Two senior members of Malta's financial regulatory bodies have given evidence to the inquiry into the circumstances that led to the murder of investigative journalist Daphne Caruana Galizia in October 2017.

Deputy director of the Financial Intelligence Analysis Unit Alfred Zammit and the chief supervisory officer of Malta's Financial Services Authority took to the stand in the latest hearings. 

Here's what we learnt today:

• The MFSA launched an inquiry into Pilatus after Daphne Caruana Galiza began making claims about the bank in April 2017;
• MFSA investigators didn't want to go on site to investigate the bank because they were concerned the media would film them entering - one inspector even resigned over it;
• The MFSA was asked not to go on site by Egrant inquiry magistrate Aaron Bugeja and were not given the go ahead until November 2017;
• The MFSA had concerns about Pilatus bank's operations as early as mid 2015 - a year and a half after it opened;
• After FIAU and MFSA inspections in 2015 and 2016, both authorities felt the concerns had been addressed; the MFSA's chief supervisory officer said said it was "not concerned" but kept an eye on the bank anyway;
• Ex-FIAU investigator Jonathan Ferris, who turned whistleblower, was sacked because he was a "terrible manager", the FIAU deputy director said
• Meetings between the police and the FIAU were entirely normal and above board, the FIAU deputy director said, addressing concerns raised at a previous hearing about after-hours meetings;
• The FIAU deputy director admitted that the organisation does things 'differently now' to how it carried out investigations into Pilatus Bank in 2016

Below is an account of the inquiry's proceedings as it happened

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Live Blog

Inquiry continues on Wednesday

5.23pm That's it for today. Marianne Scicluna continued her evidence behind closed doors because of separate, ongoing legal proceedings. 

The inquiry will continue on Wednesday. 

Daphne's blog prompted MFSA investigation

5.12pm The MFSA official is now talking about the importance of Daphne Caruana Galizia's blog 'Running Commentary'. She says it was used as an "open source" and that the MFSA began to investigate the "allegations made by the journalist". 

"So the allegations were generally correct?" she is asked. 

She said that the MFSA contacted their intelligence team in the UK and that the FIAU investigated the money laundering side. The action was "taken shortly after the blog".

Inspectors were "not comfortable" with going onsite because of the media. "They didn’t wish to be filmed going onsite" and "first asked for documents and did a desktop inquiry".

One banking inspector had resigned because he did not want to go onsite and did not want to have anything to do with the bank, she says. 

"Was it so scary?" lawyer for the Caruana Galizia family Jason Azzopardi asked.

"Our people did not want to catch media attention. They did not want to appear on the papers."

She explains that magistrate Aaron Bugeja asked that no-one go onsite so as "not to interfere with the Egrant inquiry".

They later went to the bank when the Egrant inquiry magistrate Aaron Bugeja gave them the go ahead. 

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Timeline of Pilatus bank visits

5.03pm Scicluna gives some timings regarding the Pilatus bank inspections.

• MFSA went onsite to inspect the bank around 2015
• The FIAU inspected the bank in March 2016
• The FIAU inspected the bank a second time, in August 2016

The FIAU confirmed that "any shortcomings had been rectified" but the MFSA at the time stopped Pilatus from passporting its banking licence to the in UK.

Scicluna says that she continued to "keep an eye" on the bank but that "the matter was not that concerning".

"When the FIAU said that concerns had been addressed, it was agreed that the bank would continue to be monitored on a monthly basis. That was more intensive supervision than a quarterly report."

The inquiry asks if this was all before the assassination of Ms Caruana Galizia in October 2017.

"Yes."

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Some business transactions 'not in bank's original plan'

4.53pm The MFSA insisted that some non-executive directors were on the board of Pilatus bank to "counter" the decisions of its chairman, considering he came from a high risk environment, Scicluna tells the inquiry.

"But ultimately he had power to control all," the board remarks.

Scicluna says inspections were carried out at the bank after a growth in the business raised some suspicion. This inspection happened about a year and a half after the bank began operating and it was informed about the visit in advance. 

"Sometimes we do make surprise visits when we suspect something serious. In this case no," she says. The inspectors flagged "some shortcomings but it was nothing alarming".

There was a concern that some business transactions were being carried out that were not in the bank’s original business plans. When the bank was asked about this, it said it was "still developing its business plan".

The onsite visit brought to light some Politically Exposed Persons that the bank was dealing with as well as certain transactions to particular jurisdictions.

"Were there any surprise inspections?" she is asked.

"No."

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MFSA carried out 'enhanced due diligence' on Pilatus Bank 

4.41pm The MFSA's dealings with Pilatus bank are now the subject of questioning. Scicluna says the bank had approached MFSA in December 2012, as part of the normal pre application meetings. The meeting was held in September 2012 with the promoter, Ali Sadr and KPMG's Juanita Bencini because KPMG was an advisor to the applicant.

