Pilatus Bank has been fined a record €4.9 million by the FIAU while former officials now face criminal prosecution on money laundering. Jacob Borg looks at how a tiny private bank became notorious for all the wrong reasons.

When did Pilatus come to Malta?

The first overtures for a Maltese banking licence were made by Pilatus Bank’s eventual owner and chairman Ali Sadr in September 2012.

The application gained momentum the following year, despite some regulatory speed bumps about Sadr having no notable prior experience in banking.

Pilatus Bank was given a license by the MSFA in January 2014.

Along the way, the MFSA, Malta’s financial regulator, dropped certain conditions that would have required introducing a more experienced shareholder in the bank and Sadr taking a step back from its management.

Pilatus gained its licence from the MFSA in January 2014.

How did the trouble begin?

Pilatus Bank’s small concentration of major clients was mainly introduced to the bank by Sadr himself or other senior bank directors.

As opposed to a retail bank, which has a much broader client base, Pilatus positioned itself as a private bank geared towards wealthy foreign clients.

Some notable exceptions were made along the way, however.

Then OPM chief of staff Keith Schembri, his accountant Brian Tonna, former Allied Newspapers managing director Adrian Hillman and former EU Commissioner John Dalli were all allowed to operate accounts at the bank.

Chinese energy negotiator Chen Cheng, since embroiled in suspected corruption, also had an account at the Ta’ Xbiex-based bank.

Sadr’s status as the bank’s chairman made it more difficult for lower-ranking Pilatus staff to ask too many questions about the clients he was bringing in.

As Malta’s anti-money laundering unit recently noted, Pilatus had “direct or indirect exposure” to a series of connections with figures from the Caucasus region that presented “extreme risks of money laundering”.

As revealed by slain journalist Daphne Caruana Galizia, two of the bank’s main clients included the daughters of Azerbaijan’s President Ilham Aliyev.

Two of the bank’s main clients included the daughters of Azerbaijan’s president Ilham Aliyev, Leyla (left) and Arzu.

The source of the Aliyev family’s extreme wealth and income in an oil-rich country renowned for corruption is often questioned.

It would appear, however, that Pilatus Bank failed to ask these same questions.

What did the authorities do about it?

The MFSA flagged the need for a thorough review of the bank’s operations in October 2015.

It was recommended that the FIAU carry out this review with a particular focus on the accounts held by the bank’s high-profile clients.

Compliance reviews by the FIAU are carried out to make sure banks and other regulated institutions are doing all they can to prevent money laundering.

An on-site inspection of the bank’s operations was carried out by the anti-money laundering unit in March 2016.

Direct or indirect exposure to a series of connections with figures from the Caucasus region

The unit concluded Pilatus Bank was systematically failing its obligations to prevent financial crime.

The FIAU had backpedaled on concerns about the bank's money laundering controls.

In the FIAU’s own words: “Although attention given to the confidentiality of the clients may appear to be commendable, it seems that the veil of secrecy that has been created is in actual fact making it easier for banking transactions to be carried out by PEPs, their family members and their close associates without the level of scrutiny required by law.”

This meant the bank was fined, right?

Wrong. The FIAU’s findings came at an inconvenient time for Pilatus, effectively stalling plans for it to open a flagship branch in London.

Sadr had even e-mailed then OPM chief of staff Keith Schembri to complain about how the “FIAU allegations” were stalling the opening of his London branch.

A year prior to the e-mail, Schembri had attended Sadr’s lush wedding at the Four Seasons hotel in Florence together with then prime minister Joseph Muscat.

Schembri and Muscat both went to Sadr's wedding in Italy.

Pilatus pushed back against the unit’s findings, leading to an extraordinary climbdown by the FIAU which saw it issue the bank what was effectively a clean bill of health in September 2016.

This came about because the FIAU agreed to carry out a follow-up inspection of the bank, whose officials were suddenly able to present documents that were not given to inspectors during the initial visit.

The FIAU was not able to establish whether at the time of the first on-site examination in March 2016, the bank was already in possession of other information and documents presented during the follow-up visit.

Its handling of the case led the European Banking Authority in 2018 to conclude the FIAU itself had breached the EU’s anti-money laundering laws over its failure to sanction the bank.

How does Egrant come into it?

Allegations about Pilatus Bank facilitating corrupt payments to Egrant, claimed to be owned by prime minister Joseph Muscat’s wife, put the bank under intense scrutiny in April 2017.

The claims, published by journalist Daphne Caruana Galizia, coincided with a leak about the FIAU’s earlier findings of lax money-laundering controls at the bank.

Times of Malta first reported on these findings that same month.

Despite the serious nature of the Egrant allegations, then-attorney general Peter Grech saw no legal basis to seal off the bank and preserve evidence on the night the claims emerged.

Muscat sent a letter to the police late that same night, requesting an inquiry into the claims.

Investigators, led by the since-discredited head of the economic crimes unit Ian Abdilla, sealed off the bank the following morning.

A year-and-a-half-long magisterial inquiry, relatively rapid by Maltese standards, failed to find any evidence linking Muscat or his wife to Egrant.

The inquiry had found no link between Michelle Muscat and Egrant.

No traces of an Egrant account at Pilatus were ever found either.

The inquiry demanded further police investigations into who was behind “forged” signatures linking Michelle Muscat to the company.

The former prime minister complains till this day that the police never got to the bottom of who was behind the forgeries.

Rule of law NGO Repubblika has demanded a re-opening of the inquiry following Abdilla’s suspension from the police force, over his inaction on the Panama Papers and 17 Black investigations.

If authorities never acted, how did Pilatus lose its licence?

Ali Sadr’s arrest in the United States on money-laundering and sanctions-busting charges triggered off the chain of events leading to Pilatus Bank’s licence being revoked.

A few weeks before the March 2018 arrest, the FIAU quietly swooped on the bank to seize all its data in a bid to get to the bottom of what the bank was up to.

In response to Sadr’s arrest, the MFSA booted him and his management team out of the bank, placing it in the hands of an administrator appointed by the financial regulator.

Ali Sadr's arrested spark the collapse of Pilatus Bank.

The European Central Bank formally withdrew the bank’s licence that November, upon a recommendation by the MFSA.

Sadr has hit back with a number of lawsuits, recently claiming the action against his bank was politically motivated. He further claimed “corrupt officials” were draining the bank of its assets.

Sadr was found guilty of the Iran sanction-busting charges in March 2020. All charges against him were later dropped following seriously procedural errors by the US prosecutors.

What is all the recent fuss about then?

Although Pilatus Bank had slipped from the headlines, the FIAU and police had been quietly building their cases against the bank.

The FIAU was first to strike on August 31, 2021. It slapped the now-shuttered bank with a record €4.9 million fine for letting millions in potentially shady cash flow into Malta unchecked.

Claude-Anne Sant Fournier leaving court after facing money laundering charges.

According to the unit, the bank’s “total disregard” towards anti-money laundering processes has greatly exacerbated the risks of it being used and abused by money launderers to process illicit proceeds through the bank.

A few days after the FIAU published its fine, the police charged the bank and its designated money-laundering reporting officer Claude-Anne Sant Fournier with money laundering.

They deny the charges.