Malta’s Financial Intelligence Analysis Unit (FIAU) director has welcomed two recent Constitutional Court rulings as confirmation that the watchdog’s administrative penalties are legally valid and remain a central tool in Malta’s anti‑money laundering enforcement framework. The decisions mark a significant shift after earlier court judgments had cast doubt on the FIAU’s sanctioning powers and triggered a wave of legal challenges from regulated entities.
Background to the court disputes
For several years, the FIAU’s authority to investigate breaches and impose high administrative penalties for anti‑money laundering and counter‑terrorist financing (AML/CFT) failures has been heavily contested in the Maltese courts. A series of judgments, including a high‑profile ruling in a case involving Phoenix Payments Ltd, had previously declared aspects of the FIAU’s fines “unconstitutional” and in breach of the right to a fair hearing before an independent and impartial tribunal.
Those earlier rulings focused on the FIAU’s dual role as investigator and decision‑maker, and on the quasi‑criminal nature of multi‑million‑euro fines imposed under the Prevention of Money Laundering Act. Critics argued that such punitive sanctions should only be handed down by a court or tribunal that fully meets constitutional fair‑trial standards, rather than by an administrative authority within the executive branch.
Landmark Constitutional Court reversals
On 18 November 2024, Malta’s Constitutional Court overturned a March 2023 First Hall Civil Court judgment in the Phoenix Payments case, reversing the earlier finding that the FIAU’s power to impose administrative penalties was unconstitutional. The higher court ruled that the relevant laws do not violate the Maltese Constitution or the European Convention on Human Rights, effectively restoring the legal basis for the FIAU’s sanctions regime.
The Constitutional Court emphasised that what ultimately matters under human‑rights standards is that a person or entity subject to a significant administrative fine has access to subsequent judicial review before an independent court. In line with European Court of Human Rights practice, the ruling clarified that an administrative authority may impose “criminal‑type” sanctions, provided that its decisions can ultimately be scrutinised and, if necessary, overturned by the judiciary.
Impact on Phoenix Payments and other cases
In practical terms, the Constitutional Court’s decision revived the FIAU’s €435,000‑plus administrative penalty against Phoenix Payments for customer due diligence and AML breaches, which had previously been struck down. The judgment confirms that the FIAU remains empowered to levy large fines where serious or systemic failures are identified, subject to appeal mechanisms.
The ruling is expected to influence a broader pipeline of appeals brought by banks, payment institutions, wealth managers and other obliged entities that have challenged the legality, proportionality or calculation of FIAU penalties since 2018. From 2018 to mid‑2022, entities appealed or sought to appeal roughly €16.4 million of the €20.8 million in total fines the FIAU had imposed, and several early appeals resulted in substantial reductions that encouraged further litigation.
FIAU director’s stance on enforcement
Against this backdrop, the FIAU director has framed the latest Constitutional Court decisions as a clear endorsement of the authority’s role within Malta’s AML framework and of the legitimacy of its sanctions methodology. He has underlined that the FIAU’s mandate is to impose effective, proportionate and dissuasive penalties when supervised entities fail to comply with AML/CFT obligations, in line with EU directives and international standards.
The director has also stressed that the agency’s enforcement policy is designed to prevent fines from becoming a mere “cost of doing business” and to ensure that non‑compliance carries a real deterrent effect. At the same time, he has repeatedly highlighted that subject persons retain full rights to challenge both the substance and the quantum of penalties before independent courts, reinforcing the system of checks and balances.
Legal arguments over constitutional rights
The core legal debate has centred on Article 39 of the Constitution of Malta, which guarantees a fair hearing by an independent and impartial tribunal in criminal matters. Earlier judgments had taken the view that the magnitude and punitive character of FIAU fines meant they should be treated as criminal sanctions, implying that only a court could impose them in the first instance.
The Constitutional Court’s more recent reasoning, however, aligns Maltese practice with European human‑rights jurisprudence by distinguishing between the body that initially imposes a sanction and the court that ultimately reviews it. According to this approach, the presence of robust appeal rights to the ordinary courts is sufficient to safeguard constitutional guarantees, even where an administrative agency wields significant fining powers.
EU law, primacy and supervisory powers
In parallel proceedings, the FIAU and the State Advocate had argued that the agency’s sanctioning powers stem from the EU’s Fourth Anti‑Money Laundering Directive (Directive 2015/849), which requires member states to ensure that competent authorities can impose effective administrative measures and sanctions. The FIAU had previously sought a referral to the Court of Justice of the European Union to clarify whether national constitutional rules could undermine the primacy and effectiveness of EU‑mandated AML enforcement.
Although the Constitutional Court declined to make that referral in earlier stages, the latest judgment effectively reconciles domestic constitutional principles with EU law by recognising that the FIAU may impose significant penalties as long as affected entities can obtain judicial review. This interpretation supports Malta’s broader commitment to reinforcing its AML regime following past criticism from European bodies and international standard‑setters.
Reaction from regulated entities and practitioners
Lawyers and compliance professionals note that while the rulings resolve the existential question over whether the FIAU can impose fines at all, they do not eliminate ongoing disputes about proportionality and methodology. Obliged entities are expected to continue challenging the size of penalties, the underlying risk assessments and the evidence relied on, especially in complex cross‑border cases.
Some practitioners argue that clearer guidance and more predictable sanctioning frameworks would reduce litigation and improve regulatory certainty for subject persons. Others point out that the courts’ willingness in past appeal cases to reduce FIAU penalties by substantial margins has contributed to a culture of contestation, particularly where fines run into the hundreds of thousands or millions of euro.
Ongoing refinement of enforcement policy
The FIAU has, in recent years, published enforcement factsheets and administrative measure notices to explain its expectations and summarise key decisions, aiming to enhance transparency and consistency. These publications outline common deficiencies, including weaknesses in customer due diligence, ongoing monitoring, record‑keeping and reporting of suspicious transactions, as well as the factors considered when calibrating penalties.
Following the latest Constitutional Court rulings, the director is expected to maintain a firm enforcement stance while continuing to fine‑tune policies and procedures, including internal separation between investigative and decision‑making functions and clearer reasoning in sanction decisions. Observers say this dual focus on legal robustness and operational clarity will be crucial in sustaining confidence among both international partners and Malta’s financial sector.
Significance for Malta’s AML framework
The confirmation of the FIAU’s sanctioning powers comes at a sensitive time for Malta, which has been working to demonstrate lasting improvements in AML supervision following past reputational challenges and enhanced international scrutiny. Strong, legally secure enforcement by the FIAU is viewed as essential to preserving access to global financial markets and addressing previous criticisms from European and international monitoring bodies.