Use of Cash (Restriction) Regulations
Introducing the Use of Cash (Restriction) Regulations
During the 2020 Budget speech delivered by the then Minister for Finance and Financial Services in October 2019, the Government announced Malta’s first policy decision to impose restrictions on cash payments for the acquisition of certain high-value goods. This was done primarily to curb cash payments in those sectors of the economy most susceptible to be used for money laundering purposes.
After the announcement of the above-mentioned policy decision, the Financial Intelligence Analysis Unit (“the FIAU”) was entrusted in 2020 with a further function to monitor compliance with any restrictions on payments in cash introduced under the Prevention of Money Laundering Act (“PMLA”). To this end, amendments to Article 16(1) of the PMLA were introduced by means of Act I of 2020.
On the 9th of March 2021, the Use of Cash (Restriction) Regulations (S.L. 373.04) (“the Regulations”)were published in the Government Gazette as Legal Notice 81 of 2021 and came into effect on the same day.
Through these Regulations, it is now a criminal offence to make or receive payment or carry out a transaction in cash amounting to €10,000 or more (or its equivalent in another currency), whether in a single transaction or in several linked transactions. This prohibition is not universal but is only applicable in respect of the sale or purchase of any of the following:
(b) immovable property;
(c) jewellery, precious metals, precious stones and pearls;
(e) sea-craft; and
(f) works of art.
A fine of not less than 40% of the sum paid, received, or otherwise transacted in cash in excess of €9,999.99, can be applied to any person who fails to comply with these Regulations. There is scope for a lesser administrative penalty through the conclusion of a settlement agreement upon the consent of the Attorney General. Directors, managers or any other officers exercising executive functions in a company or other undertaking, or body of persons, can be held liable in solidum with the company, undertaking or body of persons in case of any such breach.
For further guidance on common interpretational issues of these Regulations, interested persons are invited to refer to the frequently asked questions below.
These questions and answers do not constitute the entire set of obligations, penalties and powers relating to the Use of Cash (Restriction) Regulations but are intended to explain the more commonly asked questions by buyers, traders and other interested parties. These interpretations are not binding on the FIAU and do not constitute legal advice.
What are the Use of Cash (Restrictions) Regulations?
The Use of Cash (Restrictions) Regulations are a set of legal provisions that make it illegal to make or receive cash payments of €10,000 or more for the following goods:
- Sea craft
- Works of art
- Immovable property
- Jewellery, precious metals, precious stones, and pearls
Cash payments below €10,000 are not restricted.
The Regulations do not restrict the amount of cash that can be used on goods other than those mentioned above.
The Regulations do not restrict payments made through means other than cash.
What does ‘cash’ mean? Does this include cheques or card payments?
The term ‘cash’ refers to physical notes and coins. The Use of Cash (Restriction) Regulations prohibit the use of cash, i.e., using physical banknotes and coins to pay a sum of €10,000 or more. The term ‘cash’ does not include other forms of payment such as cheques, card payments or bank transfers. Hence, payment by means other than physical banknotes and coins is not limited or restricted by the Regulations.
Do the Use of Cash (Restriction) Regulations apply to purchases made before the law came into force?
No. The Use of Cash (Restriction) Regulations do not have a retroactive application. This means that the Regulations apply only to those transactions (whether linked or otherwise), made in cash from the day the law came into force, i.e. from 9 March 2021 onwards.
Do these regulations apply when depositing or withdrawing cash from a bank?
No. These regulations apply only to the buyer and the seller involved in a transaction concerning the purchase or sale of any of the items listed in the Regulations (i.e., immovable property, antiques, works of art, sea craft, motor vehicles, jewellery, precious stones, precious metals and pearls), when payment of €10,000 or more is carried out in cash. However, a bank may have other obligations under different laws which may require it to establish how funds deposited were generated and/or the reason behind certain transactions. This would be the case with the on-going monitoring obligations under the Prevention of Money Laundering and Funding of Terrorism Regulations.
Do the Regulations apply to goods such as furniture ?
No. The restrictions apply only on the goods that are listed in the Regulations. This means that other goods such as furniture can be paid for in cash without any restriction on the amount as long as the furniture in question does not fall to be considered as antiques.
What type of jewellery do the Regulations cover?
For the purpose of the Regulations, the term ‘jewellery’ refers to personal ornaments made in whole or in part, or covered with gold, silver, platinum or other precious metals and/or, set with diamonds, precious stones or pearls, and wrist watches.
What are precious metals?
For the purpose of the Regulations the term ‘precious metals’ refers to gold, platinum, palladium and silver in the pure state and their alloys.
What are precious stones?
For the purpose of the Regulations the term ‘precious stones’ refers to substances with gem quality and market-recognised beauty, rarity, and value. They include diamonds, sapphires, rubies, and emeralds.
