
  • 9 Jan 2019 12:00 | Deleted user
    The new VAT returns system was discussed at an exclusive information session organised by the Malta Institute of Accountants and the Malta Institute of Taxation. Specialists explained the changes effected by the newly introduced online submission system and answered questions from the floor.
    “This initiative is in line with the organisations’ respective commitment to share and diffuse knowledge as well as offer support and guidance to its members and the wider business community” said Claudia Vella Schembri from the Malta Institute of Accountants Technical Department.
    The Institute of Accountants held the session to update members on the new mandatory requirements for online submissions of VAT Returns and FSS end-of-year online submissions, which came into force recently.
    The session was addressed by experts from the Office of the Commissioner for Revenue. Mr Noel Agius, who was deeply involved in the development of the Final Settlement System, spoke about the online FSS submissions system while Mr Andrew Buhagiar, from the IT Section, delivered a presentation on online VAT Returns submissions. Mr Efrem Ray Debono, who manages the Back Office and the Data Processing Unit, offered a comprehensive review of the new system. The speakers took questions from a highly-engaged audience and offered detailed technical tips.
    The collaboration with the Malta Institute of Taxation is in line with the Malta Institute of Accountants’ strategy to create synergies with other professional bodies to support the wider business community. The information session is part of the Institute’s commitment to share and diffuse knowledge with its members, and to offer practical guidance to accounting professionals.

  • 9 Jan 2019 12:00 | Deleted user
    According to the Subsidiary Legislation 406.21, two or more legal persons which are established in Malta and which are closely bound to each other by financial links, organisation links and economic links can be registered as a single taxable person, that is, as a VAT group. The Legal Notice delineates the specific rules which determine whether financial, organisational and economic links exist. 
    At least one of the applicants must be a taxable person who is licensed or recognised under one of the following Acts:
    • The Banking Act;
    • The Financial Institutions Act;
    • The Gaming Act;
    • The Insurance Business Act;
    • The Insurance Distribution Act;
    • The Investment Services Act;
    • The Lotteries and Other Games Act;
    • The Retirement Pensions Act;
    • The Securitisation Act.
    Download Manual here.

  • 9 Jan 2019 12:00 | Deleted user
    The Commissioner for Revenue has issued the below guidelines concerning the taxation of DLT Assets under the Income Tax Act, the VAT Act and the Duty and Documents and Transfers Act.

  • 27 Dec 2018 12:00 | Deleted user
    The MGA hereby notifies its licensees and the general public that with the coming into force of the new Gaming Act, the regulatory treatment of what previously used to be called ‘intermediaries’ is to be assessed in light of the Gaming Authorisations Regulations (S.L. 583.05) [the ‘Regulations’] and the Gaming Authorisations and Compliance Directive (Directive 3 of 2018) [the ‘Directive’].
    Read more

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