Almost three years after Pilatus Bank was shut down, Malta's financial crime investigators have revealed the extent of the "serious and systemic" failures at the bank. 

The FIAU report underpinning its record €4.9 million fine of Pilatus Bank lists nine pages of failings and paint a picture of a bank that was all too willing to ask no questions of the multi-million euro transactions that flowed through it. 

A massive 97% of customer files that were reviewed by the FIAU had information that was not up to date.  In 86% of the cases reviewed, Pilatus Bank allowed transactions to flow through it without the proper level of scrutiny.  

One such client had an account balance that ballooned from €750,000 to an eye-watering €150 million. Pilatus provided an email outlining how the customer had diversified their business, but no explanation of how that diversification had led to a 200x increase in income. 

High-risk clients, but few questions asked

The bank’s relaxed approach towards scrutinising transactions was further aggravated by the high-risk nature of the customers it serviced, the FIAU noted.   

Despite the paramount importance of enhanced due diligence in such cases, Pilatus "proceeded to allow millions to pass through the said accounts without proper due diligence (let alone of an enhanced nature) being carried out," investigators found. 

Where did the money come from? 

In several cases, investigators found issues of concern or missing information about customers' sources of wealth. 

Pilatus failed to obtain the necessary evidence to substantiate the source of wealth of one such client with assets worth around €100 million. It did something similar with another client with an expected account turnover of €20 million. 

The FIAU found 15 client files which all listed their source of wealth as being the same business operation. Pilatus did not check whether it made sense for one business to be funding 15 different clients, or what the links between those clients and the business were. 

The numbers did also not add up: while the financial statements provided for this business operation showed its income as being €23.5 million, the expected annual turnover of the 15 clients combined was a whopping €390 million. 

No checks

The FIAU also flagged instances when the bank had allowed large amounts of money, well in excess of estimates provided by clients, to "pass through without any checks." 

In one case, a customer received more than four times the initially anticipated amount of €80 million. In another, a customer received the equivalent of €7 million in an initial transaction, despite having previously indicated that the account activity was expected to be less than half of that, at €3 million. 

Another bank client - described by the FIAU as a "well-known entrepreneur in the United Arab Emirates and Azerbaijan" - provided documentation showing his account turnover as being of €5 million. But there were no details of the customer’s own assets (apart from names of corporate entities owned by the customer) and evidence of the business earnings obtained from the same.

Delays and discrepancies

In another instance, the FIAU found a discrepancy between an account with an estimated turnover of €10 million and a management account listing a total income of approximately €190,000. Pilatus did not query this. 

In one instance, Pilatus only obtained information about a customer's business operations after a seven-month delay, and without any documentation to back up the customer's claims. By then, €16 million had passed through the customer's bank accounts. 

The FIAU report describes Pilatus' approach to its ongoing monitoring obligations as "overall lax". 

A bank customer involved in the textiles sector transferred over €6 million and GBP£2 million to another owned by the same ultimate beneficial owner, claiming that the funds were intended as corporate financing on behalf of its shareholder. 

Pilatus did not ask why a trading company would transfer most of its funds to another company, rather than keep them to fund its own operations. 

'Sketchy' loan agreements

The report also details “sketchy loan agreements” and invoices to transfer money to and from each other. Pilatus did not ask any questions to see whether the explanations customers gave for these transfers were true.

Customers would receive money into their accounts and then made transfers to third parties, citing loan agreements that were vaguely worded and not queried by Pilatus.   

Millions moved between accounts, without supporting documentation or checks by the bank. In some cases, Pilatus gave its clients loans against cash held at the bank, without verifying whether the loans made economic sense.

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