EU Warns Malta of the Dangers of Ignoring Money Laundering

[Kemarit]

The regulation and compliance is also necessary to act as a catalyst against any one who might even be thinking of doing anything illegal thinking the law is open or silent about activities such as that in that locality.

I'm not necessarily against regulations and to some degree tighter policies, but the downside here is that these regulations are being used as weapon against people to exercise control over whatever it is that they are doing.

The narrative they are pushing that they are trying to combat illicit activities, is only used as smoke screen, because let's be honest, the more regulations there are, the more professional the illicit activities become.

I have never seen reports indicate that there has been a decline in the amounts concerned with these illicit activities, which just shows that it doesn't work. It may stop some small fishes, but the sharks are still not impressed.

This got me thinking, a country with less than what 1 million population pose a serious threat that EU has to put pressure of them because of EU is supposedly putting efforts to stop money laundering?

I think there's more to it, it could be that EU has more agenda behind, or are they single out because they just a tiny nation within their neighbourhood, but putting the rest of the EU to money laundering risk?

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[Tylev]

this pressure from the EU and many countries on money laundering becomes a big joke, I say it becomes a big joke because many politicians are money laundering mentors because when they steal government money they use their diplomatic passports and they deposit the money in another country, as if it were money from some of their country's company (fake company) and keep talking about that bitcoin is dangerous because of money laundering or the financing of terrorism becomes a big joke

The fight against crime when using cryptocurrency of the state will be constantly used as a reason to limit its circulation and this is not a joke, and a great danger to the future of cryptocurrency.
For the time being, states do not consider decentralized cryptocurrency as a serious competitor for their national money. However, in the future the situation will constantly change.

[eaLiTy]

Malta aka Blockchain Island has become the mecca crypto due to its favorable crypto laws. With the flood of crypto money to the island it's been taking the right steps to work on compliance such as partnering with crypto security firm CipherTrace to identify and prevent crypto crime.

Steps like this seems to help make the government quite happy in how to handle crypto and manage risk in countries. Would you agree? What else do we need to implement or be sure to watch out for?

I am not expecting any outright ban on crypto in any of the European nation but if they are not providing any favorable conditions for any companies to thrive they will move to places where the could handle their business without much government intervention and those situations might not look good for EU or US and they might implement strict regulations on these small countries and put financial pressure to shut these business, we have seen these situations in the past and hopefully we will not repeat those in the future.

A diverse community like ours cannot fight against powerful governments, having a mutual agreement and regulation is the best way to proceed things in the future. The next few years are crucial for the market as regulations are expected to be implemented and lets see how things will move and how they will view anon currencies.

[squatter]

Why would Malta care if their economy is increasing

And do you have any proof that Biance is contributing more than 0.01% on that increase?
Have they paid 1$ in taxes till now?

Well there is Binance, but also Bittrex, Okex, Bitbay, Zebpay and others too. I'm not sure about taxes, but Malta's model is more about monetizing licensing fees. This goes in line with Malta's monetization of online gambling licenses, which represent ~12% of their annual GDP.

Exchanges require a Class 4 License. From what I can find, the application fee is €24,000 and the annual supervisory fee is dependent on annual revenue. For revenue up to €1 million, the fee is €50,000. €5,000 fees are added per additional €1 million tranche of revenue. For a small island nation, that's not an insignificant sum of money.

[countryfree]

By leaving EU , they would lose a lot of financial perks, that includes SEPA payments.
I doubt that they would like to lose a big pie of their income in their 2 top niches.

 When they will be pushed to harsher regulation in finances, they will want to hold on their tourism.

No big deal.
I live in Europe and I've closed all my bank accounts in the SEPA zone.
I pay with cash, cards or BTC. Sometimes, I have no other option but to make a Swift transfer, with a substantial fee, but that doesn't happen very often.

Malta's position gives it fantastic opportunities for tourism. Being in or out of the EU wouldn't change much. The only problem I see would be some prices would rise, making it more difficult for the few poor locals.