What is meant by sea-craft?
A sea-craft is any ship, boat, pleasure yacht and any other form of sea-craft which is used in navigation.
What is meant by motor-vehicles?
Any self-propelled road vehicle which is normally used for carrying persons or goods on the road. This includes cars, motorcycles, buses, trucks, and construction vehicles. The vehicle can be in both new and second-hand condition.
What is understood by antiques?
The term ‘antiques’ refers to works of art or objects of geological, paleontological, archaeological, or antiquarian importance, which are at least one hundred years old.
Does the cash restriction apply only when paying cash using the Euro currency?
No. The restriction also applies when payment is made in cash in any other currency. The limit on the amount of that currency that can be paid in cash is the equivalent of €9,999.99.
Do these Regulations apply only to buyers?
No. The Regulations apply to any person transacting in cash (i.e. coins and banknotes), whether they are buying or selling.
Do the Regulations apply to purchases between private individuals?
Yes. These Regulations apply also in cases of private, non-commercial transactions. E.g.: A person selling their used personal vehicle through a social media website would have to abide by the Regulations and would, together with the buyer, be committing a criminal offence if the seller were to accept cash as payment in excess of €9,999.99 from the buyer.
What are linked transactions?
Linked transactions consist of two or more transactions which have the following three elements:
- They are performed by the same individual(s)
- They have a similar or linked purpose
- They are carried out within a six-month period
Example of a linked transaction:
Two cash payments of €7,000 each, one carried out in June and the other in August, to pay for the same car, would constitute a linked transaction. This is because they are performed by the same individual, have a similar or linked purpose (the same car), and are carried out within a six month period.
Does the cash restriction apply only to individual items?
No. Even multiple items purchased in a single transaction are considered as linked.
a) Trader ‘A’ is an antique dealer and acquires a lot of Melitensia items. The seller requests payment in cash. Individually the items are priced well below the EUR 9,999.99 but collectively they exceed the said amount. If Trader ‘A’ were to accede to the seller’s request, the two of them would be breaching the Regulations.
b) Trader ‘B’ is a car dealer. In January an individual acquires a car from Trader ‘B’ with the intention to use the same for a new taxi service. In March of the same year, the same individual acquires a further vehicle from Trader ‘B’ for the same purpose. Individually the vehicles did not exceed EUR 9,999.99 but taken together they do. While it is possible for payment for the first vehicle to have taken place in cash, this is not possible with respect to the second one as it would result in a breach of the Regulations. The two transactions meet the conditions to be considered as linked.
- If an individual purchases any of the goods listed under regulation 3(1) (vehicles/seacraft/works of art/antiques/immovable property/jewellery/pearls/precious metals and stones), and within a 6-month period purchases once again the same good from the same seller, for the same purpose, that purchase is considered as linked. Furthermore, if both cash payments combined amount to €10,000 or more, then such payments would be in breach of the Use of Cash (Restriction) Regulations.
Can transactions be linked if they involve different sellers?
No. If transactions involve different sellers, they would not be considered linked, since the transactions would not have taken place between the same parties.
Are purchases by different family members considered to be “linked”?
No. If the purchasers are not the same person, then the transactions are not deemed to be linked.
There could be situations where a buyer is carrying out a transaction on behalf of someone else, possibly to prevent detection of linked transactions.
One example of this is as follows: Person A buys a vehicle from Trader B in March 2021. 3 months later, Person C buys a vehicle from the same Trader B, but registers the vehicle under Person A. In this case, Person C is buying the vehicle on behalf of Person A, and so these transactions are considered to be linked.
Whenever traders are aware that methods are being applied by the person making the payment or transaction to circumvent the law, such as through (but not limited to), the aforementioned example, the trader must consider such transactions as linked. Otherwise, if traders knowingly partake in such methods, they will also be in breach of the Regulations, as a party who has received the payment.
If multiple payments made for the same object are spread over a six-month period, are the payments linked?
Yes. Multiple payments in cash made in respect of the same good, are to be deemed linked when they occur over the same 6-month period and involve the same parties. This applies even if a payment is made as a deposit or relates to bills of exchange.
If a cash transaction made before the Regulations came into force (9 March 2020), is linked to a subsequent transaction which took place after 9 March 2021, would they be subject to the Regulations?
No. These regulations do not have a retroactive application, so transactions which took place before the regulations came into force are not considered linked to transactions that took place after the date.
Example: €9,000 were paid in cash to purchase a work of art before the coming into force of the said Regulations, and a further €2,000 were paid in cash with respect to the same purchase after the coming into force of the regulations. Since the first transaction of €9,000 was paid before 9th March 2021, it is not linked to the second transaction.
