Tax havens: Maltese FDI raises ‘dirty money’ influx concerns in South Korea

Foreign Direct Investment (FDI) through money flows from Malta-based investors made the country one of the top 10 primary investors in South Korea between January and June of 2022. Its high ranking, among three other tax haven countries, has raised concerns regarding the possibility of increased “dirty money” flowing into the country, according to several Korean media reports.

The reports, published on Wednesday following an announcement by the country’s Ministry of Trade, Industry and Energy that FDIs in South Korea reached US$11.086 billion during the first half of the year. Malta was listed as its eighth-biggest investor with $264 million, after the United States, Cayman Islands, Singapore, Japan, China, the Netherlands and Guatemala.

Alongside the Cayman Islands, Guatemala and the Virgin Islands, Malta was one of the four countries classified as tax havens, which carry out minimal trade with South Korea – raising questions about the size of the investments.

To give an example of the jarring figures, one report by BusinessKorea cites how exports from South Korea to the Cayman Islands totalled US$2.84 million in the first half of the year. In contrast, the Cayman Islands invested US$1.546 billion in South Korea in the first six months of the year.

According to the report, money flows into the country through tax havens is on the rise. “In many cases, such money flows have to do with mergers and acquisitions… it is also true that the flow is more likely to be related to tax evasion and money laundering,” the report quotes the ministry as saying.

Malta’s reputation as a tax haven is not new. Just this Saturday, The Shift reported how Colombian singer Shakira is currently facing six charges linked to tax crimes following a year-long investigation by Spanish authorities who argue her crimes were aggravated through the use of companies in Malta and other low-tax jurisdictions. The singer of acclaimed songs including ‘Whenever, Wherever’ and ‘Hips Don’t Lie’ is accused of using a network of 14 offshore companies to avoid tax to the tune of €14.5 million, and is facing a €23.3 million fine and a possible eight-year jail term.

Separately, an investigation by The Shift on Thursday reported how Malta’s lax company oversight had enabled the empire of Gabriel Valentin Comănescu, a Romanian millionaire with Russian links, who made use of 26 companies registered in Malta, which remain active till today.

An EU Tax Observatory report published in September shows that Malta is one of 17 tax havens worldwide in which Europe’s 36 largest banks book billions in shareholder profits to avoid taxes they would otherwise have to cough up in other, higher-tax jurisdictions.

Meanwhile, regulation from the EU side remains lax. In July, the European Commission began a public consultation on a new draft directive against ‘enablers’ that facilitate tax evasion and ‘aggressive tax planning’ to step up the fight against tax evasion and aggressive tax planning by addressing the role of the enablers who create these complex and non-transparent structures”.

A recent attempt by the European Commission in December, where they proposed a directive that would ensure a 15% minimum corporate tax rate across all EU member states – voted against by all Maltese MEPs when it was first proposed – remains dead in the water after Hungary opposed the minimum corporate tax rate at European Council level.

Malta was placed on the Financial Action Task Force’s grey list in 2021, however, was removed in June, with FATF president Marcus Pleyerafter announcing that the country succeeded in “completing” an action plan.