The Republic of Malta — a windswept Mediterranean island steeped in medieval history — is famous for its Roman catacombs, Byzantine ruins and Crusader castles. Tourists love all that, as does Hollywood.
But these days, Malta wants to be a leader in 21st- as well as ninth-century innovation.
Keith Azzopardi, the country’s ambassador in Washington, outlined his vision for economic prosperity during a wide-ranging interview in Valletta, the Maltese capital.
To be sure, that vision includes tourism — Malta’s economic mainstay — but also online gambling, offshore financial services, cryptocurrency and the emerging world of blockchain technology.
“Everybody is convinced this is going to be the future. But nobody knows where it’s going, and at what pace,” he said. “So instead of waiting — like we did with online gaming — we’ve created a regulatory framework for both investors and customers.”
Azzopardi, 40, spoke to The Washington Diplomat over breakfast at the Domus Zamittello hotel, a renovated palazzo fronting Republic Street, across from Malta’s Parliament.
Before taking up his new post in September, Azzopardi spent five years as permanent representative to the Organization for Security and Cooperation in Europe and as ambassador to Austria, where he was the youngest member of the Vienna diplomatic corps. And for 10 years before that, he represented Malta at the European Parliament.
One entity Azzopardi doesn’t represent is the Sovereign Military Order of Malta, a Catholic fraternity of knights that assists the world’s poor and also has embassies around the world (see related story).
“The Order of Malta was based here for a long time, from 1530 to 1798, when they were kicked out by the French, so they’re a big part of our history,” said Azzopardi, who was born and raised in the ancient Maltese town of Rabat. “We get lots of emails addressed to the ambassador of the order. People think it’s Malta the country, and I always kindly reply and tell them it’s not.”
Located smack in the middle of the Mediterranean, Malta sits 50 miles south of Sicily, 176 miles east of Tunisia, and 207 miles north of Libya. That accident of geography has made the country religiously, ethnically and linguistically diverse. In fact, Maltese — the only Semitic language written in Latin script — is about 80 percent Arabic, 15 percent Sicilian/Italian and 10 percent English. Nearly all Maltese speak English and frequently other languages as well; Azzopardi is fluent in Italian, Spanish and Dutch.
A Filmmaker’s Paradise
Thanks to the fact that Paul the Apostle was shipwrecked here around 60 A.D. and immediately began spreading Christianity, Malta is today one of the world’s most Catholic countries; tourist brochures boast that it has 365 churches, one for every day.
When it comes to superlatives, it’s hard to beat the Maltese islands. At only 122 square miles, Malta is less than a tenth the size of Rhode Island, the smallest U.S. state. With only 475,000 inhabitants (all but 37,000 of them on the main island of Malta, the rest on nearby Gozo), it’s the smallest of the European Union’s 28 member states by both size and population. Yet its population jumped by over 15,000 residents in 2017, making it the fastest-growing country in the EU.
Even so, Valletta is still the tiniest EU capital city — covering less than half a square mile — and Malta itself is the tenth-smallest and fifth-most densely populated country on Earth after Monaco, Singapore, the Vatican and Bahrain.
Archaeologically speaking, the megalithic stone temple complex at Ġgantija, on the island of Gozo, ranks among the world’s most ancient structures, dating from 3600 to 2500 B.C. — even older than Stonehenge or the Egyptian pyramids of Giza.
Malta’s spectacular landscape has provided the backdrop for some of Hollywood’s most memorable movies, including “Midnight Express” (1978), “Clash of the Titans” (1981), “Munich” (2005), “World War Z” (2013) and “Captain Phillips” (2013). Ironically, “The Maltese Falcon” — a 1941 mystery drama starring Humphrey Bogart — was shot not in Malta but in San Francisco.
“What makes Malta so attractive as the Mediterranean filming destination of choice are not simply the financial incentives and its locations — which allow it to play a large number of places and sceneries — but also because we offer all the support filmmakers need,” Azzopardi said, noting that his government’s 2016-20 National Film Policy has begun attracting productions from as far away as India.
Bitcoin, Blockchain and DLT
But the country is hoping to not only make a name for itself onscreen, but online as well.
Malta’s service-based economy has traditionally been dominated by tourism as well as English-language schools, the maritime and aviation industries, and small-scale pharmaceutical manufacturing. But now, Malta wants to take its competitive edge to the next level.
With that in mind, the government has approved several pieces of legislation including the Malta Digital Innovation Act, the Innovation Technology Arrangements and Services Act, and the Virtual Financial Assets Act. These make Malta the first country in the world to provide an official set of regulations for operators in the blockchain, cryptocurrency and distributed ledger technology (DLT) industry.
Blockchain is essentially a public record of transactions. “Whenever someone makes a transaction, it is broadcasted to the network, and the computers run complex algorithms to determine if the transaction is valid,” wrote Jonathan Paul Wood in an October 2017 Medium article. “If it is, they add it to the record of transactions, linking it to the previous transaction. This chain of linked transactions is known as the blockchain. Since the transactions all reference the one before them, you can figure out which ones came first, thus ordering them.”
