As Pilatus Bank embarks this week on another one of its charm offensives, read here Godfrey Leone Ganado’s summing up of the facts:

The Financial Intelligence Analysis Unit carried out an on-site examination between 15 March and 22 March 2016 to primarily focus on the measures in place within the Bank to deal with clients who are politically exposed clients, including individual clients who are Politically Exposed Persons (PEP’s) and corporate clients in which there is the involvement of a PEP either as a director, shareholder, ultimate beneficial owner, signatory or holder of a power of attorney.

Officers of the Enforcement Unit of the Malta Financial Services Authority (MFSA) also participated in the on-site examination.

Some report conclusions from the examination are as follows:

  • The bank does not distinguish on its Know your Client (KYC) forms whether an applicant for business is a PEP or not and the forms are not signed by the client.
  • It was evident that the Bank failed to gather sufficient information relating to the source of funds of certain particular transactions.
  • In one particular bank account, the equivalent of approximately Euro 1 million was transferred into an account, classified as high-risk, from the bank account of a third-party. No documentary evidence was recorded on file on the origin of the Euro 1 million. Furthermore, this same third-party made a number of other significant deposits in different bank accounts pertaining to companies owned by the same Ultimate Beneficial Owners (PEP’s in a high risk jurisdiction) within a short period of time. Once again it was noted that no information on the source of funds was recorded.
  • The equivalent of approximately Euro 505,000 was deposited into the same client’s bank account from the bank account of a third-party. No supporting documentation was obtained by the Bank on this transaction which involved the repayment of a loan by a friend of a bank’s client. When asked about this, the Bank’s Money Laundering Officer claimed that the culture of these clients is not one where loan agreements are drawn up in writing but one where agreements are reached through a ‘handshake’.
  • Furthermore, once the income from three particular companies was the main source of wealth of these clients and various large transactions originated from these businesses, it was expected that, as a minimum, accurate and comprehensive documentary evidence was in place and kept on file.
  • Overall, it appears that there has been a glaring, possibly deliberate disregard of the applicable legislative provisions.
  • The Bank, in fact did classify Azerbaijan, being the country of nationality of most of the Bank’s PEP clients, as a high-risk jurisdiction. Moreover, these clients are not only considered to constitute a higher risk to the Bank because they are nationals of a jurisdiction which is considered to pose a higher risk of money laundering, but at law are also PEP’s or close associates of PEP’s occupying prominent public functions.

FIAU says Pilatus Bank shortcomings ‘no longer susbsist’.

On 26 September 2016, the FIAU sent a letter informing Pilatus Bank that the shortcomings it had identified in terms of compliance with money laundering laws “no longer subsist”.

The letter was signed by the FIAU’s acting director following on the resignation of the director, Mr Manfred Galdes, on 1 August 2016.

The FIAU reviewed representations made by the bank, “particularly that the relevant customer documentation was available at the bank and its Compliance Monitoring Committee carried out a follow-up examination on 8 August and 10 August, to see if all relevant documentation “had in fact” been obtained by the Bank.

In the September letter, the FIAU said a significant amount of information and documentation not made available in March had been presented to FIAU and MFSA officials and, on the basis of that, the shortcomings that had been previously identified “no longer subsist”.

The FIAU, however, expressed disappointment and concern that the requested documentation had not been provided to its officials during the March inspection.

Such documentation, the FIAU noted, was only made available following its letter dated May 2016.
Nevertheless, the FIAU said the issues it had previously raised “are now closed”. Among those issues were the lack of sufficient documentation to prove the legitimacy of certain funds and the ease with which politically exposed persons were able to carry out transactions without the level of scrutiny required by law, with the FIAU calling this a “veil of secrecy”.

Pilatus Bank Annual Audited Report 2016 – signed on 23 June 2017 and filed at the MFSA on 22 August 2017

Directors’ report – the directors state in their report “subsequent to the end of the financial year, more specifically since 20 April 2017, a blogger has levelled claims against the Bank and other parties which were subsequently regurgitated by the Maltese media outlets. The Board of Directors pronounced that the claims against the Bank are totally unfounded and levelled without any verification and documentary evidence. Such claims resulted in the launch of a number of magisterial inquiries in which the Bank willingly has participated as a witness. The inquiries are still ongoing at the time of the approval of these financial statements. Pilatus Bank refutes these claims. To this end the Bank has taken legal actions both locally and internationally against a number of parties”.

“The Directors feel that there has been a considerable shift in media attention following the local elections which further support their understanding that the false and unfounded claims made were unsubstantiated”.

Independent Auditors’ Report – signed on 23 June 2017

Going Concern

The Key Audit Matter

Subsequent to the end of the financial year, claims of non-compliance with laws and regulations were levelled against the Bank and other parties. Such claims resulted in the launch of a number of magisterial inquiries in which the Bank participates as a witness. The inquiries are still ongoing at the time of the approval of these financial statements.

The outcome of the magisterial inquiries may impact the Bank’s reputation and could possibly impair its ability to continue to operate as a going concern.The extent of judgement that is necessary in determining the appropriateness of the going concern assumption underlying the preparation of the financial statements renders such a matter to be identified as a Key Audit Matter.


  1. The follow-up examination by the FIAU/MFSA was carried out between 8 August and 10 August 2016, that is, 7 days after the resignation of the director of the FIAU, Mr Manfred Galdes who was the author of the FIAU report.
  2. In the directors’ report, the directors make reference to a blogger but do not mention the employee turned Whistle blower who made the allegations, and who also divulged the allegations to the blogger and a member of the independent media in a published interview, besides going out of her own free will to the inquiring magistrate.
  3. It would be interesting to follow-up what the directors will state in their next Annual Report for 2017, once the blogger has now been assassinated brutally by evil forces, always unless the magisterial inquiry is concluded by then.
  4. Unless the magisterial inquiry is concluded before the next statutory audit for financial year 2017, the Key Audit Matter regarding the going concern aspect of the Bank will have to be retained by the auditors.
  5. The Maltese Non-Executive Director resigned on 28 April 2017 well ahead of the approval of the audited financial statements on 23 June 2017.