Malta in the dock

Pilatus Bank owner Ali Sadr has not been accused of any criminal activities in Malta so far, but a person who is being accused of very serious crimes in the US by the FBI was given a license to open and operate a bank in Malta.

This gives rise to some serious questions that need to be answered principally by the Malta Financial Services Authority (MFSA), but also by the anti-money laundering agency (FIAU) and the police. The writing has been on the wall for a very long time, yet Malta’s authorities act as if there was absolutely nothing they could have done to prevent Malta turning into the Panama of Europe.

On 26 April, the European Parliament’s special committee on financial crimes, tax evasion and tax avoidance was convened. Representatives of MFSA and FIAU were invited to share information on the licensing of Pilatus Bank, and the supervision of its activities.

They also had to field very tough questions by MEPs as well as endure heavy criticism.

During the debate the police were heavily criticised for their complete inaction in the matter despite the red flags raised in various FIAU reports. The FIAU provide intelligence, but ultimately it is the police that need to convert the intelligence to evidence that leads to arrest, prosecution and conviction. The police have a very poor record in this, as this parliamentary question shows.

But many other questions remain unanswered. What information did the MFSA obtain on the background of Ali Sadr as well as the source of the funds used to set up the bank and then increase its capital?

What enquiries did the MFSA make and who were the enquiries directed to? What supporting documentation did the MFSA obtain to validate the legitimacy of the funds and the results of the enquiries?

How does a 32-year-old Iranian individual with a St. Kitts and Nevis (SKN) passport and with no previous experience in banking manage to set up a private Malta bank geared to attract high net worth individuals and politically exposed clients?

This is a matter of basic due diligence, and shifting the blame to a third party outsourced to run these checks just does not cut it. The FIAU has a role in ensuring that all the operations of a bank are legitimate, while the police are responsible for following up any red flags that the FIAU raises.

But the ultimate responsibility of licensing a bank and monitoring the legitimacy of its activities lies solely with the MFSA, and the buck stops with them and them alone.

It should be noted that in May 2014, the US Treasury’s Financial Crimes Enforcement Network (FinCEN) published a notice to warn that passports obtained through St. Kitts and Nevis Citizenship-by-Investment Program (managed by Henley and Partners) were being used to facilitate financial crime. Iranians using St Kitts and Nevis’ citizenship programme to dodge US sanctions were specifically mentioned. Didn’t that ring any bells in Malta?

Pilatus held more than €300 million in assets, according to its latest annual report. Pilatus held merely 150 accounts. 60 of them made up the majority of the bank’s deposits, and belonged to the children of senior political figures in Azerbaijan who used these accounts to move money around Europe for secret investments.

Azerbaijan is considered to be a high-risk jurisdiction requiring extra scrutiny by banks. Didn’t this ring any bells in Malta?

The Prime Minister’s chief of staff Keith Schembri was also confirmed as a client of Pilatus Bank. He is currently facing a magisterial inquiry and is the subject of leaked FIAU reports which cite two separate cases with ‘sufficient evidence’ to conclude ‘reasonable suspicion of money laundering’. Didn’t this ring any bells?

A report by Malta’s anti-money laundering agency also said that Schembri took a “personal interest” in the Pilatus licensing process. He also attended the wedding of Ali Sadr in Florence, along with Prime Minister Joseph Muscat. Didn’t this ring any bells?

Disgraced European Commissioner John Dalli also held an account at Pilatus. His daughters were charged with money laundering, misappropriation of funds, fraud, making a false declaration to a public authority, falsifications of documents and the use of said documents.

Dalli’s eldest daughter, is charged with breaching the financing of terrorism act and failure to carry out her duties as an accountant and auditor. They were running a Ponzi scheme. Didn’t this ring any bells?

The Shift News reported that Pilatus Bank transferred over half the funds held by the bank since assassinated journalist Daphne Caruana Galizia started her revelations on its operations, but it is not clear where the amounts went. Pilatus Bank now holds €126.9 million in funds. Didn’t this ring any bells?

Malta’s greatest assets in the area of finance are its regulatory framework, its fine professionals, and its reputation. Malta’s reputation has now been shot to pieces, possibly irreparably, and we face a possible coup de grace if HSBC decides to leave Malta as is being contemplated by the CEO of HSBC. A country which does not boast a single large multi-national bank is hardly credible as a financial centre. Who will shoulder responsibility for this?

Moreover, there are currently 24 banks operating in Malta according to the MFSA website. Do we have any other Pilatus Banks amongst these?