Joseph Muscat was handed a lucrative €11,800 monthly consultancy contract by a casino tycoon, less than a year after he oversaw a “disgraceful” government deal involving the Dragonara Casino.
The casino was saved “millions” after Muscat’s government slashed the annual ground rent payments and extended the property lease for the prime St Julian’s site by 64 years, without a public tender.
Nine months after the deal, monthly payments of €11,800 started being routed to Muscat via a loss-making exotic bird company owned by casino managing director and shareholder Johann Schembri as part of a consultancy contract worth €141,600 annually.
The payments started in April 2020, just three months after Muscat stepped down as prime minister, and while he was still a member of parliament.
Muscat is the target of a corruption probe into an unrelated €15,000 monthly consultancy contract with a Swiss company, which is suspected to have been used as a front to pass on kickbacks from the Vitals/Steward hospitals contract.
According to the Financial Action Task Force, a global anti-money laundering body, consultancy agreements can be used as a tool to obscure the real reason behind transactions.
The former prime minister denies wrongdoing.
Contract ‘unrelated’ to Dragonara
When contacted, Schembri insisted that Muscat’s engagement as a consultant was “unrelated” to the Dragonara concession.
“Any statement, suggestion or inference to the contrary is refuted as entirely untrue, incorrect and purely speculative. The company that holds the Dragonara Casino concession, Dragonara Gaming Limited, has never paid any consultancy fees to Dr Joseph Muscat,” Schembri said.
Muscat declined to comment on specific consultancy agreements, instead accusing Times of Malta of being “hellbent on characterising legitimate and documented work I do as in some way untoward”.
The ex-prime minister said he was the first prime minister locally to have withdrawn from the political scene before retirement age, and still has a working life ahead of him.
“Nevertheless, you seem to think that at 48 years of age, I should have gone into oblivion, quit working and disappear into thin air, when in fact I have the rest of my productive life to live,” Muscat said.
Schembri is a major player in Malta’s gambling sector, and his umbrella company IZI Group was last year awarded the running of the national lottery.
Documents reviewed by Times of Malta confirm how in April 2020, three months after resigning as prime minister, Muscat started to receive monthly payments from Schembri’s company Organicum.
Financial documents show Organicum’s main line of business is breeding exotic birds and making organic produce.
It lists €100,000 worth of macaws, toco toucans and palm cockatoos among its “biological assets” and has just two employees.
Organicum declared a meagre income of €20,000 in 2020 and €13,000 in 2021, and hundreds of thousands in losses, raising questions about the business case for giving Muscat such a costly contract.
Speaking via his lawyer Ron Galea Cavallazzi, Schembri said Muscat was engaged as a consultant by Organicum because the company is owned by him personally and is totally independent and separate from any other interests he holds.
“The consultancy arrangement and its terms of engagement contemplate the provision of services in connection with any business interest, current or future, which Mr Schembri has, in Malta or internationally.
“Mr Schembri is involved in various businesses and his vision and focus is to also extend these businesses beyond Malta.
“Dr Muscat’s vast experience and international contacts were in this regard clearly relevant and valuable. Indeed, a number of leads were identified through Dr Muscat and are currently actively being pursued.”
Schembri's lawyer said Muscat’s contract terms are commensurate with those of a consultant having “an equivalent level of qualification, expertise, experience and leads with a vast international network”.
Muscat declared close to €500,000 in consultancy income throughout 2020.
This figure includes payments from Organicum, two Swiss firms linked to the hospitals deal, as well as payments from big business players like Stivala Group and Fortina Group.
The ex-prime minister’s finances are being investigated as part of a sprawling money-laundering and corruption probe into the hospitals deal.
Muscat vehemently denies any wrongdoing and has called for the removal of the magistrate leading the inquiry.
Why was the deal controversial?
The July 2019 casino deal saw Dragonara’s annual ground rent payable to the government lowered from €1.2 million to €500,000 for the first 15 years of the deal.
The company is co-owned by Schembri and Michael Bianchi.
Suspicions about the deal were even raised by Muscat loyalists, who questioned how the government lease was extended without any form of public tender or parliamentary debate.
Labour MP Rosianne Cutajar had described the deal as “disgraceful”, saying in a July 2019 chat with rival casino operator Yorgen Fenech that it saved Dragonara €13 million.
Cutajar had even claimed in the chat, published by author Mark Camilleri, to have challenged Muscat about it.
