Revealed: Doctored report shows extent of collapse of rule of law

The report on the rule of law in Malta which was prepared for Daphne Caruana Galizia’s family following her murder in October 2017 gives a detailed overview of how state institutions and the media have been compromised since 2013.

Among others, the 53-page report delves into the appointment of several people linked to Labour in the judiciary, the failure of the attorney-general, the police and the Malta Financial Services Authority (MFSA) to investigate leaked reports by the anti-money laundering agency, the FIAU, on alleged kickbacks received by PEPs, links between Pilatus Bank and people in power and the highly polarised media landscape and its serious structural issues.

On Saturday, The Shift News reported how the Office of the Prime Minister gave foreign journalists a doctored report in which “someone went through the trouble of removing paragraphs on Pilatus Bank.”

According to revelations in a series of international investigations on the assassination of Daphne Caruana Galizia, Labour MP Glenn Bedingfield was meant to hand over to journalists a government report that tackled the main criticism being faced by the government.

READ MORE: Murder in Malta: government gives journalists a doctored report

Instead, he gave them a report that was an assessment on the rule of law in Malta prepared for Caruana Galizia’s family.

A page by page comparison revealed that paragraphs on Pilatus Bank were missing, which referred to the role of the bank’s Head of Legal and Compliance Claude-Anne Sant Fournier.

But the report goes much further. It shows how Malta’s rule of law deteriorated faster since 2013, the year Joseph Muscat was first elected Prime Minister, than any other European Union member state, according to the World Bank’s Governance Indicators.

“Malta’s ability to control corruption also deteriorated faster than any other EU member state since 2013, according to the World Bank’s Governance Indicators,” the report says.

It also highlighted the 2018 Freedom House report which shows Malta’s political rights and civil liberties ranking experienced one of the steepest drops globally in 2017, at the same rate as Libya, Hungary, Poland and Venezuela, slipping by 16 places in a single year.

READ THE FULL REPORT HERE

“The Economist Intelligence Unit’s 2017 Democracy Index saw Malta awarded its lowest score in a decade, with the fastest slide in Western Europe and freedom of speech in Malta now classified as only ‘partly free’.”

Below are some of the main takeaways from the report:

Independent institutions compromised

Over 55% of MPs are directly employed or contracted to government. Thirty-one Labour MPs have declared government appointments (some have multiple government appointments). Seven Nationalist Party MPs are also employed by the government.

Since 2013, Joseph Muscat’s administration has made 15 appointments to the judiciary, 11 of whom are connected directly to the Labour Party, out of a current 22 judges and 22 magistrates. These include former Labour deputy leader Toni Abela, former Labour MP Wenzu Mintoff and former Labour international secretary Joseph Mifsud.

Although attorney-general Peter Grech has powers vested in him by the Prevention of Money Laundering Act to initiate criminal investigations he failed to act on evidence of money laundering by senior government officials.

Grech has not acted on leaked reports drawn up by the Financial Intelligence Analysis Unit (FIAU) which investigated Tourism Minister Konrad Mizzi – the only government minister in the EU implicated in the ‘Panama Papers’ – and the Prime Minister’s Chief of Staff Keith Schembri.

The FIAU’s lead inspector Jonathan Ferris, is currently fighting a case against his dismissal from the FIAU, which he claims was politically motivated, in the Industrial Tribunal, which is controlled by the attorney-general. The attorney-general is further demanding that future sittings before the Industrial Tribunal be held behind closed doors, barring access to the media.

FIAU investigations

Three FIAU reports were leaked to the media on 26 May 2017, a week before the snap general elections held on 3 June 2017.

1. The first report shows bank transfers made through the Maltese bank account of Willerby Trade Inc., a company registered in the British Virgin Islands, ultimately owned by Brian Tonna of Nexia BT (who has direct links to Prime Minister Muscat as his accountant), in favour of a domestic bank account held in the name of Keith Schembri. The report found sufficient evidence to establish reasonable suspicion of money laundering in this case but the Police Commissioner, who was duty bound to act on it, failed to do so.
2. The second report showed that the FIAU’s on site inspection of Pilatus Bank found systemic failures in terms of money laundering regulations and compliance. The inspection found that Pilatus Bank’s two ‘principal clients’ are PEPs in a high risk money laundering jurisdiction, Azerbaijan. Moreover, the bank also classified most of its PEPs as being from Azerbaijan. Despite evidence of transactions involving PEPs which were missing supporting documentation on the origin of the funds or the purpose of the transfer, neither the Malta Police nor the attorney-general (who both sit on the FIAU board) have taken action on this report. The report also revealed that Pilatus Bank owner Ali SadrHasheminejad,
   since then arrested in the US, has close personal links to Keith Schembri.
3. The third report found that Adrian Hillman, then Managing Director of Allied Newspapers, which owns The Times of Malta and Sunday Times of Malta, received various payments into his British Virgin Islands company, Lester Holdings Group Ltd, from Keith Schembri. The transactions occurred between 2010 and 2015 and totalled approximately €650,000. Despite flagging ‘reasonable suspicion of money laundering’ by Schembri for the second time in a year, no police or judicial action was taken on this report.

Manfred Galdes who was head of the FIAU while at least one of the reports was produced and presented to the Police Commissioner resigned quietly from the FIAU in August 2016 with no reason given to the public. A few days after receiving the reports from Galdes in April 2016, then Police Commissioner Michael Cassar also resigned in April 2016, citing health reasons.

Since the FIAU reports, which finance minister Edward Scicluna suggested were ‘created to be leaked’, a magisterial inquiry has been launched into finding out who leaked the reports to the media.