The technology could revolutionize industries ranging from real estate to digital currencies, otherwise known as cryptocurrencies.
Meanwhile, “a DLT is a sort of decentralized digital database which can have a number of different applications from currency transactions (what virtual currency Bitcoin and the platform Blockchain are most famous for) to supply chain management or even certification,” according to a February 2018 article in the Times of Malta by Ivan Martin. It says the government believes this sector could rival Malta’s online gaming industry within the next five to 10 years.
“A large number of big, renowned companies and startups are coming to us because we have this unique regulatory framework,” the ambassador said, naming Coinvest, OKEx and Binance — the world’s leading cryptocurrency exchange — as examples. “We also offer a lot of incentives. Our goal is not just to attract investors, but to encourage them to stay here.”
Even so, as Martin’s article points out, blockchain technology is not without controversy, “and many countries have so far been cautious about implementing a technology that is viewed as a potential money-laundering risk by some international authorities.”
On the other hand, said Azzopardi, “we have a stable government, and there’s a consensus on the creation of this new sector across all political parties. And unlike other countries, we have one regulator here. In the U.S., for instance, each state has a different definition of blockchain.”
From Colony to Refugee Haven
Yet many Americans know relatively little about Malta, a British colony from 1815 to 1964 that suffered aerial bombing by the Germans during World War II (and incidentally, was the only country in Europe to allow visa-free entry to Jews fleeing Nazi persecution).
“We have very good relations with the U.S.,” Azzopardi said. “Even though we officially opened diplomatic ties in 1964, immediately upon independence, our relations date back long before that,” he explained. “Recently I visited Philadelphia and went to see the Liberty Bell. I didn’t know that the current bell was recast by a Maltese immigrant — and the tour guide who was telling us this didn’t know I was the Maltese ambassador.”
From 1971 to 1984, at the height of the Cold War, Malta was ruled by Dom Mintoff, longtime leader of the country’s Labour Party. Mintoff, who had also served as prime minister from 1955 to 1958 — when Malta was still under the British crown — was an anti-colonialist revolutionary who courted China and closely aligned the island with Libya’s Muammar Qaddafi.
“After independence, the British left and we had nothing here, only the shipbuilding industry,” said Azzopardi. “The government didn’t even have money to pay civil servants, so it had to get money from somewhere, and neither the Americans nor Europeans helped us.”
He added: “One of the reasons we wanted independence was to become a neutral country. Luckily, we’re still a neutral country. There’s no talk of joining NATO, as long as neutrality remains in the constitution.
Even so, Azzopardi says “there’s a big discussion now” in Malta about what neutrality really means in this day and age.
“Of course, the United States wasn’t happy because Mintoff was a leftist. He recognized communist China, he was a big fan of Qaddafi. But we cannot say we ever had bad relations with the United States,” he said. “Thank goodness we have no issues with any other country. We have no hidden agenda. And we’re too small to be of any threat to anybody.”
In 2018, Malta received 2.3 million tourists — led by visitors from Britain, Germany, France, Italy and other EU countries. During the first 10 months of 2018, Malta received nearly 41,000 tourists from the United States. That’s nearly twice the number of Americans who visited during the same period in 2016, despite the lack of direct flights.
Yet immigrants are also arriving — both those coming to make money and others escaping misery in the Middle East, Africa and elsewhere. In the early 1990s, Malta received an influx of Iraqi refugees in the wake of the First Gulf War; these days, it’s common to see Eritreans, Somalis, Pakistanis, Filipinos and others mingling with the local Maltese population.
“It’s an issue for any country, but we cannot close our eyes to the humanitarian crisis,” Azzopardi said. “The difference between us and countries on the European mainland is that if there’s a boat in distress on the high seas, we cannot let them die. It’s not because international laws say so, but because they’re human beings.”
This past summer, Malta took in dozens of African refugees from several ships including the Aquarius and the MV Lifeline — both of which were drifting in the Mediterranean off the Libyan coast— after Italy refused them permission to dock.
“Unfortunately in Europe and beyond, there’s this huge, scary wave of populism, and populists feed on fear,” Azzopardi said. “The Italians have closed their ports. On several occasions, we brought migrants to Malta and our prime minister was able to convince other European leaders to distribute them among their countries. But on a European level, we have failed completely. There’s no consensus in the EU on how to deal with migration.”
He added: “Discrimination is everywhere, and I cannot deny that it exists here too. Thank God our economy is so good. There are many jobs available. And when people have money and a decent living, the situation is calmer.”
Tax Destination or Haven?
Indeed, Malta’s unemployment rate hovers below 3 percent, with expected GDP growth of 4.9 percent this year, making Malta the fastest-growing economy in Europe.
“We haven’t had one single tax increase in the last six years. Malta’s not the cheapest place in Europe by far, but we’re still very competitive,” said Azzopardi, who added that Brexit is a colossal mistake. “We deeply regret that it’s not just one member getting out of the EU, but it’s our closest ally. We wish the British position was otherwise, but it’s up to them and we respect their decision. For us Maltese, nothing is going to change.”
