Police Commissioner Lawrence Cutajar last year declared there was no reasonable suspicion to investigate the Prime Minister’s chief of staff Keith Schembri and Tourism Minister Konrad Mizzi. Jacob Borg looks at the potential money-laundering red flags in their once-secret offshore set ups, based on publicly available information.

The Financial Action Task Force (FATF), a global body set up to combat money-laundering, publishes clear guidelines about how financial institutions can identify suspicious activity by politically exposed persons (PEPs).

While these guidelines are meant for financial institutions like Nexia BT and Mossack Fonseca, which facilitated the opening of these secretive offshore structures, they help provide insight into why Mr Schembri’s and Dr Mizzi’s activities are suspicious, meriting police investigation.

An April 2016 request by Malta’s anti-money laundering agency (FIAU) for a police investigation was not acted upon. Instead, Police Commissioner Michael Cassar resigned citing health reasons and Mr Cutajar was appointed by the government as his replacement.

Numerous potential money-laundering red flags as defined by the FATF can be seen in the way Mr Schembri and Dr Mizzi went about secretly setting up Panama companies sheltered by trusts in New Zealand.

The Daphne Project last month revealed a new e-mail showing the two men were going to earn through Panama well over double their government salaries every month, for a whole year.

Questions to the police asking if the Police Commissioner still thought there was no reasonable suspicion to investigate Mr Schembri and Dr Mizzi were still “being processed” by the time of writing.

Red flag no.1: Information provided does not tally with their salaries.

The FATF says a good indicator of suspicious activity is PEPs providing information inconsistent with other publicly available information, such as asset declarations and published official salaries.

Mr Schembri’s and Dr Mizzi’s case:

The two men’s financial advisers Nexia BT indicated to the Panama law firm Mossack Fonseca that their two clients’ Panama companies would earn them well over double their annual government salaries, in just a single month.

In a leaked e-mail dated December 17, 2015, Nexia BT’s money-laundering reporting officer (MLRO) Karl Cini said $150,000 (€138,000 using historic rates) would be paid in monthly to their companies.

As Nexia BT MLRO, Mr Cini is legally obliged to report suspected cases of money-laundering to the FIAU.

Mr Schembri’s and Dr Mizzi’s total earnings via Panama would be $2 million in a single year, Mr Cini wrote in the leaked e-mail.

In the year the e-mail was sent, Dr Mizzi’s declared income of €70,000 to Parliament. As the Prime Minister’s chief of staff, Mr Schembri has a basic salary of €40,000.

Mr Schembri has other sources of income from his business empire. The Prime Minister’s top aide responded to the Panama Papers data leak in 2016 by saying his offshore set up was meant as a family trust.

Last month, his story evolved when he said the e-mail showing potential monthly income of $150,000 through his offshore set up was part of “draft business plans” for his business group.

Dr Mizzi had said that he set up the New Zealand trust and Panama company to protect his family’s assets.

Red flag no.2: Reluctance to provide credible explanations.

Another FATF red flag is when a PEP is unable or reluctant to provide details or credible explanations for establishing a business relationship, opening an account or conducting transactions.

Mr Schembri’s and Dr Mizzi’s case:

Nexia BT described Mr Schembri’s and Dr Mizzi’s foray into Panama as a “joint venture”, which is in itself unusual for two government officials.

Their Panama companies would be operating or investing in the recycling, remote gaming, infrastructure projects, maritime and fisheries in Bangladesh and tourism in Asia, Nexia BT said in e-mails to Mossack Fonseca.

After this information leaked, the two men denied being involved in a joint venture, directly contradicting e-mails sent by their own financial advisers.

When confronted about these business activities by MEPs in 2017, Dr Mizzi said Nexia BT must have confused him with Keith Schembri.

Multiple e-mails in which the business activities and “joint venture” were mentioned clearly show Nexia BT were referring to both Mr Schembri and Dr Mizzi. 

Dr Mizzi has never publicly explained where the $1 million proposed deposits for his Panama company was going to come from.

They have both refused to say who owns 17 Black, one of two “target clients” that would have paid in $2 million to their Panama companies.

Red flag no.3: The PEP has a substantial authority over or access to State assets and funds.

The FATF says the position a PEP holds and the manner in which the PEP presents his/her position are important factors to be taken into account. Potential control over regulatory approvals, including awarding licences and concessions are all considered to be potential red flags.

They broke the law by not informing the local tax authorities about their activities

Mr Schembri’s and Dr Mizzi’s case:

Keith Schembri and Konrad Mizzi occupy the top echelons of power. Both men are close to Prime Minister Joseph Muscat, and have been protected by him throughout the Panama Papers scandal.

Dr Mizzi has overseen numerous multi-million euro projects, including the 2013 power station deal as well as the lucrative, billion euro deal to transfer three public hospitals to a company with no prior healthcare experience.

He was, and still is, the minister responsible for Projects Malta, the government entity that oversees all large-scale public-private partnerships.

Mr Schembri is viewed as being a facilitator in many of these deals, including the lucrative concession to allow the sale of Maltese passports.

While Nexia BT was upfront with Mossack Fonseca about their status as PEPs, they sought to detach their clients’ offshore companies from their roles in politics.

The potential money-laundering risks associated with Mr Schembri’s and Dr Mizzi’s Panama companies led multiple banks around the world to reject their applications to open up accounts with them.

Red flag no.4: PEPs attempting to shield their identity.

The FATF says politicians are aware that their status as a PEP may facilitate the detection of their illicit behaviour. This means that PEPs may attempt to shield their identity, to prevent detection.

Mr Schembri’s and Dr Mizzi’s case:

The two government officials went to great lengths to obscure their ownership of the two Panama companies. In e-mails, Nexia BT sought to ensure their names would not appear on any public documents linking them to the companies.

They broke the law by not informing the local tax authorities about their activities, which, according to Nexia BT, would net them $1 million each in just a single year. The public only got to know what the two men were up thanks to a massive data leak from Mossack Fonseca, the Panama firm used by Nexia BT to set up the companies.

When slain journalist Daphne Caruana Galizia first started hinting in February 2016 that she knew what the two men were up to, Dr Mizzi ‘revealed’ to Malta Today that he would be declaring his New Zealand trust and shell company to Parliament.

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