Confidential information that reached the police in October 2018 sparked investigations into the workings of Pilatus Bank over suspicions of money laundering, a court heard on Friday. 

The source of that information was initially withheld by the first police witness to take the witness stand when criminal proceedings kicked off against the bank and its former money laundering reporting officer Claude-Ann Sant Fournier.

However, the sources were disclosed by a subsequent police witness who named the FIAU (Financial Intelligence Analysis Unit) and the MFSA (Malta Financial Services Authority).

First to take the stand, Inspector Keith Vella, a former member of the anti-money laundering squad, explained under cross-examination that that source was protected in terms of the law. 

“Is it the FIAU? The same authority that imposed a €4.9 million fine on the bank,” asked defence lawyer Stefano Filletti.

But the witness insisted that the information that had reached police authorities on October 16 was "confidential".

That information appeared to indicate various forms of suspected money laundering activities, including the opening of accounts without all the necessary paperwork, lack of due diligence, lack of supporting documentation and non-observance of MFSA regulations. 

Police investigations ultimately resulted in a request to duty magistrate Ian Farrugia to kickstart a magisterial inquiry into the operations of Pilatus bank. 

In November of 2018, the magistrate, together with police officers and a number of court-appointed experts conducted an inspection at the bank’s premises at Whitehall Mansions, Ta’ Xbiex. 

Several bank officials, including Sant Fournier and Lawrence Connell, who had been appointed as competent person to represent the bank, were present.

All except Connell and another Pilatus official were told to pack their personal belongings and leave.

Duff and Phelps tasked to scan documents

The bank was sealed under the magistrate’s orders so as to preserve all evidence and subsequently, UK firm Duff and Phelps was tasked by the court to scan all bank documents and electronic equipment. 

Experts from the UK firm visited Malta between January and February 2019 and by the time investigations were completed “there was not a single document left at the bank,” said the witness. 

All documents and other material found on the bank servers were preserved in some 200 boxes and kept in the records of the magisterial inquiry.

Police officers had also visited the London offices of Duff and Phelps upon the magistrate’s instructions. 

The inquiry was concluded in December 2020 and Magistrate Farrugia had directed criminal action against the bank and Sant Fournier. 

“Court experts usurped the function of the court when they reached certain conclusions of money laundering and gave an interpretation of Maltese law,”  Filletti told the court on Friday.

Reacting, the witness disagreed. He said that the UK experts had focused on Pilatus bank’s modus operandi without entering into detail as to how that figured in terms of Maltese law. 

Police didn't speak to Sant Fournier

Vella confirmed that the police never spoke to Sant Fournier while the magisterial inquiry was still ongoing.

They had sent for Sant Fournier afterwards, but she had opted to remain silent while asking for police disclosure. 

In subsequent interrogations she had stood firm by her right to silence, telling police that since she would be charged on the basis of the magisterial inquiry and nothing she said would change that, she would rather speak in court, her lawyers promptly pointed out. 

FIAU and MFSA were the sources

Another former police inspector, Matthew Vella, meanwhile noted that the "confidential information" that sparked the investigation showed “various systematic and repetitive compliance issues”.

Asked about the source of that information, the witness said that it was twofold, namely the FIAU and the MFSA.

As for the UK forensic accountancy experts, this witness explained that the magistrate handling the inquiry had expressed one concern. 

Since both the FIAU and the MFSA had their own expert reports, which were not admissible as ex parte reports, the magistrate had to select an expert firm of equal standing. That was how Duff and Phelps entered the picture. 

The information that first reached the police was voluminous, concerning some 60 clients of Pilatus, both natural and legal persons. 

Compliance irregularities pointed at a course of conduct over the years, the witness said. 

Also on Friday, Catherine Galea, a representative of the MFSA, testified about the procedure leading up to the bank’s registration following the submission of an application in February 2013.

Sant Fournier took on MLRO role in 2014

That application on behalf of Pilatus was handled by KPMG and Sant Fournier had not yet featured at that stage.

She submitted her personal questionnaire in August 2014 and as a lawyer who had successfully completed various money laundering courses, she was deemed competent to step into the role of Money Laundering Reporting Officer (MLRO).

Moreover, the MFSA had not received any adverse information in her regard, the witness said. 

As for Pilatus bank, the main issue that took some time to iron out stemmed from the fact that there was an individual shareholder and no bank supporting that structure. 

Eventually, the policy generally followed at the time, was changed given that following the economic crisis, it was difficult to find a reputable bank that would be willing to step in. 

The way forward was for the MFSA to impose a condition in the form of a guarantee ensuring that there would be no risk of liability on any deposit compensation scheme. 

The amount of that guarantee varied in line with potential liability and was calculated from time to time according to the deposit compensation scheme, the witness explained. 

As for the bank’s ultimate beneficial owner, given that Ali Sadr was born in Iran and was a national of St Kitts and Nevis, the MFSA had carried out an enhanced due diligence exercise but had received no negative information as to cast doubt upon his integrity. 

The case continues next week.

The court was presided over by magistrate Donatella Frendo Dimech.

Lawyers Filletti and Kathleen Calleja Grima were counsel to Sant Fournier.

Lawyers Stefan Camilleri and Robert Cassar were counsel to the Bank.

Superintendent Frank A Tabone was prosecuting, assisted by AG lawyers Cinzia Azzopardi Alamango and Marthese Grech.