No surprise visits were ever carried out on Pilatus Bank following a first inspection by the MFSA prompted by a growth in business and deposits about a year after the bank’s inception, the Daphne Caruana Galizia public inquiry heard today.

The testimony was given by the chief supervisory officer of the Malta Financial Services Authority, Marianne Scicluna.

She said the journalist’s Running Commentary was looked upon as an open source by the authority, which acted on allegations flagged by Ms Caruana Galizia. 

A few months before she was killed in October 2017, the journalist had been sued by the bank’s chairman for defamation after alleging the bank had processed a $1 million transfer from a Dubai company to the wife of the Maltese prime minister Joseph Muscat. The reports prompted a magisterial inquiry over Ms Caruana Galizia’s allegation that Muscat’s wife was the beneficial owner of the secret offshore company Egrant Inc.

The MFSA had first been approached by Pilatus as an applicant for a banking licence in 2012, Ms Scicluna said yesterday.

After standard pre-application meetings with bank chairman Ali Sadr and his advisors from KPMG, the applicant was subjected to ‘enhanced due diligence’ in view of the fact that chairman Ali Sadr came from a ‘high-risk jurisdiction’.

However, “Ali Sadr was not alone at the bank," Ms Scicluna explained. 
“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within the whole board, the MFSA concluded it was sufficient and issued the licence.”In 2018, the bank’s licence was withdrawn by the European Central Bank after Ali Sadr was charged in the US in connection with money laundering and sanctions busting.

In her testimony, Ms Scicluna said that after the first visit by inspectors, a high concentration of Politically Exposed Persons had come to light, prompting a visit by FIAU officials in March 2016 wherein certain shortcomings were flagged. 
FIAU inspectors on a second visit in August 2016 had reported that those concerns had been addressed. 

The MFSA official explained that its representatives had been specifically asked by Magistrate Aaron Bugeja, while the Egrant inquiry was still ongoing, not to conduct onsite inspections at Pilatus Bank so as not to interfere in the inquiry. The authority was given the green light in November 2017. Meanwhile, it conducted desktop investigations. 

Ms Scicluna also explained how MFSA inspectors were uneasy about visiting the bank because of concerns that they would land in the media spotlight. One banking inspector had even resigned about the matter, she said. 

When asked about the register of business introducers kept by MFSA, Scicluna explained that she could not disclose certain information in public in view of separate legal proceedings currently being faced by the authority.
Her testimony continued behind closed doors.

During yesterday’s hearing, Alfred Zammit, deputy director at FIAU and former acting director after Manfred Galdes stepped down, also testified about Pilatus Bank.

He told the inquiry board that the entity had been issued with a ‘clean bill of health’ after certain concerns flagged on the first visit by FIAU officials were addressed. 

Mr Zammit said the onus of proof of compliance lay with the entity, claiming that the FIAU had not been aware of a dual filing system at the bank, adding this was “not uncommon.”

When asked by the board about the fact that a “significant” number of documents had not been made available by the bank on the first visit, Zammit explained that the documents were supplied later.

“We do things differently now,” he added.

The deputy director was rather hostile and reluctant to divulge information at the start of his testimony, later attributing his attitude to the fact that he was “disappointed” about the fact that confidential FIAU documents had been leaked. 

Shown a document concerning Konrad Mizzi, Zammit said it was not a ‘report’ but an internal working document that was still a work in progress when it was leaked to the media. 

He was referring to a leaked FIAU document into evidence Konrad Mizzi and Keith Schembri may have received kickbacks off the Enemalta privatisation deal. 

"What were the conclusions?" the judges asked. "Was there reasonable suspicion of money laundering in this document and that police should continue to investigate?"

"Yes," came the reply. 

Asked why the FIAU had taken no action against Pilatus Bank, Mr Zammit said that the authority needed to have a strong legal basis to do so.
As for meetings with the police, particularly liaison officer Ian Abdilla, Mr Zammit explained that such meetings took place on a regular basis and sometimes even beyond office hours. 

Asked about when FIAU got to know that 17 Black belonged to Yorgen Fenech,

Mr Zammit said that he preferred to answer that behind closed doors. 
The Dubai-based company was named in leaked emails as the “target client” for Panama companies belonging to Dr Mizzi and Mr Schembri, with payments of millions expected to be passed on.

The inquiry continues on Wednesday.

Lawyers Therese Comodini Cachia, Jason Azzopardi, Andrew Borg Cardona and Peter Caruana Galizia appeared on behalf of the family.