Then economy minister Chris Cardona had quietly ushered the deal through parliament, with the opposition’s blessing, without a debate being held.
Although Cardona was the one to receive flak for the deal, then minister Konrad Mizzi confirmed in a chat with Fenech that “ix-Xiħ”, a veiled reference to Muscat, knew exactly what was going on.
Sources said Mizzi had even told Fenech in the chat that a state aid complaint should be filed about the deal.
Ex-MP Jason Azzopardi had claimed in parliament that the Dragonara deal was pushed through without first informing cabinet about the details. Muscat refutes the claim.
Dragonara Gaming was awarded a 10-year lease to operate the casino in 2010, via a competitive tender and includes the land immediately surrounding the building.
The lease was extended by 64 years in July 2019, following a parliamentary motion by Cardona. No public tender was issued, leading rival operators to dub the deal as “scandalous”.
The opposition voted in favour of the proposal.
Conflicting accounts exist about whether the deal was discussed at cabinet level.
One minister, who declined to be named, said the details of the deal came as an “absolute surprise” and were only made known to him after the parliamentary vote was taken.
Another minister, who is no longer in government, however, insisted that cabinet was presented with legal advice about the deal.
Cardona had justified the lack of a tender by arguing that the deal did not involve any public procurement.
Contacted for comment, Muscat said the deal was discussed at cabinet level.
“When the Dragonara operators came to government with a plan for a multimillion project requiring an extension to their lease to justify the investment, this was presented to cabinet and discussions ensued. As you know, the content of discussions in cabinet is privileged.”
Muscat said that in due course, Cardona’s ministry sought legal advice on the best way forward.
The ex-prime minister said he was informed that written advice from the attorney general stated there was no obligation for a parliamentary motion, as the original agreement signed in 2010 following a public call provided for an “extension mechanism” for the lease.
Muscat said Casma Limited, the government entity that administers the lease, could have technically extended it itself.
“Nevertheless, it was decided to go to parliament for the sake of transparency. Parliament approved unanimously in plenary.”
Muscat said that while cabinet’s formal approval on the content of a motion before parliament is not a requirement, it is the practice which “was most often used” by the government he led.
MPs from both sides of the house were caught unaware of the precise contents of the motion.
Muscat said the motion was on the parliamentary agenda, but the fact that the methodology habitually adopted was not followed was only raised later.
“As prime minister, I was not responsible for this scheduling and clearly was not ‘aware’ of it”.
Muscat said that irrespective of the procedure adopted, the final result was that the country’s highest institution was given the biggest say possible to scrutinise, approve or disapprove the motion.
“Parliament approved unanimously. Cabinet held yet another discussion afterwards and all formalities were adhered to.”
A ‘transparent’ process
Schembri is the founder of IZI Group, an umbrella organisation for diverse interests in the gambling sector. He is the managing director and a shareholder of Dragonara Gaming, the company that runs the Dragonara casino in St Julian’s.
Last year, his group took over the running of the national lottery, following the award of a 10-year tender.
The group also includes IZI Bet, an online gambling company with physical branches dotted around the island.
Schembri said via his lawyer that the way the Dragonara lease was acquired was entirely transparent, having gone through all the established procedures leading to it being the subject of a unanimous resolution by parliament in 2019.
On the lease payment terms, Schembri said the €500,000 annual payments will increase to €1.5 million.
“May we point out that this is the highest – both in absolute terms and in terms of rate per square metre – paid for any property along the ‘golden mile’. The said lease also entails other onerous conditions and investment obligations.”
Schembri argued that the difference between the previous €1.2 million annual rent and the current rent is “logical” and driven solely by economic considerations reflecting the changes in circumstances.
“When Dragonara Gaming Limited leased the premises in 2010, there was only one other casino in the area, whereas by the time the new lease was being negotiated, a third casino concession for the area had already been granted to the Eden Leisure Group (Eden).
“This third concession was granted for the lowest concession fee to government ever recorded for a casino concession.
Dragonara Gaming Limited also instituted legal proceedings in 2016 against Dr Muscat’s government challenging the award of this third concession, as it deemed this to have been awarded on subjective criteria, unfairly and without justification.”
Schembri said that Dragonara Casino, as a result of what was deemed to be a “vitiated tender award process”, suffered significant financial loss.
“Consequently, all this, including the resulting reduction in market share, was obviously taken into account when negotiating and establishing the value of the new lease for the premises,” Schembri said.