Jonathan Ferris, who headed the FIAU’s financial analysis section, and Charles Cronin, who headed the FIAU’s compliance section, were fired without cause and between 10 March 2013 and 2 June 2017, there have been 15 resignations from the FIAU – equivalent to 52% of the agency’s staff.

FIAU changed its official position on Pilatus Bank in September 2016, shortly after Manfred Galdes had resigned as FIAU director. A letter then sent from the FIAU to Pilatus Bank saying that the Bank’s money laundering failures ‘no longer subsist.’

MFSA inaction 

Former MFSA chairman Joe Bannister, who was revealed in the ‘Paradise Papers’ to have taken up a Directorship of a British Virgin Islands company, ACP Special Situations 2, in March 2007, flew to and from Frankfurt on 14 June 2017 with Pilatus Bank owner Ali Sadr.

The MFSA inspection of Pilatus Bank in 2015 picked up that a major Azerbaijani PEP, Minister for Emergency Situations and President Ilham Aliyev’s reported front man, Kamaladdin Heydarov, had an account at Pilatus Bank, presenting a serious money laundering risk.

The same inspection picked up the fact that two Maltese PEPs, Keith Schembri and disgraced former European Commissioner John Dalli have accounts at Pilatus Bank. Schembri and Dalli’s names were deliberately left out of the report that the MFSA drew up following the inspection. The authority took no further action against the bank despite the discovery of these and other major PEPs in the bank’s client list.

On 31 May 2017, three days before the general election banking inspectors at the MFSA refused orders by their superiors to carry out an on site inspection at Pilatus Bank in 2017. One inspector, Mario Felice, resigned the same week rather than comply. The banking inspectors refused to inspect Pilatus Bank as they feared they would incriminate themselves in a whitewash operation to give the bank a “clean bill of health” to use to its own advantage. Sources told the media that they “suspect that there may be collusion between topmost officials at the MFSA and Ali Sadr”.

The media

The relationship between Adrian Hillman and Keith Schembri, who also has close ties to Saviour Balzan, the editor and owner of MaltaToday, has implications for media freedom in Malta. Daphne Caruana Galizia received information that showed calls from Keith Schembri to Saviour Balzan, some as late as 1 a.m., which coincided exactly with pro-government stories published in Balzan’s paper.

The report also focuses on Malta’s highly polarised media landscape. The Nationalist Party and Labour Party each own a television station, radio station, and newspapers as well as online news portals. The party in government also controls the national broadcaster, PBS, despite its nominal autonomy.

Since 2013, PBS has been staffed with former Labour Party reporters and the national station dropped programmes run by anti-government or insufficiently pro-government presenters.

The Central Bank of Malta 

In 2013, Muscat’s incoming government formally requested the resignation of the Central Bank’s governor  Josef Bonnici, a former Nationalist Party minister and professor of economics. The request was abusive because the government has no authority to remove the governor. Muscat’s first choice to replace Bonnici, Alfred Mifsud was named a second Deputy Governor with the aim of taking the helm once Bonnici’s term expired.

Mifsud, who for years chaired the Labour Party’s television and radio stations, and gave Joseph Muscat his first and only private sector job at the now insolvent Crystal Finance, an investment firm Mifsud owned with John Dalli, withdrew his candidature after being accused of taking cash bribes equivalent to hundreds of thousands of euro from well known Maltese businessman Ronnie Demajo when he was chairman of government-owned Mid Med Bank during the 1997-98 Labour Party administration. Instead, Muscat appointed his mentor and former Labour Party president Mario Vella as governor.

Five police commissioners in 5 years 

Since 2013, five different Police Commissioners have been appointed. Before 2013, the Police Commissioner had been in his post for 12 years.

Current Police chief Lawrence Cutajar failed to interrupt a private dinner with friends when Daphne Caruana Galizia reported that Pilatus Bank held the declaration of trust in its safe showing Michelle Muscat, the Prime Minister’s wife, is the beneficial owner of Egrant, a company in ‘Panama Papers’ presumed to have belonged to the Prime Minister himself. The revelations has been the subject of a criminal magisterial inquiry for almost a year.

VistaJet, a Swiss company, received an unprecedented €1 million payment for “in-flight” advertising. Ali Sadr flew into Malta and was filmed leaving the bank late at night with heavy luggage. A private jet flew to Baku and then onto Dubai shortly afterwards, where Egrant is reported to hold a bank account. The police did not investigate and Pilatus Bank was never searched.

The Police Force, rather than investigate and prosecute people implicated in the FIAU reports, has instead prosecuted aggressively the whistleblower from Pilatus Bank, Maria Efimova, who among other things confirmed Michelle Muscat’s ownership of Egrant to Daphne Caruana Galizia.

The Malta-Azerbaijan axis 

Malta’s links with Azerbaijan run very deep. Azerbaijani oligarchs consider Malta to be “one of its provinces”, according to an extensive report from the 80-NGO-member Civic Solidarity Platform into how Azerbaijan uses “caviar diplomacy” to buy the influence of Western politicians. Past and present Labour Party MPs are known for their support of Azerbaijan in the Parliamentary Assembly of the Council of Europe. In October 2013, former Labour deputy leader and now Speaker of the House Anglu Farrugia described the presidential elections in Azerbaijan as “fair, democratic and transparent.”

Malta also has an important relationship with the Azerbaijani government through the newly built gas plant that uses liquefied natural gas provided by the Azerbaijani state company SOCAR. Then Energy Minister Konrad Mizzi used his ‘ministerial discretion’ in December 2014 to sign an 18-year agreement in which Malta agreed to buy gas from SOCAR.

The Paradise Papers leak showed a number of financial links between Malta and Azerbaijan: Azeri billionaire Mübariz Mansimov, listed by Forbes as one of the richest people in the world, is linked to over 100 Maltese companies as part of his Palmali shipping group.