[jjbanks994]

I feel like companies like  ciphertrace are trying to warn the entire world about the dangers of ignoring money laundering and not just Malta otherwise they wouldn't be in place

[Schirer]

No big deal.
I live in Europe and I've closed all my bank accounts in the SEPA zone.
I pay with cash, cards or BTC. Sometimes, I have no other option but to make a Swift transfer, with a substantial fee, but that doesn't happen very often.

Malta's position gives it fantastic opportunities for tourism. Being in or out of the EU wouldn't change much. The only problem I see would be some prices would rise, making it more difficult for the few poor locals.

Why you would want to close SEPA accounts?

It could not change much but in perspective of country which has a lot of businesses based there it would be a deal breaker. Customers like to have fast and transfers with small fees.

It definitely would change a lot, the main thing being border and custom crossing.

[bitcoindusts]

Steps like this seems to help make the government quite happy in how to handle crypto and manage risk in countries. Would you agree? What else do we need to implement or be sure to watch out for?

I'm not sure as to how Malta would respond - they are probably raking in a lot of revenue since crypto businesses prefer them as a destination as opposed to countries with stricter KYC/AML requirements in the European Union.

There is no incentive for them to tighten their rules too much, although they obviously need to prevent the clear cut cases.

This warning could have for sure been sparked because Malta is seen to take away business from the rest of the countries in EU, when it comes to regulated/licensed bitcoin businesses, while the warning about AML may only be what's happening on the surface.

The crypto community maybe raking profits but if there is no definite regulations imposed by the government there might not be no benefit for them (the government) But for the sake of awareness on money laundering in the part of the people. If this laxness in Malta will continue people from tightening countries might move to Malta to enjoy this freedom.

[stompix]

And do you have any proof that Biance is contributing more than 0.01% on that increase?
Have they paid 1$ in taxes till now?

Well there is Binance, but also Bittrex, Okex, Bitbay, Zebpay and others too. I'm not sure about taxes, but Malta's model is more about monetizing licensing fees. This goes in line with Malta's monetization of online gambling licenses, which represent ~12% of their annual GDP.

Exchanges require a Class 4 License. From what I can find, the application fee is €24,000 and the annual supervisory fee is dependent on annual revenue. For revenue up to €1 million, the fee is €50,000. €5,000 fees are added per additional €1 million tranche of revenue. For a small island nation, that's not an insignificant sum of money.

Assuming Binanace does the predicted 1 billion in revenue, that's a  5m, plus 50, plus 24.
Five million euros in taxes compared to 4 billion revenue in taxes
https://mfin.gov.mt/en/The-Budget/Documents/The_Budget_2019/Budget_speech_English_2019.PDF
is a 0.1 of their taxes income. And it's 0.03% out of the GDP.

Seems like I pretty much nailed it even not knowing the tax scheme.
Btw, this doesn't mean they have actually paid any taxes yet, right?
I'm willing to bet they have got a large tax cut when moving there, with all the hype politicians, were welcoming them.

[squatter]

Well there is Binance, but also Bittrex, Okex, Bitbay, Zebpay and others too. I'm not sure about taxes, but Malta's model is more about monetizing licensing fees. This goes in line with Malta's monetization of online gambling licenses, which represent ~12% of their annual GDP.

Exchanges require a Class 4 License. From what I can find, the application fee is €24,000 and the annual supervisory fee is dependent on annual revenue. For revenue up to €1 million, the fee is €50,000. €5,000 fees are added per additional €1 million tranche of revenue. For a small island nation, that's not an insignificant sum of money.

Assuming Binanace does the predicted 1 billion in revenue, that's a  5m, plus 50, plus 24.

Where are you getting this "predicted €1 billion in revenue?" Binance was aiming at net profit of $500M-$1B in 2018. We don't know their profit margin or revenue, but revenue should be much higher than that. It could easily be 500% of your estimate or more.