What happens if an individual breaches the law?
1. That individual will be guilty of an offence and on conviction will be liable to a fine of not less than 40% of the sum paid, received, or transacted in cash that was in excess of €9,999.99.
Example: If an individual purchased a vehicle using €18,000 in cash, the amount of €8,000.01 is in excess of the €9,999.99 limit permitted by the Regulations. The value of the fine for this breach will be a minimum of 40% of those €8,000.01 which were paid in excess, which in this case would amount to a minimum of €3,200.
The penalty would apply to both the purchaser and the seller.
2. In addition to the fine, the FIAU may recommend to any relevant authority, body or committee responsible for the authorisation, licensing, registration, or regulation of the trader concerned, to take any further action within its powers and remit as deemed suitable and appropriate by the said authority, body, or committee.
3. When the person found guilty of the offence is the director, manager or an officer who exercises executive functions in a company or any other undertaking, that person shall be deemed to be vested with the legal representation of the company or undertaking. In such a scenario, the company or undertaking shall be liable together with the individual found guilty.
Is there the possibility of an administrative settlement instead of going to court?
The Regulations also allow the possibility of settling the matter administratively through the payment of an administrative penalty as an alternative to criminal proceedings. For this to take place, the following are required:
- The consent of the Attorney General;
- An agreement is reached between the parties concerned prior to being charged in court; and
- Payment of the relative administrative penalty
An administrative settlement is prohibited in the following situations:
- Where the sum of the payment transacted in cash exceeds €100,000.
- In the case of a person who has previously been found guilty of an offense against the Regulations, unless three (3) years have elapsed from the date of such judgement.
- In the case of a person who has previously benefited from an administrative settlement, unless three 3 years have elapsed from the previous settlement agreement.
Is there a consequence for making a false declaration/representation or for producing false/incomplete information or documentation?
If an individual makes a false declaration/representation or produces false/incomplete information or documentation, such individual would be guilty of an offence and if convicted shall be liable to a fine of not more than €25,000.
What is the value of the administrative penalties that need to be paid?
In cases where the offender is offered an administrative settlement and the said offender accepts the same, the administrative penalty to be paid to the FIAU will depend on the sum paid, received, or transacted in cash as per the below:
- Where the sum paid, received, or otherwise transacted in cash amounts to not more than €50,000:
- An administrative penalty of 10% of the sum paid, received, or otherwise transacted in cash, in excess of €9.999.99 or its equivalent in any other currency shall be imposed.
- Such administrative penalty shall not be less than €1,000.
- Where the sum paid, received, or otherwise transacted in cash amounts to more than €50,000 but does not exceed €100,000:
- An administrative penalty of 25% of the sum paid, received, or otherwise transacted in cash, in excess of €9.999.99 or its equivalent in any other currency shall be imposed.
If a payment made or received is in contravention with this regulation, would it still be considered as valid?
Yes, the transaction is still valid. Acting in contravention of these regulations will not impact:
-The legal validity of the payment or transaction
-The contractual obligation in respect of which the payment or transaction were carried out.
This means that all parties to the payment or transaction shall be bound by their contractual obligations even if the payment is in breach on the Regulations.
What are the Notary’s obligations when it comes to property purchases?
Notaries are obliged to collect and record certain information, as outlined below:
- When it comes to parties to a deed, Notaries are obliged to collect the following information in relation to the buyer(s) and the seller(s):
- Full name
- The type and number of the official identification document issued by a government authority or the registration number in the case of companies
- When it comes to the payment, the Notary is obliged to collect the following information, depending on the payment method and instrument used to effect the payment:
- The IBAN of the payment accounts involved in the transaction
- The credit card/debit card number and the issuing institution
- The number of the cheque, bank draft or similar instrument & the name of the credit or financial institution on which it is drawn
- The methods or means of payment including payments in kind and the exact amount so paid
The above information, documents and data need to be retained for 5 years from when the transaction is carried out, or in the case of linked transactions, from the date on which the last transaction was carried out. Notaries must provide all information in a timely manner whenever the FIAU requests such information.
What is the FIAU’s role with regards to the Use of Cash (Restriction) Regulations?
The FIAU has the function to monitor and to ensure compliance with this regulation. Thus, it can carry out on-site examinations on traders of high-value goods to which the Regulations apply and notaries, and may require them to answer any questions and provide the information or documentation that may be needed.
The FIAU is also empowered to issue binding procedures and instructions on how traders and notaries are to comply with their obligations under the Regulations.
What are the consequences for failure to abide by any procedures and instructions issued by the FIAU?
Failure by traders and notaries to abide by the procedures and requirements issued by the FIAU will result in an administrative penalty of not more than €5,000. The FIAU may issue a warning in writing instead of an administrative penalty.