Malta’s first steps towards becoming an international financial centre

Anthony R Curmi

The series of articles entitled ‘The Cabinet Papers’ which this newspaper published earlier this year made interesting reading especially to octogenarians such as me who were close to the events of some 50 years ago. One of these articles headed “Laying the groundwork for Malta as a financial services centre” (TMIS, 2 March) brought back memories of my own involvement in the very first steps that were taken by Barclays Bank International Malta in 1969.

As far as I know, Barclays had no knowledge at the time of what was revealed recently through publication of the Cabinet papers that the 1962 government, with Dr G Borg Olivier at the helm as Prime Minister, had in hand proposals submitted by the London-based merchant bankers Ralli Brothers for “converting Malta into an international and tourist centre”.

What I have known all along is that, as the leading bank in Malta, Barclays had sounded the government in 1969 on the likelihood of Parliament considering passing legislation that would place Malta among other international financial centres such as Switzerland and Luxembourg in Europe and others centres of repute elsewhere. Both Borg Olivier and his Finance Minister, Dr Giovanni Felice, are known to have supported the idea.

I was seconded for an entire year in 1970 to Barclays’ main office in Nassau, Bahamas where the bank had a network of seven offices in different islands and also offered Trust and offshore banking services through a wholly-owned subsidiary. Admittedly, those were the days when banking supervision was not as rigid as it is nowadays and when exercising the ‘due diligence’ concept that has since become common practice was unheard of. Yet, my experience in such a different banking environment to what I had been used to in Malta and that gained from various periods of training with Barclays in London was indeed an eye opener.

This because, like Malta, the Bahamian economy thrived mainly on tourism and on the provision of financial services to customers not only from the neighbouring USA mainland but worldwide. Certainly one cannot say that the Bahamian example of legislation covering offshore financial services placed the Bahamas on the list of international financial centres of high repute. Indeed, I witnessed with my own eyes how the laxity of strict controls on the avoidance of money laundering and on enforcement of the cardinal principle ‘know your customer’ did attract a high preponderance of undesirable customers.

Nonetheless, armed with a basic knowledge of the operations of an international financial centre, on my return to Malta in January 1971 I was entrusted with a two-pronged task. The primary one – especially in view of the imminence of a general election later that year – was to prepare a proposal to government for the localisation of Barclays’ banking operations in Malta with the bank holding a majority 60% shareholding and 40% of the equity being offered to the public. The secondary task was to prepare a paper outlining the scope and advantages of Malta introducing legislation covering the concept of offshore financial services and Trusts.

Outline proposals were duly submitted to the government but with a general election in the offing, these were pigeonholed by Finance Minister Felice. With the change in government in June 1971 and Dom Mintoff becoming Prime Minister, the proposal for the localisation of Barclays’ local banking operations was welcomed by the government but on the basis of a 60%/40% partnership between the government and Barclays with the majority being held by the former and not the latter and with no participation by the public. This project of creating a new bank (Mid-Med Bank) was delayed until October 1975 only due to the shocks suffered by the local banking system, first by the closure of BICAL and in 1972 by the run on the National Bank of Malta which resulted in the creation of Bank of Valletta.

The other proposal for enacting “offshore banking and trust services” legislation got the hatchet. Sources close to the Prime Minister strongly advised that any attempt to push the idea would be met with harsh retribution from Mintoff. So the opportunity for Malta to make its first steps towards becoming an international financial centre of repute in the early seventies was lost and 15 years had to pass (in 1987) before this became a reality. I wonder if the Ralli Brothers 1962 report influenced Mintoff’s negative views on the matter because the bank was owned by prominent Jewish families. Incidentally, my recent research on this merchant bank revealed that it had merged with the Israel Discount Bank which later (in 1983) became insolvent and was nationalized by the Israel government. So it seems just as well that the Ralli name never became publicly associated with Malta!

