Investigators combing through Keith Schembri’s financial affairs flagged dozens of suspiciously-labelled transactions totalling hundreds of thousands of euro moving out of a bank account held by his auditors Nexia BT, a court heard on Monday.
The court was hearing testimony in the case against Schembri, his father Alfio, business partner Malcolm Scerri and financial controller Robert Zammit. A decision on bail for the four men is expected on Tuesday morning.
Police officer Emmanuel Schembri told the court that his analysis of transactions involving an account owned by BTI Management Ltd. found that around €600,000 had moved through the account in 44 transactions between 2015 and 2016. Roughly €250,000 of that went to individuals.
Transactions included a cheque from Colson Services Limited, an offshore firm owned by Keith Schembri, with other payments marked ‘KS’ or ‘Loft’, a company owned by Schembri’s wife, Josette.
BTI Management Ltd's directors are Brian Tonna and Karl Cini, the two directors of Nexia BT.
Schembri served as chief of staff to prime minister Joseph Muscat between 2013 and 2019. He stands accused of corruption, money laundering, falsifying documents and other crimes in relation to alleged kickbacks on the sale of Maltese passports and of machinery to printing company Progress Press.
A court heard last week that investigators had followed a complex money trail which Schembri used to buy and resell printing machinery to Progress Press and which the police suspect involved US$5.5m in bribes. An inspector testified that it appeared the company had paid US$6.5m more than it had to, over-and-above the standard profit markup, to Schembri.
On Monday, a court also heard that:
• Schembri’s bid to sell machinery to Progress Press was €2m-€2.5m cheaper than a rival offer
• The Progress Press deal was audited by PwC
• The Progress Press board was receiving advice on which machinery to choose by its then chairman, Vince Buhagiar (Buhagiar is also facing criminal charges in relation to the sale).
• A magistrate found no proof that Schembri had received kickbacks on passport sales, but did not believe his claim that a €100,000 payment from Tonna was repayment of a loan, either
• Northern Ireland’s Harbinson Forensics and forensic accountant Miroslava Milenovic both compiled expert reports for a magistrate probing the Progress allegations.
As it happened
Live blog ends
4.02pm This live blog will end here. Check back shortly for a summary of the day’s key points of testimony, which will be posted to the top of this article.
Before you go - find out who is behind Macbridge, the second company named as a source of funds for offshore firms owned by Schembri and Konrad Mizzi.
Competent person to oversee frozen assets
4.01pm The magistrate proceeds to issue a decree confirming the appointment of an administrator to oversee frozen companies and assets belonging to the accused men, to ensure no irregularities.
That’s it for today. The magistrate will decree on bail on Tuesday, after which she will set a date for the next court hearing.
Bail decision on Tuesday
3.57pm Back in court, the magistrate has said that she will decree on the bail application tomorrow at 8.30am.
3.54pm It’s the name of a second secret company that was intended to funnel money to Panama firms owned by Schembri and former minister Konrad Mizzi, together with Yorgen Fenech's 17 Black.
Watch out for an exclusive story about it at 4pm.
'This case is not political'
3.50pm Mercieca Rizzo says she agrees with the defence – justice must be blind and equal for all. It is not true that the case is a political one, she says.
Although investigations were sparked by the then-Opposition leader (Simon Busuttil, who sought inquiries into the kickback claims), the inquiry itself was removed from politics and the magistrate was independent.
That's all from the prosecution.
3.47pm Mercieca Rizzo shifts her focus to the other three men accused. Proceedings against them are at an early stage, she says, and the charges include criminal association by a group of people.
This association led to serious and very complex crimes, the prosecutor says.
“The prosecution is not convinced that the accused will allow the course of justice to proceed serenely [if granted bail],” Mercieca Rizzo tells the court.
Prosecutor makes arguments against bail
3.44pm It’s now the turn of prosecutor Elaine Merceica Rizzo to make her arguments against granting the accused bail.
She begins with Alfio Schembri. A medical certificate he presented was seven years old and he is receiving all the medical attention he needs at Corradino Correctional Facility, she says.
She agrees however that Alfio Schembri’s role in the crimes being alleged differed from that of the other three accused: while they were authors, Alfio Schmebri was a vehicle for the crime, she says.
Jibe at Moneyval pressure
3.41pm Gatt wraps up his lengthy argumentation with a veiled reference to Malta’s Moneyval assessment.
“Perhaps some decisions are being taken to make certain institutions look good,” he says.
Head in his hands
3.35pm Gatt continues to state his case, arguing that proceedings could take a very long time and there is no risk of absconding.
“We’re talking about men who can’t even go out for a coffee in this country,” he says.
Alfio Schembri appears to be in some distress, with his head in his hands.. Gatt suggests some fresh air; inspector Xerri offers him a sweet.
