Financial investigators from Duff & Phelps contracted by the Pilatus Bank magisterial inquiry found almost US$100 million in suspicious transactions involving Pilatus account accounts held by Leyla and Arzu Aliyeva, the daughters of Azerbaijani dictator Ilham Aliyev, that the bank neither investigated nor reported.

Of the Aliyeva accounts held at the bank, the firm said it “identified suspicious activity” in three particular transactions that they found “should have been investigated further” by the bank.

The details emerge from the Pilatus Bank inquiry led by Magistrate Ian Farrugia. Duff & Phelps’ 400-page report commissioned by the inquiry was published on Saturday by Repubblika President Robert Aquilina in his book, Pilatus: A Laundromat Bank in Europe.

All risk factors ignored

The investigators’ report goes into several Azerbaijanis’ dealings with the bank but the Aliyeva transactions came in for particular criticism for the kid gloves treatment the bank gave the politically-exposed daughters of the Azerbaijani strongman.

“We consider the Aliyeva sisters’ source of wealth to have been an additional risk factor of which the Bank should have been conscious when monitoring and processing transactions,” Duff & Phelps, which has since been renamed to Kroll, found.

Very little, if any, oversight, due diligence, Know Your Client or source of wealth processes were undertaken when it came to the Aliyeva sisters’ dealings at the bank, the inquiry’s investigators found.

The Aliyeva transactions were taking place between 2014 and 2016 – at the same time as the corruption-riddled deal former prime minister Joseph Muscat struck with the oil- and gas-rich nation’s state enterprise, SOCAR, for the commissioning and supply of the ElectroGas Delimara power station.

In December 2014 Muscat, his former chief of staff Keith Schembri and then-energy minister Konrad Mizzi took a secret trip to Baku where they signed a dubious ‘memorandum of understanding on energy cooperation’. The ElectroGas project was inaugurated in April 2017 under a dark cloud of multiple corruption revelations.

A photograph of the secret December 2014 meeting with SOCAR and Azerbaijani President Ilham Aliyev. The Maltese delegation can be seen on the right, composed of OPM chief of staff Keith Schembri, prime minister Joseph Muscat, minister Konrad Mizzi (partially hidden) and former government spokesperson Kurt Farrugia. The photo was published in the Azerbaijani press and not in Malta.

Overall, Duff & Phelps found that during that time the bank had failed to properly question the source of the funds stashed at and funnelled through the bank by members of Azerbaijan’s running elite, including the Aliyeva sisters.

The firm’s findings, published as part of Magistrate Farrugia’s 600,000-page magisterial inquiry into the now-infamous bank’s shady operations, make it clear and in no uncertain terms that Pilatus Bank turned a blind eye when it came to certain customers’ background checks and source of wealth queries – most especially when it came to the Aliyeva sisters.

Three Aliyeva deals under the spotlight

One of the sisters’ accounts, for Davinci Holding Ltd and Picasso Holding Ltd, received GBP1.75 million in proceeds from a property sale. The firm found that “supporting documents do not appear to have been obtained at the time of the receipt”.

When those supporting documents were finally delivered, they were not certified “despite the high-risk PEP status of the customers”.

The sisters’ Pilatus accounts were onboarded between 2014 and 2016. The Davinci and Picasso accounts were opened in February 2015, a couple of months after former prime minister Joseph Muscat, his chief of staff Keith Schembri and then-energy minister Konrad Mizzi struck the secret deal in Baku with the sisters’ father. Since then, Muscat has paid  a number of return visits to Baku.

Joseph Muscat at the Baku Global Forum last month. Photo: Trend News Agency

The sisters’ Raphael account, according to the investigation, received a US$73 million loan to purchase a Russian company, which the form found “the transaction sequence and complexity lacked apparent commercial rationale and should have been investigated further.” The Russian company, Eurville, a subsidiary of Edinklar Developments Ltd, owned a plot of land in Moscow. On this deal, investigators highlighted a “complex flow of funds”, “an apparent lack of commercial rationale for the loan costs [as opposed to simply making the purchase with available funds] and foreign currency transactions” and a “failure to apply collateral as purportedly intended”.

‘No rationale’ behind deal to purchase BVI company

A third Aliyeva transaction highlighted by investigators related to the Sahra and Titan Asset Investment Ltd deal, through which there was a transfer of just US$17.5 million for the subsequent purchase of an entity in the British Virgin Islands.

Again, the American financial investigators found, “The rationale for the transfers was unclear, including one transfer which post-dated the transaction, and the circumstances of the share purchase, including the status and value of the underlying Baku property assets, which should have been investigated further.”

Nor did the bank attempt or consider the bona fides of the seller or the status and value of the underlying assets.

A total of three debits had been made from Sahra’s US dollar account to Titan Asset Investment, of which the Aliyeva sisters are the ultimate beneficial owners.  Both accounts were at Pilatus Bank.

The facility was for Titan to purchase a British Virgin Islands company, Bayholding Investment Ltd, which owned real estate assets in Azerbaijan.

“The investigation found no explanation regarding why Sahra did not purchase Bayholding itself rather than establishing and using Titan. In our view, the Bank should have queried this further.”

Former prime minister Joseph Muscat with Azerbaijan President Ilham Aliyev. Photo: Department of Information.

Referring specifically to the Aliyevas, the investigators state in their report for the inquiry: “In light of the high value of transactions and the customers’ status as PEPs, in our opinion the Bank should have obtained adequate supporting documentation for the Davinci and Picasso receipts on a timely basis. Further, the Raphael, Sahra and Titan transactions should have been investigated further including submitting an STR [suspicious transaction report] to the Financial Intelligence Analysis Unit] in respect of each.”

The year before, in February 2014 – 10 months before Joseph Muscat’s secret trip to Baku – one of the daughters, Leyla Aliyeva, was hosted by Muscat’s wife, Michelle, at Girgenti Palace. Aliyeva runs the Heydar Aliyev Foundation – a charity organisation named after her grandfather, the former Azerbaijani president.

Source of wealth unknown

When it came to Aliyeva-related bank accounts at Pilatus, the investigators were “unable to identify any evidence that the Bank attempted to establish and assess adequately the source of wealth of the customers for over two years after the accounts were opened.

“As such, it appears that the bank established business relationships with PEPs without undertaking appropriate enhanced due diligence.”

The Bank remained in a state of non-compliance until it attempted to rectify the matter by filing new documents that the investigators found did not “adequately address how the Aliyeva sisters acquired the original wealth to develop such significant assets”.

Arzu and Leyla Aliyeva

The investigators noted that the Aliyeva sisters had acquired their holding in Pasha Bank, one of Azerbaijan’s largest, in 2013 by way of an inheritance or gift but that had not been verified or documented as it should have been.

“Further,” investigators found, “no steps appear to have been taken to ascertain how their grandfather acquired and developed a business conglomerate with such considerable assets when he appears to have been an academic.”