Five million euros in taxes compared to 4 billion revenue in taxes
https://mfin.gov.mt/en/The-Budget/Documents/The_Budget_2019/Budget_speech_English_2019.PDF
is a 0.1 of their taxes income. And it's 0.03% out of the GDP.

Seems like I pretty much nailed it even not knowing the tax scheme.

Have you now?

We haven't even discussed taxes. The corporate tax rate for companies who are resident and domiciled in Malta is 35%. I haven't researched whether there are taxes specific to cryptocurrency services, as there are with Malta-regulated gaming services. I was just talking about about licensing fees.

Also, this is what you said:

Why would Malta care if their economy is increasing

And do you have any proof that Biance is contributing more than 0.01% on that increase?

You said that Binance contributed no more than 0.01% of GDP. Now you're asserting that the licensing fees Binance pays = their total effect on GDP. These are apples and oranges. Licensing fees constitute a small percentage of Binance's operation. We don't have enough data to know their true effect on GDP, from either an income or expenditure point of analysis. But suffice to say, it's much larger than you thought. Even just looking at their profit (not income) we're talking about a 100-fold difference.

The gaming industry constitutes 12% of Malta's GDP and 5-6% of their tax base now. Do you really think Malta would institute a cryptocurrency regulation scheme where they get nothing out of it?

Btw, this doesn't mean they have actually paid any taxes yet, right?

They probably have, but that's not public information.

[stompix]

Where are you getting this "predicted €1 billion in revenue?" Binance was aiming at net profit of $500M-$1B in 2018. We don't know their profit margin or revenue, but revenue should be much higher than that. It could easily be 500% of your estimate or more.

Revenue of 500% would mean binance would have a cost of 80% out of their revenue.
I doubt it very much, intermediaries are never getting close to that, plus imagine the share size, 4 billion in operating costs? What is this, Stuttgart plant?
Alphabet's entire business (google, yt, android, etc) had 87 billion in operating costs, can you even compare them?

But let's see the some real numbers:
What he aims is one thing, what he does in revenue a different story.
Besides, profits are also made from their investments, which will be exempt from tax.
https://www.bloomberg.com/news/articles/2018-07-06/world-s-largest-crypto-exchange-eyes-1-billion-profit-amid-rout
Q2 in 2018 was 300 million in revenue! From the man himself!
The first half of 2018 was far better than the first half of 2019.

Look at the volume binance reported themselves and this thing
https://www.theblockcrypto.com/tiny/binance-brought-in-78-million-in-profits-in-q1-up-66-quarter-on-quarter/

You said that Binance contributed no more than 0.01% of GDP. Now you're asserting that the licensing fees Binance pays = their total effect on GDP. These are apples and oranges. Licensing fees constitute a small percentage of Binance's operation. We don't have enough data to know their true effect on GDP, from either an income or expenditure point of analysis. But suffice to say, it's much larger than you thought.

If you don't have data how can you claim something?
How else would Binance contribute to the GDP, by having 10 employees located there and paying for a 100 sq foot office?

Btw, this doesn't mean they have actually paid any taxes yet, right?

They probably have, but that's not public information.

Again...probably.

[squatter]

You said that Binance contributed no more than 0.01% of GDP. Now you're asserting that the licensing fees Binance pays = their total effect on GDP. These are apples and oranges. Licensing fees constitute a small percentage of Binance's operation. We don't have enough data to know their true effect on GDP, from either an income or expenditure point of analysis. But suffice to say, it's much larger than you thought.

If you don't have data how can you claim something?

Because based on net profit alone -- not accounting for expenses -- effect on GDP (based on income) is €400 million + expenses. This is compared to your €5 million number.

How else would Binance contribute to the GDP, by having 10 employees located there and paying for a 100 sq foot office?

GDP = actual total output. Binance would be irrelevant from a tax perspective if their effect on GDP was limited to a small office and a few employees.

