Timeline of Events
- On 21 March 2018 the MFSA issued directives:
- removing Ali Sadr Hashemi Nejad from the position of director of the Bank and any executive roles that he holds within the bank;o
- ordering that Ali Sadr suspends the exercise of his voting rights as shareholder of the Bank and refrains from exercising the legal and judicial representation of the Bank;
- directing the bank not to allow any banking transactions, including withdrawals or deposits held with the bank as shareholder, member of the Board of Directors and Senior Management officials of the Bank, or any connected persons or related persons thereto, whether direct or indirect;
- directing the Bank to obtain the MFSA’s prior approval before effecting any movement of the Bank’s assets.
- On 22 March 2018, the MFSA appointed Mr Lawrence Connell as a ‘Competent Person’, to take charge of all the assets of the Bank including any assets related to the investment services business of the Bank, and to assume control of the Bank’s banking and investment services business and to continue carrying on that business until such time as the MFSA may direct.
- The European Central Bank (ECB) withdrew the authorisation of the Bank with effect from 5 November 2018.
- The last audited financial statements filed by the Bank, were those for the year ended 31 December 2016.
- The audited accounts for the year ended 31 December 2017 have not yet been finalised, even though there are still enough directors on the board to approve them.
- The competent person has the duty to prepare six-monthly reports, and to present them to the responsible minister who has to table them in Parliament. To date, reports should have been prepared and presented for the period March 2018 to August 2018, September 2018 to February 2019, March 2019 to August 2019, and September 2019 to February 2020.
Report for the six months March 2018 to August 2018
This first report was presented in Parliament on 23 March 2020 and the following are some of the more important aspects highlighted in the report, and some observations I made:
- As at 21 March 2018, the Bank had total assets of €126,910,409, total customer deposits of €114,406,149 and loans to customers €66,639,329. Total Equity (Share capital plus retained earnings) was €10,790,371.
- The bank had 162 deposit clients, six loan clients and six clients to whom the Bank had provided financial assistance in connection with applications for residence, citizenship or similar programmes introduced by Malta.
- The main loan within the six loans, was a loan in the amount of $73 million that was secured by the client’s deposit in the Bank, and US Treasury Bills amounting to $12.5 million. In essence, the client was borrowing its own funds. Of the remaining five loans, three were loans to related persons.
- Although the Bank described its operations as providing investment corporate and retail banking services to high net worth individuals, it did not operate as an ordinary bank, but rather as a money transfer operation.
- This is a key issue. Making a deposit with the bank and then withdrawing it as a loan, is a common measure adopted in money laundering. This happens particularly where customer due diligence is weak or vitiated. Funds deposited, would more likely than not, represent money from illicit business. Once the deposit is accepted, the subsequent withdrawal would turn into clean funds, as it arises from a bank to bank transfer. Such a deposit could also be made to eventually make transfers to other accounts, particularly in secretive and/or weak jurisdictions.
The reference to three of the loans being made to related parties of the main depositor/loan holder seems to point, in my opinion, to the main loan holder and the three loan takers, possibly all politically exposed persons, while the third loan taker possibly being the sister of the shareholder/managing director. Please refer to my observation on Point 8 below.
These three related loan holders may also point towards the Egrant issue exposed by the Pilatus Bank whistle blower and Daphne Caruana Galizia.
In fact, The Daphne Project had confirmed that a Dubai company co-owned by Leyla and Arzu Aliyeva, the two daughters of Azerbaijan’s ruler Ilham Aliyev, did indeed hold an account at Pilatus Bank.
The third loan could refer to a transfer marked as a loan payment made through a bank account at Pilatus Bank. This loan account was allegedly opened in the name of Negarin Sadr, the sister of Ali Sadr, with an amount of $1 million. The findings in this first report, already point to the engineered narrowness of the Egrant Inquiry Report.
I must also highlight that the report of the competent person, post dates the Egrant Inquiry Report published on 22 July 2018.
- The bank was not acting as an ordinary bank as supposedly it should have, but as a money transfer operation. This is exactly what was happening at Satabank – see point 2 in my article 2 on Satabank.
In fact, it would be interesting to see whether the competent person will in a subsequent report, gives the transaction values going through the accounts held at the bank.
- The competent persons states that the Bank’s loan portfolio was reviewed to determine its quality, documentation and liquidity. It was discovered that three loans were impaired (that is, recoverability was considered doubtful), and a provision of $4,057,715 was made for these loans.
Observation – This situation points to two scenarios, one being lack of customer due diligence in granting loans, the second being another money laundering vehicle, whereby a loan is given to a company which hives off the loan and then declares bankruptcy.
- The competent person highlighted the issue of the closing of correspondent bank accounts, and states that the Bank had 9 correspondent banks with 26 accounts. However, problems were encountered as some banks refused to clear transfers from correspondent banks even to the Central Bank of Malta.
Observation – The issue of correspondent banks has already been mentioned by the competent person of Satabank, and this consolidates the problem Malta is facing with its negative reputation as a money laundering centre, primarily, but not exclusively, with the suspicious operational activities of these two banks.
- The competent person stated that, with regard to Anti Money Laundering (AML) matters, a number of accounts were identified as a cause of concern and that they were subject to further discussion, analysis and appropriate action, which included various meetings with the competent authorities.
Observation – On this, and other issues mentioned earlier, I must perforce refer to the highly questionable statement ‘the shortcomings no longer subsist’, made by the FIAU in its second compliance report on Pilatus Bank issued on 12 September 2017 with reference to an earlier report issued a few weeks earlier, which, following an onsite inspection, found systemic failures in terms of money laundering regulations and compliance. The inspection had found that Pilatus Bank’s two ‘principal clients’ are PEP’s (Politically Exposed Persons) in a high risk money laundering jurisdiction, Azerbaijan. Moreover, the bank also classified most of its PEP’s as being from Azerbaijan. Despite evidence of transactions involving PEP’s 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, to date, taken action on the FIAU report.
It would be interesting to know whether the new Deputy Commissioner of Police and/or the Attorney General, will be taking any action, following this first report by the Competent Person.