Comparisons to Buhagiar
3.27pm Gatt’s voice is rising as he continues to intone in the courtroom.
“People in the street are asking how Alfio Schembri, an elderly man, is not given bail while another accused charged that same day, is,” he says.
The magistrate notes that Gatt is referring to former Progress Press chairman Vince Buhagiar.
(Buhagiar was granted bail following his arraignment against a deposit of €20,000 and a personal guarantee of €40,000.)
Defence's bail pleas
3.22pm Gatt continues to make his arguments. He says that his client is accused of giving false testimony concerning claims of passport kickbacks, but that the police have failed to explain what the actual truth is.
Turning to the Progress Press deal, Gatt says that the auditors that checked the deal were not spoken to by the police. The company itself was not spoken to, even though the claim is that they were defrauded, he says.
In other cases that were "photocopies" of this one, defendants were granted bail immediately, he says.
3.17pm Discussion in court now centres on the accused men’s application for bail.
Defence lawyer Edward Gatt makes his pleas.
He paints the court a picture of Lady Justice – blind, carrying a set of scales – saying that justice must be blind and that the court must take a weighty decision.
“There are many who hate Keith Schembri for reasons they know, and others love him for their own reasons. But the court must decide on the basis of this case.
"If the court is convinced that these men are going to do something wrong if given bail, that is what the court’s consideration must be,” he says.
3.13pm Journalists are allowed back into the courtroom.
Buhagiar the expert
3.10pm Earlier during his testimony, inspector Xerri said it was former Progress Press chairman Vincent Buhagiar who was the expert advising the company board about which type of technology to go for. (Buhagiar is also facing criminal charges, separately).
Behind closed doors
3.06pm Testimony will continue behind closed doors, the magistrate says.
Journalists are temporarily ordered out of the courtroom.
3.05pm The two expert reports were authored by UK-based Harbinson Forensics and Serbian forensic accountant Miroslava Milenovic. (Both those experts were also used in the Egrant inquiry).
The defence flags a concern about one of the experts at Harbinson Forensics, saying they have a previous link to PwC. They say this amounts to a conflict of interest.
Bid was audited by PwC
2.59pm Asked by Vassallo, inspector Xerri says PwC audited the deal.
PwC’s audit was not reviewed by the police as part of their investigations, Xerri confirms.
Vassallo: “Are you are telling me that the police did not look at an audit by a firm like PwC?”
Inspector Xerri replies that the police had two expert reports compiled as part of the magisterial inquiry into the graft claims.
'Kasco bid was cheaper'
2.53pm Inspector Xerri says three bidders with three different machines applied for a contract to supply the printing press. One of the bidders did not qualify, leaving Kasco Ltd. and a second supplier.
Answering questions by Vassallo, he says that the Kasco bid was €2 million cheaper than its rival bid.
Vassallo says the Kasco bid was “actually €2.5m cheaper”.
2.52pm Vassallo asks the inspector if the company had agreed to move premises and invest in new equipment.
Inspector Xerri confirms that. “They wanted a new printing press,” he says.
Answering other questions by Vassallo, the inspector confirms that the company had spoken to other suppliers and that company top brass had gone abroad for a presentation about the investment.
"Did you speak to the victim?"
2.47pm "Did the police speak to the victim (Progress)?" Vassallo asks. The inspector says the company spoke to the inquiring magistrate.
Vassallo: Did anyone from Allied or Progress say that they had been defrauded?
Xerri: Not to me, no.
Investigations into Progress Press ongoing
2.45pm Vassallo asks Xerri whether he asked Progress Press why they wanted to move premises (from Valletta to Mrieħel).
The inspector says he did not. Investigations into the company are ongoing, he adds, and he cannot comment on ongoing investigations.
Inspector Xerri cross-examined
2.43pm The next witness is inspector Joseph Xerri.
But first, state prosecutor Elaine Mercieca Rizzo asks to approach the magistrate's bench along with the defence team. They debate something quietly, and the session eventually resumes.
Xerri takes the stand.
Cheques for Alfio Schembri
2.41pm Xuereb details a number of cheques issued to Alfio Schembri as a wage he was allegedly receiving from Kasco Ltd. Cheques were being deposited into an account held by Keith Schembri.
She says Kasco Ltd’s Robert Zammit had emailed Brian Tonna about that.
However, the inspector says she has not worked in depth on this part of the case, so other officers will be asked about this at a later stage.
That’s all from Xuereb, who is done testifying.
Second magisterial inquiry
2.37pm The inspector is now asked about a second magisterial inquiry, led by magistrate Josette Demicoli, that looked into allegations of money laundering and commercial graft concerning Schembri and the purchase of machinery by Progress Press.
'What is the truth?'