A nine-month process, which included due diligence on the client, was undertaken. Scicluna insists that the MFSA carried out "enhanced due diligence" because Ali Sadr "came from a high risk jurisdiction".

She does not name the British company that carried out this due diligence, because "the company did not give us authorisation".

"Ali Sadr was not alone at the bank," Scicluna explains. "We take into consideration the governance at the bank. He had a team with great experience in banking. So with the competence available within the whole board, MFSA concluded it was sufficient and issued the licence."

For background: Pilatus bank was officially shut down in 2018, when its license was revoked and two years after it was first implicated in money laundering. 

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MFSA and Panama Papers

4.31pm Scicluna is asked whether the MFSA took action against any public figures after the publication of the Panama papers in 2016, which revealed the identities of two offshore companies owned by former tourism minster Konrad Mizzi and the former prime minister's chief of staff Keith Schembri. 

She answers "no" and explains that neither were involved in any licensed entities. The authority underwent "an exercise" after the Panama papers leaks to check if any licenced entities were involved. 

During this inspection, advisory firm Nexia BT were identified as having the perception of "certain risks on account of the high risk jurisdictions they were doing business with".

The report was handed to the FIAU. "As far as we know, FIAU is still continuing with the work."

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MFSA official Marianne Scicluna takes the stand

4.22pm MFSA chief supervisory officer Marianne Scicluna is the next witness to testify. Lawyer Chris Borg, however, is telling the court that he is here to assist her. 

He informs the board that there are several ongoing legal proceedings by Pilatus bank against the MFSA so some information may need to be given behind closed doors so as not to prejudice those separate cases.

"We'll take it step by step," the board says.

Scicluna says she started in the role in August 2014, initially as a member of the council, then as head of a unit and now as chief supervisory officer after Dr Andre Camilleri left. 

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Alfred Zammit evidence concludes

4.21pm Zammit gave some further evidence behind closed doors. That's over now and his evidence has concluded. 

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Why Jonathan Ferris was dismissed

4.07pm Last week the inquiry heard from former FIAU investigator Jonathan Ferris, who was dismissed from the unit. 

Zammit wants to clarify Ferris' claims that he was not told the reason behind his dismissal.

"He was a terrible manager. It was something brought to our attention by the whole team and so we had to take action," Zammit says. "We submitted a document before the industrial tribunal with 25 bullet points listing reasons for terminating his employment."

When did you know Yorgen Fenech was involved in 17 Black?

3.59pm Interesting question here from the judges: "When did the FIAU realise that Yorgen Fenech was involved in 17 Black?"

Yorgen Fenech has been charged with being complicit in the murder of Daphne Caruana Galizia. Before she was murdered, she had been investigating a secret company called 17 Black, which Times of Malta later revealed was owned by Yorgen Fenech.

When did the FIAU make the connection?

"I’m not going to answer in open court", Zammit replies.

"Will you answer behind closed doors?" he is pressed.

He nods. 

"We take that as a yes."

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FIAU meetings with the police

3.53pm Zammit is now being asked about the FIAU's meetings with the police and particularly with top police officer Ian Abdilla. 

He was the liaison officer, Zammit says, and the pair held meetings on "a regular basis". They met to discuss reports as part of "normal procedure". 

"What was the subject matter of these meetings with Abdilla in this case?" he is asked.

"It’s humanly impossible to recall subject matters of all meetings. We deal with cases beyond the public domain".

Asked about the time of these meetings he says that meetings could take place outside office hours. 

He is then asked about a particular meeting on the eve of a meeting with magistrate Bugeja.

"It was one of the many meetings we had with Abdilla. There was a photo of that meeting again illegally leaked to the media, taken from the FIAU system." He said that it was erroneously reported that a red file mentioned concerned Konrad Mizzi.

For background: This meeting was a key part of former FIAU inspector Jonathan Ferris' evidence to the inquiry, which you can read here. 

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KPMG's role

3.47pm Zammit is asked about the role of KPMG as auditors despite also being involved in the licensing of Pilatus Bank.

"Are you aware that KPMG was involved in the licensing of Pilatus Bank?"

"Apparently yes," Zammit replies.

"Did KPMG flag this interest?" the judge asks.

"No."

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'We do things differently now'

3.41pm Zammit says that the FIAU was "very concerned" about the bank but they were not given enough information to proceed against them.

"At the first visit the bank did not give us all information we wanted to see. They provided it at the second visit. We were not happy with the situation. In fact we have completely changed the way we go about things today," he says.