Considering that the other side of the spending coin is income, and since your expense is somebody else’s income, another approach to calculating GDP—something of an intermediary between the two other approaches—is the income approach. Income earned by all the factors of production in an economy includes the wages paid to labor, the rent earned by land, the return on capital in the form of interest, as well as corporate profits.

From that angle, Binance already constitutes a significant portion of Malta's GDP. That's why if Binance is subject to Malta's corporate taxes -- and I don't see why they wouldn't be since they are domiciled there -- they also constitute a significant portion of the tax base. If they maximize all tax breaks, their tax rate drops from a maximum of 35% to a minimum of 5%. On €400 million net profit, that still comes to €20 million in taxes, or another 0.55% of Malta's total tax revenue. This is not including licensing fees which we agree could constitute (conservatively) another €5 million, or 0.14% of total tax revenue.

One single business comprising 0.69% of national tax revenue doesn't seem like a big deal to you?

Btw, this doesn't mean they have actually paid any taxes yet, right?

They probably have, but that's not public information.

Again...probably.

I think it's fair to assume that Binance is paying taxes, otherwise Malta has no reason to continue sanctioning them. It's also fair to assume they are paying the lowest corporate tax rate possible, which is why I am assuming the 5% rate rather than the normal 35% rate.

There's no logical reason to assume they aren't paying taxes.

[stompix]

Because based on net profit alone -- not accounting for expenses -- effect on GDP (based on income) is €400 million + expenses. This is compared to your €5 million number.

GDP, if we talk about untaxed money is quite irrelevant.
Take Ireland for example.
https://www.irishtimes.com/business/economy/is-ireland-s-booming-economy-just-an-illusion-1.3444645
The GDP has grown by 50% even ahead of China, the government budget...by 16%.

To the people in Malta, it means zero that a company is making 500 trillion if they pay 10 cents in tax.
Just as Google did in Ireland.

How else would Binance contribute to the GDP, by having 10 employees located there and paying for a 100 sq foot office?

Binance would be irrelevant from a tax perspective if their effect on GDP was limited to a small office and a few employees.

Binance has 300 employees, the development team is still in Singapore, the support is god knows where so how many are left and for what? So, again what impact?
Here are the words of the great CZ himself:

So we are registered in multiple locations and we have people in multiple locations. That way we will never be affected by one regulatory body.

From that angle, Binance already constitutes a significant portion of Malta's GDP. That's why if Binance is subject to Malta's corporate taxes -- and I don't see why they wouldn't be since they are domiciled there -- they also constitute a significant portion of the tax base. If they maximize all tax breaks, their tax rate drops from a maximum of 35% to a minimum of 5%. On €400 million net profit, that still comes to €20 million in taxes, or another 0.55% of Malta's total tax revenue. This is not including licensing fees which we agree could constitute (conservatively) another €5 million, or 0.14% of total tax revenue.

One single business comprising 0.69% of national tax revenue doesn't seem like a big deal to you?

Yeah, this is the problem.
They will not be taxed for 35% unless that profit is made from selling coins to fiat and earning a profit.
That was the whole deal, to avoid taxation if Binance's profit is in BTC they won't be taxed!
They can simply elude the law by earning their revenue in the form of satoshis from % fees until they will sell those they WON'T be taxed.

And what do you know:

When you trade on Binance exchange , our system will give you a discount of deductible fees automatically on the condition of having enough BNB in your account. The cost BNB amount depends the market price.By default, if you hold BNB in your account, your trading fees will be automatically subtracted from your BNB balance

As long as they don't sell those tokens they won't be taxed a penny!!!!

Do you think that and exchange who changes countries every year is going to pay up willingly millions?
Be serious!

I think it's fair to assume that Binance is paying taxes, otherwise Malta has no reason to continue sanctioning them. It's also fair to assume they are paying the lowest corporate tax rate possible, which is why I am assuming the 5% rate rather than the normal 35% rate.
There's no logical reason to assume they aren't paying taxes.