The decision though may be a boon to Malta. Michael Ashcroft, a billionaire conservative British donor to the “Leave” campaign, has urged British businesses to set up a base in Malta so they can trade with the EU in the wake of uncertainties caused by Brexit.
A special report penned last June by Ashcroft praises Malta ahead of Paris, Frankfurt and other large European cities, and concludes that Malta “represents the best destination for ambitious U.K. firms that must have a post-Brexit presence in the European Union.”
But Malta’s low tax rates have led to charges that the tiny Mediterranean country has become an offshore tax haven for corporations looking to skirt their taxes and even criminal enterprises looking to stash their illicit money.
In fact, Malta offers foreign companies the lowest tax on profits in the EU, as low as 5 percent, according to a May 2017 BBC article by Herman Grech.
A report commissioned by the European Parliament showed that “Malta helped multinationals avoid paying €14bn ($15.6 billion) in taxes between 2012 and 2015, which would have gone to other EU countries,” Grech wrote.
Malta counters that those EU countries are simply trying to grab a chunk of that revenue for themselves. “It’s not Malta’s problem that it has an attractive tax jurisdiction. It’s the problem of other EU states that don’t,” former Finance Minister Tonio Fenech told the BBC. “Why should I increase my tax rates to please Germany or France? A lot of countries should look at the way their tax system has killed off business and led to unemployment.”
But the tax issue isn’t just about competition; it has a darker, criminal side. The infamous Panama Papers leak in 2017 detailing hundreds of offshore tax havens used by politicians, celebrities and criminals revealed that the Maltese prime minister’s chief of staff, a prominent minister and four businessmen held secret companies in Panama. Despite the uproar, last month a Maltese Court of Appeals revoked an order to launch an inquiry into allegations of money laundering by government officials exposed in the Panama Papers, claiming “hacked” documents cannot be used as evidence.
In May 2017, a team of journalists researched tens of thousands of documents and compiled what they called the “Malta Files,” which denounced the island as a “pirate base for tax avoidance.” In addition to alleging that international conglomerates where taking advantage of the country’s low tax system, the report claimed that Malta had become a haven for firms linked to the Italian mafia and Russian loan sharks.
On Oct. 16, 2017, Maltese investigative journalist Daphne Caruana Galizia was assassinated when a bomb went off in her car. The 53-year-old reporter had spent decades investigating government corruption; allegations of money laundering between Malta’s online gaming industry and organized crime; the country’s citizenship-by-investment scheme; and other suspicious dealings involving powerful players on the island.
In the process, she faced countless threats. Novelist Margaret Atwood, writing in a recent opinion piece for The Guardian, noted that Caruana Galizia’s house was set on fire; her family’s dogs were killed, she faced dozens of libel lawsuits, many from high-level politicians; and the government froze her bank account. Maltese Prime Minister Joseph Muscat even sued the reporter over allegations that his wife profited from an offshore company.
At the time of Caruana Galizia’s death, she had been sifting through the Panama Papers to investigate corruption on the island and offshore wealth tied to the prime minister’s inner circle.
A year after her death, the circumstances surrounding her murder remain a mystery. Three men were arrested in connection with the bombing, but there’s been no information on who actually ordered the killing.
A Reporter’s Assassination
Before concluding our interview, we asked Azzopardi about Caruana Galizia’s death and why no politician has been questioned in the case — an unprecedented act of violence in a country not known for mob killings or assassinations.
The journalist’s family believes that the three men awaiting trial for the crime were acting on orders from inside Malta, and have expressed concern that elements within the government may be protecting whoever commissioned the killing. The EU has also expressed frustration that the government appears to be stalling attempts to find those responsible for the murder.
“It was a big shock for everybody,” Azzopardi said. “From the moment we heard the news, the government called for foreign security agencies to join the investigation — and these foreigners will not cover up for the government. We have heard a lot of very unjust criticism. The international media is speculating and accusing the government of many things. But I was taught that when it comes to the rule of law, the judiciary is independent.”
Yet that independence cannot be guaranteed, according to a Dec. 17 report by the Council of Europe’s Venice Commission. In its report, the five-member panel concluded that it couldn’t judge the effectiveness of the government’s investigation because “the Prime Minister is at the center of power and other actors (President, Parliament, Cabinet of Ministers, Judiciary, Ombudsman) have too weak an institutional position to provide sufficient checks and balances.”
That immediately prompted Prime Minister Muscat’s government to announce that “it is in general agreement with the bulk of the Venice Commission’s proposals” and that it would implement constitutional reforms.
Azzopardi said the most prudent course of action is “to respect the independence of the judiciary” until the case is concluded.
“No matter what it is, the government will respect the court’s final decision,” he told us. “The rule of law is not a cherry-picking exercise. It’s there, and we have to respect it — so we prefer to bite our tongues and let the course of justice do its thing.”
About the Author
Tel Aviv-based journalist Larry Luxner is news editor of The Washington Diplomat. His recent trip to Malta was sponsored and organized by the Malta Tourism Authority.