Top Lands official ‘suppressed’ valuation report, saving Fortina over €10m

• Top Lands Authority official hid report valuing Sliema land at €18m, over twice what Fortina paid;
• Lino Farrugia Sacco falsely claimed report was pending and redirected invoice to OPM;
• Ex-OPM chief Keith Schembri knew of the valuation and was part of efforts to conceal it, NAO found;
• NAO finds government deal 'failure' resulted in €12.9m loss to public finances.

Last updated 8.31pm with initial Fortina reaction

A top Lands Authority official “suppressed” a report which valued public land in Sliema at more than double the amount Fortina Group paid for it, a probe by the Auditor General has found.

Lino Farrugia Sacco, who chaired the authority's board of governors and who died in 2021, was found to have withheld the external valuation after telling the audit firm concerned that their €18 million figure for the land would create "problems" for him.

The report by the National Audit Office, published on Monday, found that the government failed to secure fair value for the land. An independent valuation undertaken by the NAO put the value at €21 million, leading to the conclusion that €12.9 million had been lost from the deal.

Ex-OPM chief of staff Keith Schembri was also found to have been aware of the report and was part of a "wider effort" to conceal it. 

The Lands Authority’s own internal valuation of the land was a much lower €8.1 million. Parliament voted in July 2019 to allow Fortina to use the land to develop apartments and commercial activities against a payment of €8.1 million.

The public land was originally granted to Fortina exclusively for tourism purposes.

In the months ahead of the vote, Farrugia Sacco falsely claimed the report, which valued the land at €18 million, was still pending, despite it already being in his possession, the auditor said. 

“This misrepresentation served the interests of third parties rather than the public interest,” the Auditor General said.

The value assigned by the firm was €18,341,559, revised to €23,887,942 if the Lands Authority consented to the deferral of payment until the development’s completion.

The NAO said the extent and nature of the discrepancy was of "gravest concern" and said the Lands Authority should bear primary responsibility "for this failure". 

‘Minister, parliament misled’

By suppressing the report, the Auditor General said Farrugia Sacco “misled” the authority’s board, then Lands Minister Ian Borg, parliamentary secretary Chris Agius, and ultimately parliament.

However, not everyone was kept in the dark about the report.

Evidence uncovered by the Auditor General suggests that ex-OPM chief of staff Keith Schembri was also aware of the €18 million valuation and helped keep it quiet.

The Auditor General discovered how Farrugia Sacco, a former judge, directed the audit firm to send the invoice for their work to the Office of the Prime Minister, for the attention of Schembri.

According to the audit firm, shortly after sending the invoice, Schembri convened a meeting with the firm.

"The redirection of the invoice by the Chair BoG Lands Authority and the involvement of the Chief of Staff OPM when authorising payment is considered as part of a wider effort to conceal the valuation by the audit firm," the NAO said.

Schembri claimed to have no recollection of the meeting and denied authorising payments to the firm when questioned about it by the Auditor General’s office.

“The National Audit Office viewed the redirection of the invoice by the chair of the board of governors [Lands Authority] and the involvement of the Chief of Staff OPM when authorising payment as part of an effort to obscure the receipt of the valuation by the audit firm,” the report says.

Times of Malta revealed how Schembri’s boss, Joseph Muscat, went on to become a paid “consultant” of Fortina months after resigning as prime minister in January 2020.

An inquiry into the hospitals deal over which Muscat have been charged recommended that payments into his bank account be analysed for any connections with government deals during his time as prime minister.

Lands Authority 'culpability'

The Auditor General’s office accused the Lands Authority of “deliberately” withholding the report from it, despite having gained access to it.

A copy of the report was requested from the authority in March 2023. In July that same year, Lands Authority CEO Robert Vella told the NAO that no copy had been found in their records.

“The NAO's concern in this regard emerged on learning that the Lands Authority was aware of and had access to the audit firm’s valuation report by 3 April 2023, that is, several months before informing this office that no such record existed in its files.

“This sequence of events broadens the Lands Authority’s culpability in terms of its efforts to conceal the valuation.

“What was initially a failure rooted in 2019, when the report was first received and withheld, extended into 2023 through a continued and deliberate effort to withhold the report from the NAO,” the Auditor General said.

Inside information

Concerns were also raised about how Fortina was apparently receiving information that was never officially communicated to it.

The authority’s own internal valuation of €8.1 million was never officially communicated to Fortina, yet the company was “somehow” given a copy of it.

Fortina confirmed in testimony to the Auditor General that its receipt of the €8.1 million valuation triggered it to send a “counter-valuation” of €2.7 million to the authority.

The Auditor General further noted how, in June 2019, one month before parliament voted, Fortina sent an “unprompted” acceptance of the €8.1 million valuation to the Lands Authority, despite never having been formally told about it.

“One questions Fortina’s acceptance of the valuation by the architects [of the] Lands Authority some weeks after the audit firm had established a higher valuation in its report to the chair. The absence of any documented communication during this period and the timing of Fortina’s acceptance was deemed suspect by the NAO,” the report says.

An Opposition MP, who sat on the authority’s board of governors, also suggested as much in testimony to the NAO.

The MP told the NAO that the €18 million valuation must have come to Fortina’s attention, as this would explain their “sudden acceptance” of the €8.1 million value established by the Lands Authority.

James Piscopo’s ‘conflict of interest’

Throughout the process, then Lands Authority CEO James Piscopo was found to have declared a conflict of interest due to his business interests with Fortina.

 The Auditor General said this declaration was “precipitated” in late September 2018 when, following enquiries by the media, Piscopo declared a conflict of interest in the matter, on grounds of having shared business interests with the proprietors of the Fortina Hotel.

Piscopo told the NAO that he had deliberately refrained from participating in any discussions or negotiations with Fortina following his appointment in June 2018.

The report says that Piscopo, however, did not exclude the possibility of having been asked to provide updates on progress, understood by the National Audit Office as a reference to information provided to Fortina in response to enquiries made.

“Notwithstanding this, the CEO Lands Authority maintained that he would not have entered into substantive discussions or interactions on the matter and would have referred such enquiries to the board of governors of the Lands Authority,” the report says.

Fortina denies 'insinuations', analysing report

In an initial reaction to the report, Fortina said it was denying insinuations made in its regard.

It said it would take the necessary time to thoroughly review and evaluate the report's contents and it was premature to make substantive public statements at this stage.

"Fortina remains committed to transparency and will provide appropriate responses following our comprehensive review of the document," it said.

Schembri denies wrongdoing

In a statement, Keith Schembri denied the claims and said that at no stage did he suppress, authorise, or conceal any valuation.

"The commissioning of valuations, the negotiation of terms, and the final decision-making were the exclusive responsibility of the Lands Authority and, ultimately, parliament, not the Office of the Prime Minister," he said. 

The NAO report itself highlights contradictions in documentation, missing records, and uncertainties as to who had access to particular reports.

"Importantly, the difference between the €8.1 million and €21 million figures is not a question of suppression but of method: the government’s figure was derived from a 2017 valuation of part of the site, while the NAO relied on 2019 values and included the entire site."

In comments to the media, Prime Minister Robert Abela said that those found responsible in the Auditor General's report would need to answer for their possible shortcomings.

Abela said he had not spoken to Keith Schembri about the case and could not understand how some were linking the issue to Joseph Muscat.

He stressed that there was nothing in the report that connected either Joseph Muscat or Keith Schembri to any profit from the valuation, but rather highlighted that this was a case of procedural shortcomings.

Asked if an investigation would be called, Abela said it was not within his remit to call an investigation.