However, as luck would have it, I was personally involved in the implementation of not only one but both proposals, the seeds for which were planted in 1969. This because I led the team that laid the groundwork for the setting up of Mid-Med Bank on 1 October 1975 and I was appointed its first General Manager, a post I retained until March 1980 when I resigned to pursue my banking career abroad, initially in London and subsequently as Barclays’ Group General Manager in Italy based in Milan.

It so happened that when I was posted back to London in 1986, I was invited to be the guest speaker at the annual dinner of the Malta League at a West End hotel. As I was given freedom of choice as to the topic, I chose the theme “Malta as an international financial centre”. This I thought might generate discussion, more so as rumours were circulating that such a proposal was likely to be included in the Nationalist Party’s electoral manifesto for the ensuing general election. My speech evidently reached Malta’s shores as it was published in the July 1987 issue of the Malta Foundation of Industry magazine.

Soon after the change back to a Nationalist-led government in May 1987, I took early retirement from Barclays and returned to Malta in September of that year. I was soon asked by Prime Minister Dr Fenech Adami to assist a small team that had been formed in the offices of Dr Joe Fenech, who had been appointed Parliamentary Secretary for Maritime Affairs & Offshore Activities. The government had already accepted an offer from Chase Manhattan Bank for one of their senior officers based in New York to visit Malta periodically to give advice and especially to assist with the drafting of Malta’s first legislation covering international banking and financial services and also Trust services.

Fortunately, there was general agreement on both sides of the House but, with Mintoff still an MP (although not Leader of the Opposition) much credit for the fact that this legislation had a smooth passage through Parliament must go to Lino Spiteri who was the main Opposition speaker and, apart from putting forward constructive proposals, managed to restrain whatever opposition emanated not only from Mintoff but also from other elements within the Labour Party that held strong views against the introduction of any form of offshore financial services legislation.

Immediately following the passage of two Acts, i.e. The Malta International Business Activities Act 1988 and The Trusts Act 1988 the Malta International Business Authority (MIBA), saw the light of day and I was appointed its first CEO with Dr Mario Felice (coincidentally son of the Finance Minister to whom Barclays had proposed that Malta ventures into the field of offshore financial services way back in 1969) as president. Unfortunately, circumstances arose that rendered my association with MIBA short lived as differences of opinion on what I considered to be fundamental matters led to a premature resignation on my part.

Still, I look back with a certain amount of satisfaction on my having been involved in both the setting up of Mid-Med Bank (which assumed all Barclays’ local banking operations) and in the first steps that Malta took towards joining the ranks of international financial centres of repute.

I emphasise in regard to the latter that, as was explained in an accompanying White Paper at the time, the aim of the 1988 legislation was merely an attempt for Malta to test the water and the declared intention was to revise the legislation so as to open offshore facilities also to Maltese nationals thus broadening the scope of the original laws. A 10-year horizon for that was foreseen at the time.

Indeed, during his first term as Finance Minister, John Dalli embarked on a radical review of the offshore legislation and also of Malta’s fiscal legislation. As a result, in 1994 Malta was no longer an ‘offshore’ location for financial services as the regime was brought ‘onshore’ with fiscal incentives that were in line with what was permitted by OECD countries and European Union legislation. MIBA became known as the Malta Financial Services Authority (MFSA).

Dalli was given full support by the Opposition, again mainly due to Spiteri’s influence within the Labour Party. Thus I can lay no claim to the success of the existing broad based legislation and all credit is due to these two former Finance Ministers. 

On a less serious note, it is worth recalling that both Dalli and Spiteri hail from Qormi. I myself was born in Sliema but I often wonder if the surname Curmi originated in Qormi; this because I have come across very old maps of Malta that show what is now Qormi as ‘Casal Curmi’. So, maybe, it can be said that ‘three sons of Qormi’ merit recognition – in my case to a much lesser degree than the other two – for having placed Malta in the world league of international financial centres of repute; an ambition I myself harboured 45 years ago.