If 2 months before them fleeing Japan I would have said that Binance is not able to cope with Japanese rules and they will flee in the middle of the night while lying to everybody that everything was right, I would have been digitally pitchforked here!!  
We have an exchange who fled the most friendly country, and that been the second runaway, that lied about regulations, that choose tax heaven, WHY should I believe them?

And, just to make things sure, because I know that people have a tendency to defend crypto business just...because
If Deutsche Bank would also flee from Germany to Malta, would you say it's so damn good for Malta?  

Oh, and yeah, I would trust more DB, GS, and probably even first Rothschild himself than CZ and Binance.
They have a history of avoiding regulations and lying and manipulating and faking, no way in hell I'm going to believe in him giving away a penny if he could avoid it.

[malevolent]

GDP, if we talk about untaxed money is quite irrelevant.
Take Ireland for example.
https://www.irishtimes.com/business/economy/is-ireland-s-booming-economy-just-an-illusion-1.3444645
The GDP has grown by 50% even ahead of China, the government budget...by 16%.

To the people in Malta, it means zero that a company is making 500 trillion if they pay 10 cents in tax.
Just as Google did in Ireland.

That was due to tax special deals Ireland gave to multinationals and it's ending now due to pressure from the EU.

Yeah, this is the problem.
They will not be taxed for 35% unless that profit is made from selling coins to fiat and earning a profit.
That was the whole deal, to avoid taxation if Binance's profit is in BTC they won't be taxed!
They can simply elude the law by earning their revenue in the form of satoshis from % fees until they will sell those they WON'T be taxed.

And what do you know:

When you trade on Binance exchange , our system will give you a discount of deductible fees automatically on the condition of having enough BNB in your account. The cost BNB amount depends the market price.By default, if you hold BNB in your account, your trading fees will be automatically subtracted from your BNB balance

As long as they don't sell those tokens they won't be taxed a penny!!!!

Then they'd probably have to move again if they decided to pull such a trickery. Moving companies isn't the same thing as buying a new domain name if a previous one is gets freezed, and Malta is relatively business-friendly place, at least as far as developed countries go, it wouldn't be smart to burn their bridges there.

[squatter]

Because based on net profit alone -- not accounting for expenses -- effect on GDP (based on income) is €400 million + expenses. This is compared to your €5 million number.

GDP, if we talk about untaxed money is quite irrelevant.

I'm talking about taxed money.

Here are the words of the great CZ himself:

So we are registered in multiple locations and we have people in multiple locations. That way we will never be affected by one regulatory body.

What is that supposed to prove?

From that angle, Binance already constitutes a significant portion of Malta's GDP. That's why if Binance is subject to Malta's corporate taxes -- and I don't see why they wouldn't be since they are domiciled there -- they also constitute a significant portion of the tax base. If they maximize all tax breaks, their tax rate drops from a maximum of 35% to a minimum of 5%. On €400 million net profit, that still comes to €20 million in taxes, or another 0.55% of Malta's total tax revenue. This is not including licensing fees which we agree could constitute (conservatively) another €5 million, or 0.14% of total tax revenue.

One single business comprising 0.69% of national tax revenue doesn't seem like a big deal to you?

Yeah, this is the problem.
They will not be taxed for 35% unless that profit is made from selling coins to fiat and earning a profit.

How do you figure? The Income Tax Act defines profits made from a trade/business as taxable. It doesn't exempt cryptocurrency.

That was the whole deal, to avoid taxation if Binance's profit is in BTC they won't be taxed!
They can simply elude the law by earning their revenue in the form of satoshis from % fees until they will sell those they WON'T be taxed.

Why do you think that would work under Maltese tax law?

Why seek out the lowest corporate tax rates in the world, only to egregiously cheat on taxes anyway? Why repeatedly announce such huge profit targets -- and transparently burn BNB based on actual profits -- only to claim to Malta they made $0?