2.34pm Vassallo emphasises his point.
“We are saying one thing is a lie but not establishing what the truth is,” he says. Vassallo says that the accusation of false testimony that Schembri faces is based on the conclusion that he was not being truthful about the loan agreement, without any proof of what the payments were really for.
The inspector pushes back.
She says that the police found that loan agreements between Schmebri and Tonna were only drafted after the FIAU made a compliance visit to Pilatus Bank (where Schembri received the €100,000).
Brian Tonna kept records of everything, the inspector notes, apart from this. He also never mentioned this loan to his business partners.
“There were a number of factors that led us to our conclusion,” she adds.
2.29pm Vassallo: If Schembri and Tonna’s version of events is a lie, then what truth did you find?
Inspector Xuereb: We found that Tonna had enough assets to make do without a loan from Schembri.
Fearing his ex-wife
2.27pm Answering a question by Vassallo, inspector Xuereb says that Tonna told the magistrate that he was afraid of touching his communal assets during his separation proceedings, for fear of having his assets frozen.
Vassallo asks whether the police spoke to Tonna’s ex-wife, to try and verify this.
The inspector says she did not and cannot say whether others did. But the magisterial inquiry found no evidence that Tonna’s assets risked being frozen, she adds.
No proof of passport kickbacks
2.23pm Vassallo asks whether the police had chosen not to speak to the Russian nationals because they agreed that there were no kickbacks.
Inspector Xuereb replies “no.”
Vassallo: Isn’t it true that the magistrate found no proof that the €100,000 was a kickback?
Inspector Xuereb concedes that this is true.
Vassallo says that the inquiring magistrate had however concluded that she did not believe that the money was a loan between Schembri and Tonna, as they claimed.
The inspector agrees that this is the case.
Passport kickback suspicions
2.19pm Xuereb is asked about Willerby, a company owned by Brian Tonna.
She tells the court that Willerby was investigated for three years over two €50,000 payments that may have been kickbacks from Russian nationals for the purchase of Maltese passports. Schembri had received €100,000 into an account he held at Pilatus Bank.
The police did not speak to the Russian nationals, the inspector says, as their testimony was included in the magisterial inquiry into those claims.
Inspector Xuereb cross-examined
2.14pm Inspector Anne Marie Xuereb, who testified in this case last Friday, takes the stand to be cross-examined by defence lawyers.
Lawyer Mark Vassallo is leading the cross-examination.
Disinfecting the witness stand
2.10pm Scerri is followed by another witness, police constable Marco Pisani - but first the witness stand is sprayed down with disinfectant as a precautionary measure.
Pisano is stationed at the FCID and was involved in a search of Keith Schembri's house. Two mobiles, a laptop, and an iPad were confiscated from the house, Pisani says, and Schembri’s office was searched.
2.08pm The next witness is police constable Nathaniel Scerri.
Scerri tells the court that he found a camera with two SD cards and two Vodafone mobile phones in the bedroom of Schembri’s Cospicua house. He recalls the number of electronic devices and documents taken from the Schembri house, as well as the cash.
Cross-examining the inspector
2.04pm Defence lawyers cross-examine inspector Farrugia.
Mark Vassallo asks who told the police about the money. The inspector says that it was Alfio Schembri himself. The accused told them about the safe and explained that he had inherited the money from his now-deceased mother-in-law.
The witness is asked about the seized mobile phones. He concedes that none of them work, save for the one Alfio Schembri uses himself.
The witness is asked what time officers arrived to search Schembri and his home. Farrugia says he arrived with three other officers at 5.45am.
That’s all from Farrugia.
Arresting Alfio Schembri
1.58pm Police inspector TonJoe Farrugia is the next witness.
Farrugia was the officer who arrested Keith Schembri's father, Alfio. He identifies the accused as the white-haired man seated in the dock next to Keith Schembri.
Farrugia tells the court he confiscated Alfio Schembri mobile phone and then proceeded to search his home in Cospicua at around 6am. He found €11,000 in cash, split into three bundles, in the living room. Farrugia says police were told the money had been inherited.
Officers also seized seven old mobile phones, several pen drives and hard drives, a laptop, a PC and two iPads. They also found some documents related to Kasco Ltd.
Officers also searched another property held in Schembri’s name in Marsascala, but found nothing of note there.
€250,000 to individuals
1.56pm The money wasn't always moved around to companies: around €250,000 was transferred to individuals.
That’s all from officer Schembri, who presents a detailed report into the transactions as evidence and walks off the witness stand.
Defence lawyers reserve cross-examination to a later stage.
44 transactions totalling €600,000
1.53pm The officer presents invoices that pertain to a number of transactions between offshore companies.
In total, the police analysed a total of 44 transactions out of the BTI account between 2015 and 2016, totalling around €600,000. They included payments to Schembri's company Kasco Ltd. and other related firms.
