A Malta Enterprise official responsible for handling funding applications saw no fraud by Progress Press in an application that led to money laundering charges against the company, he told a court on Wednesday.
George Francalanza made the statement while testifying in the compilation of evidence against Keith Schembri and his business associates, who stand accused of corruption, money laundering and other charges. They are pleading not guilty.
Francalanza was the officer who recommended approving the Progress Press funding application and in an internal Malta Enterprise report wrote that if the agency were to “close both eyes and stretch the imagination” then full funding should be applied, a court heard.
The issue dates back to 2013, when Progress Press had applied for, and later received, some €1.5 million in aid to help partially cover some €5.5 million worth of investment in a new printing set-up.
Progress Press is a subsidiary of Allied Newspapers, which is the publisher of Times of Malta.
The prosecution, headed by State Prosecutor Elaine Mercieca Rizzo, asserted that while the financial aid was only meant to cover capital investments on fixed assets, the company had defrauded Malta Enterprise by including unspecified amounts of “consumables” in their application. These consumables were later included in receipts submitted for fixed investments in machinery.
However, during Wednesday’s sitting, the court, presided by magistrate Donatella Frendo Dimech, heard that Progress Press’ initial application had clearly stated that it was applying for funding for three different investments. One of those investments, a digital binding machine, for just shy of €1 million, included “all related consumables”.
Francalanza, the chief officer at Malta Enterprise responsible for handling applications made by large businesses, was lambasted by the court for making assumptions about the funding application and not properly looking into the matter of consumables.
He testified that he first received the funding application on July 30, 2013, and could recall at least one meeting with former Allied Group managing director Adrian Hillman and Malta Enterprise chairman Mario Vella. Francalanza said that Michel Rizzo, who at the time was Progress Press’ managing director, could also have attended, though he was not sure.
Rizzo, together with former financial controller Claude Licari, stands accused of money laundering and defrauding Malta Enterprise. Both deny the charges.
Francalanza testified that the company had committed to enter into a €5.5 million investment on three machines and they requested Malta Enterprise assistance through investment aid in the form of cash.
Investment aid is normally given in the form of tax credits, but can be given as a cash grant and depends on the size of the investment, he told the court.
The involved parties were Adrian Hillman and Michel Rizzo, at the time at the helm of Progress Press and the investment was for digitally enhanced binding equipment, printers and other equipment.
Consumables listed but not costed
He testified that while consumables had been listed in the funding application, they were not costed. As a result, he had assumed that the cost of consumables was negligible, something the court said was a clear shortcoming on his part.
Going through the application by Progress Press, Francalanza said the first investment was for a digital press, which included 1 million “clicks per year”.
Francalanza told the court he had no idea what that meant and had never checked with the applicant. A click is a measure of how much a press is used.
The second item invested in by the printing company was a digital binding machine. In the application, Progress Press had listed “related consumables”.
Francalanza explained that Malta Enterprise agreed to give out a mix of cash and tax credits on the back of the investment. But that this was only meant to be given against invoices and proof of payment for eligible investment items.
He explained that Malta Enterprise was “generous” in the estimated amounts for the grant.
“We feel it is best to approve more and then not actually need to give it, than the other way around,” he said.
Asked whether invoices were given by Progress Press, Francalanza said this was not his responsibility. But for funding to have been granted, then this paperwork would have to have been submitted, he added.
An application for funding related to a €960,000 digitally enhanced binding machine mentioned a five-year parts, labour and maintenance deal as well as consumables, he told the court.
The third investment undertaken by Progress Press was of €2.5 million and covered other equipment related to this new digital short-run printing plan. However, this did not include consumables.
Once the funding application was approved, a letter of intent was issued.
He said Progress Press’ original letter of intent was withdrawn and superseded by another, after the company changed their minds about applying for a bank loan and had decided to fund the investment themselves.
Francalanza said Progress Press ended up receiving slightly less than that €1.6 million amount listed in the letter of intent, as the company informed Malta Enterprise that they spent less than originally planned, and their funding was reduced accordingly.
'I see no fraud'
During cross examination by defence lawyers Edward Gatt and Mark Vassallo, Francalanza said that he had never testified before on this matter and had never checked paperwork related to the deal, even after the matter made headlines.
Consumables had not been quantified, he said, acknowledging that he had not asked about them before making his recommendation to approve the funding application.
At this point, Magistrate Frendo Dimech interjected, asking whether it was Malta Enterprise’s responsibility to check what they are giving out money for.
“Yes, but we have the safety net of the payment stage only coming against invoices and proof of payment,” Francalanza said.
In a closing exchange, Gatt asked, “so in your view who defrauded who and by how much?”
“I see no fraud,” said Francalanza.
“Some people spent a fortnight in prison and some people are in the [health] state they are in because of this!” the defence exclaimed in response.
How payments were issued
The next witness for the morning was Joseph Zammit, the chief officer of finance at Malta Enterprise.
He testified that the €1.5 million was paid to Progress Press in eight payments over five years. The eligibility for aid is clearly defined in the law and the applicants knew what they were eligible for, Zammit said.
He said that according to the guidelines, funding covered tangible or intangible assets, meaning investment or wage costs. Tangible assets were fixed assets that are capitalised and do not include consumables.
Explaining the refund request, Zammit said it occurred in tranches against invoices.
Zammit said a Malta Enterprise administration unit would handle this process. They had received two invoices that covered the total €5.5 million investment.
One from December 2013 covered the digital press for just over €2 million. The second invoice was for other machinery to the tune of some €966,000, and another machine for €2 million.
The verification process included an onsite inspection to ensure the machines were indeed purchased. Once fiscal invoices are presented and payments made to back it, it is taken as verified, he said.
“The invoices were from Kasco, and we relied on those,” Zammit said.
He presented the court with proof of payments issued by Kasco Ltd, Schembri’s company.
The witness explained that these were checked against Lombard Bank statements issued for Progress Press.
There were some proof of payment documents by Kasco Ltd that were not approved for aid by ME, he said.
Illustrating how this worked, he referred to one proof of payment document that was for some €300,000 related to the first digital printing machine investment.
Later during cross examination, Zammit explained that ultimately the companies only presented invoices for machinery and did not include the consumables as separate invoices. This was how funding was issued for ineligible items.
The magistrate noted that some of the receipts presented by the applicants had also included the phrase “all other consumables”.
Zammit said this may have been an oversight.
Defence lawyer Mark Vassallo pointed to the letter of intent and the subsequent reply from ME which he said also made reference to the original application by Progress Press, and therefore also to the consumables.
The final witness presented by the prosecution was Stefania Cilia Caligari, who was formerly involved in handling accounts at Progress Press.
She testified that consumables were normally filed separately from other fixed investments made by the company. However, in the case of the receipts from Kasco Ltd for these three contentious investments there was no separate receipt for consumables and so the entire investment was filed under fixed assets.
The case will continue on May 17 at 1pm.