He’s shown a letter he signed from the FIAU voicing concern that documents had not been provided to the unit by the bank at the first visit.

"Is it normal for the FIAU to issue a clean bill of health after a person has been informed which files it wants and given time to provide those files?" the judge asks, referring to a report clearing Pilatus bank. 

Judge Mallia is troubled by the reference to a “significant” number of documents mentioned in the FIAU letter.

"We were given those documents later," Zammit says. "Today we have adopted a different system. We ask for all documents."

For background: The Egrant inquiry uncovered that dual filing system, which meant key documents may have been withheld from investigators. Read our story here.

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Pilatus 'increased risks' over Politically Exposed Persons

3.28pm After Malta's Financial Services Association (MFSA) had noted a high number of Politically Exposed Persons (PEPs) associated with Pilatus bank, the FIAU thought this "increased the risks" and took note.

Zammit says that ahead of a compliance visit lasting several days, the FIAU had asked the Pilatus Bank about the PEPS. 

"Were you aware of the dual filing system at Pilatus?" one of the judges asks.

"No but it is not uncommon," Zammit says. He explains that this is because due diligence files may contain sensitive information that is not available to everyone.

"I’m not here to defend Pilatus Bank," he says, "but the onus of demonstrating compliance lies on the client."

"But it’s up to you to identify money laundering," the judge observes.

"This work carried out by FIAU is to confirm compliance by the entity. If there is suspicion of money laundering we inform the police."

He is also asked about the decision to inform Pilatus about Galdes resignation, and says this was because he had been communicating with the bank. Zammit became acting head of the FIAU after Galdes' resignation. 

He says that the same people who carried out the first visit to the bank, also carried out the second visit. Those involved in the meetings were: Manfred Galdes, Afred Zammit, Ali Sadr and (ex-KPMG Malta parter) Juanita Bencini. No other officers from FIAU were involved.

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Manfred Galdes' exit 'nothing to do with' Pilatus probe

3.21pm The inquiry judges are asking about the timing of former FIAU director Manfred Galdes' resignation in the summer of 2016.

He is asked about the two visits the FIAU made - one in March and the other in August. During the second visit, the bank apologised for not producing the required information the first time around.

By this time, Galdes had resigned.

"As far as I know, the departure of Galdes had nothing to do with this," Zammit says. 

"This was no normal bank," counters the inquiry judge. "It was in the public eye from day one."

Manfred Galdes has previously given evidence. You can read his testimony here. 

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Why FIAU did not take action against Pilatus bank

3.12pm Zammit is now asked about a compliance report on the now-defunct Pilatus Bank that dates back to 2016. 

"After that report, we had a meeting with the bank in presence of (former FIAU boss Manfred) Galdes and KPMG. In that meeting (Pilatus bank chairman) Ali Sadr asked FIAU to carry out a follow up visit. In that meeting Galdes accepted that the Unit would go again on site."

Shortly afterwards, in July 2016, they informed Pilatus bank that they would carry out the follow-up visit. Galdes resigned around this time.

"On the follow up visit, FIAU officials were given a lot more information than what was gleaned at the first visit," he says. 

"In the end we concluded that we did not have a strong legal basis to take action." 

The first visit to Pilatus happened in March 2016; the follow-up was in August 2016. 

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Passport sales and Keith Schembri

3.07pm. Zammit is shown a report regarding the sale of passports and the former prime minister's chief of staff, Keith Schembri.

He says it is "difficult to recall all reports" sent to the police by the FIAU. Asked about follow-up meetings regarding the reports, he says he is "sure" such meetings occurred about the reports shown to the inquiry. 

"As far as I know police have taken action, and a magistrate’s inquiry has been launched."

When asked, he says that he doesn't know if the magistrate's inquiry was sparked by the FIAU or something else. 

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Inquiry starts with raised voices

2.56pm Alfred Zammit, the deputy director of the FIAU is testifying. It's the first time that a witness has raised his voice when pressed by a lawyer. And the issue? A document concerning Konrad Mizzi. 

He says it’s an internal working document, not a report, that was still a work in progress when it was leaked to the media. He keeps insisting on testifying behind closed doors but is asked to continue testifying in the public domain.

"What were the conclusions?" the judges say.

"Was there a reasonable suspicion of money laundering in this document and that police should continue to investigate?"

"Yes," he replies.

The witness says he is sorry for raising his voice earlier but “I am terribly disappointed about the leaking of confidential FIAU documents.” Zammit says.

So far no one has been charged over that breach, he adds.

For background: this evidence is referring to a leaked FIAU report into evidence Konrad Mizzi and Keith Schembri may have received kickbacks off the Enemalta privatisation deal. You can read more here.