Indiscriminate PEP rules undermine public sector’s ability to attract talent – Norman Aquilina

Malta’s approach to Politically Exposed Person (PEP) status could be discouraging highly qualified professionals from accepting public appointments, according to Quinco Holdings Executive Chairman Norman Aquilina.

In a post shared on LinkedIn, Mr Aquilina argued that attracting capable people into public positions is essential to running the country effectively, but that the implications associated with being designated a PEP can act as a significant deterrent.

“To run the country well we need the best minds. Yet, many qualified people decline a public appointment because it automatically means being designated as a Politically Exposed Person (PEP),” he said.

PEPs are individuals who are, or have been, entrusted with prominent public functions. Malta’s Financial Intelligence Analysis Unit (FIAU) states that individuals holding functions included on Malta’s designated list are considered PEPs.

Under the EU’s anti-money laundering framework, obliged entities dealing with PEPs must apply additional measures, including obtaining senior management approval for establishing or continuing business relationships, taking adequate measures to establish the source of wealth and funds, and carrying out enhanced ongoing monitoring. These requirements also extend to family members and known close associates.

Mr Aquilina said these requirements can have practical consequences for professionals who take up public appointments.

“From day one, you are flagged for enhanced due diligence and source of wealth checks, as are your family and close associates. Opening a bank account or running your private business becomes more complex, slower, and more expensive, and it continues even after you leave office,” he said.

EU rules require member states to maintain lists specifying the functions which qualify as prominent public functions. The framework also requires risk-sensitive measures to continue for at least 12 months after an individual leaves such a position, and for as long thereafter as a PEP-specific risk is considered to remain.

Mr Aquilina stressed that he was not arguing against enhanced scrutiny of PEPs, but rather questioning the range of positions to which the designation applies.

“No one should question the level of scrutiny PEP status requires, but we should be able to challenge which roles trigger it,” he said.

He argued that Malta has taken what he described as a “maximalist approach” to the designation of public functions, while claiming other jurisdictions have adopted a more balanced, risk-based approach.

According to the FIAU, Malta’s definition covers people entrusted with prominent public functions, excluding middle-ranking and more junior officials. The FIAU also notes that anyone holding a position not included in the relevant national list does not qualify as a PEP, although enhanced due diligence may still apply where a particular business relationship or transaction presents a high money-laundering or terrorist-financing risk.

Mr Aquilina warned that the implications could ultimately affect the pool of people willing to serve in public positions.

“With a narrower talent pool, the outcome is predictable, with many appointments ending being shaped by political expediency rather than competence,” he said, adding that this may serve partisan interests but not those of the country.

“For many who are best qualified, the prospect of becoming a PEP remains a clear deterrent,” Mr Aquilina concluded.

“Malta has a PEP paradox that has become a competence trap.”