A New Zealand firm tasked with auditing Konrad Mizzi’s and Keith Schembri’s offshore structures was provided with “little information” to work with, new leaked e-mails suggest.

This contrasts with Prime Minister Joseph Muscat’s characterisation of the audits as a world-wide hunt for any money his two closest associates may have secreted away.

The leaked e-mails, obtained by German newspaper Süddeutsche Zeitung, paint a different picture to Dr Muscat’s.

These e-mails show the auditors relied on financial statements sent to them by Dr Mizzi and Mr Schembri, as well as assurances from the New Zealand trustees that, “to the best of their knowledge and belief”, no money was ever deposited into their Panama companies.

The Daphne Project revealed last month how $1.6 million was wired to 17 Black, described in e-mails as one of two “target clients” for Dr Mizzi’s and Mr Schembri’s Panama companies.

E-mails showed the two men were expecting $150,000 monthly to be paid into their secret Panama companies.

Roger Thompson, whose New Zealand firm acted as agents for Mossack Fonseca, wrote in a leaked e-mail that it was reasonable for auditors Crowe Horwath to demand certain assurances from the trustees about the two men’s financial activities.

“I think it is reasonable for the auditor to require these representation (sic) as there was little information provided to the auditor. Although it is possible for the auditor to audit the documents and information that he is given it is difficult for him to be sure that there are no other transactions or documents that he has not been told about.

“These representation letters therefore give him some basis to be comfortable that there are no undisclosed transactions.

“The directors will need to be satisfied that each statement, particularly the specific representations from 19 on, is true to the best of their knowledge before signing,” Mr Thompson wrote in a letter to Mossack Fonseca’s Panama branch.

Contacted about the e-mails, Mr Thompson initially declined to comment.

In further correspondence, Mr Thompson said as a “general comment not related to any specific case”, he might say there was “little information provided to the auditor” if there was little information available to give.

“Having provided a copy of the share certificate there is really no other information that can be provided to an auditor. It is not possible to provide information that does not exist,” Mr Thompson said.

Retired auditor Godfrey Leone Ganado, who analysed the documents and e-mails for The Sunday Times of Malta, said the auditors clearly had difficulty taking comfort from an audit barren of documentary evidence.

A senior Crowe Horwath New Zealand partner refused to comment about questions sent by The Sunday Times of Malta on the basis of “strict client confidentiality”.

Mr Leone Ganado said the e-mail sent by Mr Thompson highlighted the lack of transparency behind the highly publicised and boasted about audits.

The audits only saw the light of day in February 2017, when they were presented to MEPs investigating the Panama Papers in Malta. Up until then, the government had given the impression that the Panama audits were still a work in progress.

Dr Mizzi even testified in an October 2016 libel case that he would only say who had audited his Panama company “once everything was completed”.

Documents published by Dr Mizzi and Mr Schembri themselves show their audits were completed in September and October 2016 respectively.

While Dr Mizzi has always claimed the Panama company was set up to hold his London property, the audit documents show neither the trust nor the company were ever used for this purpose.

In the information provided by Dr Mizzi to the auditors, the minister said the trust and Panama company had no bank accounts.

Mr Leone Ganado said this declaration by Dr Mizzi meant the auditors could not hunt down bank accounts, as intimated by the Prime Minister. 

He said that if Dr Mizzi passed on information saying his offshore structures had no bank accounts, the auditors would not have been given authorisation letters to ask banks around the world whether any such accounts existed.

To the inexperienced eye, the very fact that Dr Mizzi sent the prepared accounts to the auditors may seem strange.

Mr Leone Ganado said there was nothing untoward about this. “It is expected that the auditor’s client, in this case Konrad Mizzi, prepare the financial statements for the auditors to audit.”

He said the real issue was the “garbage in, garbage out” maxim, as the auditors would have had to rely on the information provided by the minister.

‘The audited statements speak for themselves’ – Konrad Mizzi

Contacted by The Sunday Times of Malta, a spokesman for Dr Mizzi said the audit firm opined that the financial statements of the structure were presented fairly, in all material respects and in accordance with accounting policies.

“The auditors have confirmed that the evidence that they have obtained was sufficient and appropriate to provide a basis for their audit opinion. The audited financial statements speak for themselves,” he said.

Questions about the levels of information given to the auditors, and whether an account in Dubai was opened for his Panama company were put to Keith Schembri.

In replies forwarded from the Prime Minister’s private e-mail server, a government spokesman quoted Mr Schembri as saying the various questions sent to him were a repetition of questions sent and answered over the past years as well as last few weeks.

The same replies were sent to The Sunday Times of Malta 40 minutes later from a government e-mail address, though the spokesman this time referred to Mr Schembri in the third person in some parts, while still quoting Mr Schembri in the first person in another. When this newspaper acknowledged receipt of the replies sent from both e-mail servers, the spokesman said: “The last one is slightly amended so use the latest.”

Financial experts have long pointed towards the impossibility of auditing Panama companies, due to the lack of transparency and tracking of their structures.

A leaked report shows investigators from Malta’s anti-money laundering agency (FIAU) flagged one such example during their investigation into Dr Mizzi’s deals as energy minister.

‘Backdated’ share certificates

The FIAU found that Mossack Fonseca “backdated” the share certificates for Dr Mizzi’s Panama company.

Leaked correspondence seen by The Sunday Times of Malta shows that the same thing was also done for Mr Schembri’s company.

The original documents showed Dr Mizzi’s and Mr Schembri’s Panama companies having a paid-up share capital of $10,000 each. In March 2016, Nexia BT’s money laundering reporting officer Karl Cini asked Mossack Fonseca to draw up new share certificates.

Mr Cini said the new certificates should show an authorised share capital of $100.

“The share certificate should remove [emphasis as per original e-mail] the above statement that the authorised share capital is fully paid (because it is not true as no additional funds have been deposited),” Mr Cini wrote. Mossack Fonseca, which has been described by Panama prosecutors as a “potential criminal organisation”, agreed to correct the share certificates.

New share certificates were sent to Nexia BT and backdated to July 2015, without any note of the “mistake” on the new certificates.

The FIAU said in a leaked report that the ease with which the share certificates were backdated to reflect a different share capital was “suspicious”.

Mr Cini said in reply to questions by The Sunday Times of Malta that while he categorically denied any wrongdoing, he could not comment further due to professionally secrecy and client confidentiality obligations.

Both Dr Mizzi and Mr Schembri deny being involved in any illegal activities.

jacob.borg@timesofmalta.com

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