They've built the biggest exchange brand in the world and are now going the "legitimate" route with segregated markets and licenses. You think they would risk publicly losing their Maltese license and burning their bridges over €20 million in taxes? Let's keep in mind that CZ is personally a billionaire, and he owns Binance -- an actual cash printing machine.

If 2 months before them fleeing Japan I would have said that Binance is not able to cope with Japanese rules and they will flee in the middle of the night while lying to everybody that everything was right, I would have been digitally pitchforked here!!  
We have an exchange who fled the most friendly country, and that been the second runaway, that lied about regulations, that choose tax heaven, WHY should I believe them?

How is Japan friendly at all? They are by far the biggest nanny state regulator in the world regarding cryptocurrency. CZ was stupid to set up shop there and risk operating without a license. They were apparently trying (at least as of January 2018) to obtain an FSA license and were operating illegally in the meantime. That was Binance's only mistake re: "jurisdiction hopping" -- thinking they could operate under the noses of the FSA in the middle of a regulatory crackdown.

Let's not forget that all exchanges were run out of China, not just Binance. OKCoin, Huobi, BTCC and dozens of other exchanges left at the same time. So you have only one example of a "runaway."

And, just to make things sure, because I know that people have a tendency to defend crypto business just...because

I'm not defending Binance so much as defending Malta. You make it seem like Malta operates as a haven for criminals, while being so incredibly stupid that they reap no economic benefits from it. Color me skeptical!

This is a quid quo pro and Malta is benefiting handsomely, just like they have been from shelling out online gaming licenses.

[stompix]

I'm not defending Binance so much as defending Malta. You make it seem like Malta operates as a haven for criminals, while being so incredibly stupid that they reap no economic benefits from it. Color me skeptical!

I'll strat with this so further discussions won't be pointing in this direction.
I have no problems with Malta's model, they could benefit a lot from it, the only problem is the other party, Binance and the others.
It's like starting a farm, arranging a beautiful plot, a well-built barn, getting rid of all the coyotes, seeing your cows grow and when it's milking time you put your glasses on and you see you have a bunch of donkeys and no sign of cows.

If we would have been talking about Coinbase or Bitstamp who have a past that is like a care bears story compared to binance, yeah probably they would have seen some money. From Okcoin and Binance, nope, I don't believe it.


3 in one this time:

Why seek out the lowest corporate tax rates in the world, only to egregiously cheat on taxes anyway?

You think they would risk publicly losing their Maltese license and burning their bridges over €20 million in taxes?

Then they'd probably have to move again if they decided to pull such a trickery. Moving companies isn't the same thing as buying a new domain name if a previous one is gets freezed, and Malta is relatively business-friendly place, at least as far as developed countries go, it wouldn't be smart to burn their bridges there.

Yeah, why would they do this...
If they are already in crypto heaven why opening two "offices" let's call them in Bermuda and the BVI?

Guys who are we talking about, seriously!!!

We talking about a guy that was in charge of developing software for trading, a guy that worked for OKcoin exactly at the point when Okcoin began faking volume, trades, everything.
He runs away from China, stayed in Singapore, runS to Japan, runS from Japan, every time lying everyone in their face that everything is ok, he is in talks, he is negotiating, this while packing his bags.
And how he fled Malta and he is planning to set offices in the most dubious places on earth.
If this is not a rat digging more escape holes I don't know what this is.

Let's keep in mind that CZ is personally a billionaire, and he owns Binance -- an actual cash printing machine.

That actually makes things worse.
Billionaires and millionaires (in the hundred) are the ones that are doing the worse tax evasion.
You don't see a football player from the 4th division doing tax evasion, but Neymar and Messi who were making 40 millions a year.

The binance story will end badly, so will the bitfinex one, I just hope it won't affect us, but it will probably be more than a slap on the wrist.

Anyhow, at this point you have your opinion, I have mine, doesn't seem like anything but time will change them.  
And we're derailing a bt from the topic also, it was more about Malta's trouble with the EU.