A sea of transactions
1.49pm The witness is rattling off a list of companies, transactions and bank accounts that they believe relate to the criminal enterprise the four men in the dock stand accused of.
But he's speaking very quickly and there are just too many names and sums to list or explain.
Follow the money
1.44pm The officer continues:
In August 2015, this client account had 22 transactions, amounting to €600,000. These included a cheque from Colson Services Limited, owned by Keith Schembri and registered in the British Virgin Islands, which came via another BVI company.
The witness details other transactions into the account, including some marked with the initials ‘KS’.
Others were identified as originating from a Gibraltar company owned by Schembri (Malmos), and there were also transactions marked ‘Loft’ – a company owned by Schembri’s wife.
Some of this money made its way into a BOV account via a trust, the witness says.
BTI Management Ltd.
1.40pm The officer says he personally analysed BTI Management Ltd’s bank account. It was first named BTI Financial Ltd, in 2010, and eventually changed name. (The company is led by Brian Tonna, who is being charged with similar crimes separately).
It held seven accounts with Bank of Valletta which were opened between April 2012 and August 2015, as well as six credit card accounts.
The police were tasked by the inquiring magistrate with establishing the provenance of funds.
Nexia BT directors Brian Tonna, Karl Cini and Manuel Castagna held an account that was identified as a client account, the witness says.
Taskforce investigated suspects' finances
1.34pm The witness tells the court that he is a manager at the FCID, running a taskforce on financial statements that started working last year.
The taskforce's job was to review bank statements, stocks and other investments held by the group of people under investigation.
Financial crimes officer to testify
1.32pm Today’s court session will end at 4pm, the magistrate informs all parties. It will be Schembri’s only court appearance this week.
Police officer Emmanuel Schembri, who works at the FCID, is the first witness to testify.
Court in session
1.29pm The fourth man facing charges, Robert Zammit, has joined the other three. He is now also in court.
Magistrate Frendo Dimech also enters the courtroom and begins proceedings.
Schembri in court
1.27pm Three of the accused men – Keith Schembri, his father Alfio and business partner Malcolm Scerri – are led into the courtroom.
Schembri, wearing spectacles and a black face mask, confers with his lawyers.
Prosecutors in court
1.25pm The prosecution is being led by Elaine Mercieca Rizzo from the attorney general’s office and Joseph Xerri from the police’s financial crimes investigation department. Both are in court.
Xerri, who testified last Friday, is likely to be called to the witness stand once again today.
1.21pm If Schembri is granted bail, it will be set against a deposit and guarantee that will run into tens of thousands of euro. Schembri’s assets are currently all frozen, on the back of a court order imposed on him and his companies last September.
That means Schembri will need a benefactor to step in and post bail for him, if a court grants it, or else apply for a court to give him temporary access to his funds.
Bail or not
1.14pm Apart from hearing the cross-examination of two police inspectors, the court will also be deciding whether the accused men will be allowed to go home.
Schembri and his co-accused have been in jail for more than one week now, after a magistrate refused to grant them bail following their arraignment.
The court was due to decide on a second request for bail last Friday. But that decision was put off to today at the request of Schembri’s lawyers, who said they first wanted to make submissions related to today’s hearing.
Schembri's CCF home
1.09pm Schembri and his co-accused were originally being held in Corradino Correctional Facility’s division 6: one of the oldest parts of the Victorian building that houses prison and one that has in the past been used to detain unruly inmates.
Division 6 is now being used as a COVID-19 quarantine wing for incoming prisoners.
Sources tell us that Schembri and his associates have now been moved out of there, to division 14 – one of CCF’s newer wings.
Yorgen Fenech, for those of you wondering, is being held in division 16. That's another of the prison's newer sections.
Another big case
1.02pm Magistrate Dontatello Frendo is presiding over the case against Schembri. She’s having a busy start to the week – the magistrate is currently presiding over the compilation of evidence in the case against alleged fuel smuggler Darren Debono.
A court heard this morning how Debono’s auditor, Chris Baldacchino, allegedly laundering his illicit funds.
Read more about that case.
Accused in court
12.55pm A police van transporting the accused men pulled into a garage at the back of the law courts a few minutes ago.
The case will be heard in the building's largest courtroom - hall 22. It's still empty at this stage, save for Schembri's four-man legal team, made up of Edward Gatt, Mark Vassallo, Ishmael Psaila and Sean Zammit.
12.50pm The court heard testimony from two police inspectors last week and we expect those two witnesses to return to the stand today, to face questions from Schembri's defence team.
12.45pm Hello and welcome to this live blog. We're at the Valletta law courts, where the case against former OPM chief of staff Keith Schembri is to continue.
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