Investigative and prosecution missteps have brought the Pilatus Bank money-laundering case back into sharp focus. Jacob Borg looks at what went wrong.
How it all started
Daphne Caruana Galizia and Times of Malta first reported on potential money-laundering by the now-shuttered bank in 2017.
A slew of concerns about the bank identified by the Financial Intelligence Analysis Unit, Malta’s anti-money laundering watchdog, were buried the year before after forceful pushback by the bank and its owner Ali Sadr Hashemi Nejad.
Media reports about these failings did little to pique the police’s interest in investigating the bank.
In April 2018, PN MEP David Casa took up the battle at EU level, sending letters to 50 financial intelligence units demanding investigations into Pilatus.
After receiving a dressing down from the European Banking Authority – an EU banking watchdog – the FIAU, together with the MFSA, took the unusual step of filing a criminal complaint with the police about suspected financial crimes at the bank.
The criminal complaint, filed in October 2018, failed to trigger an own-initiative investigation by the police.
Former economic crimes unit chief Ian Abdilla.Instead, then Economic Crimes Unit chief Ian Abdilla took the decision to kick the can down the road by taking the criminal complaint of the FIAU and MFSA to a magistrate.
By doing that, Abdilla placed the burden of leading the evidence-gathering process on magistrate Ian Farrugia.
Magisterial inquiries are known to proceed at a glacial pace – often spanning years – due to a lack of time and resources available to the judiciary, who are not equipped to carry out complex financial investigations involving hundreds of thousands of documents.
Abdilla was suspended last year over his failure to investigate high-level government corruption.
What happened then?
A total of €7.5 million was spent on the inquiry, over and above some three million already spent by the FIAU and MFSA for their own investigation leading up to the October 2018 criminal complaint.
After a two-year evidence-gathering process, Magistrate Farrugia endorsed conclusions by the foreign experts he hired that key bank officials, including Ali Sadr, should face money-laundering charges.
The magistrate signed off on arrest warrants to be issued for Sadr and other officials in February 2021.
However, international arrest warrants against Sadr and other officials were never executed by the Maltese authorities.
Former Pilatus chairman Ali Sadr had an arrest warrant issued against him last year.Sadr was known to be close to ex-Prime Minister Joseph Muscat and his chief of staff Keith Schembri, even inviting them to his lavish wedding in Italy after the bank got its licence in Malta.
Instead of acting on the international warrants and attempting to haul Sadr and other officials back to Malta to face justice, the police and Attorney General chose to charge Pilatus Bank – as a standalone financial entity – with financial crimes.
Neither its chairman nor any of the other foreign directors who ran the bank were made to answer to charges that Pilatus was used as a money-laundering machine.
The only official charged was Claude-Anne Sant Fournier, who was responsible for flagging and reporting potential money-laundering by the bank’s clients to the authorities.
How does Repubblika come in?
Rule-of-law NGO Repubblika acted on this “cover up” by taking to the courts in a bid to force the police and Attorney General to prosecute Sadr and the other officials identified in the inquiry.
The NGO has also pounced on a previously undisclosed decision by Attorney General Victoria Buttigieg to override the prosecution of two Pilatus officials, namely former bank risk manager Antoniella Gauci and operations supervisor Mehmet Tasli.
Police Commissioner Angelo Gafà recently said in an interview that decisions about who should or should not be prosecuted are taken by the Attorney General.
Repubblika is demanding in court that both the police and the AG account for their actions, or lack of them, in acting on the magisterial inquiry’s findings.
The NGO has taken the extraordinary step of publishing the arrest warrants issued against Gauci, Sadr and others, to prove that the authorities bungled the prosecution.
The arrest warrant for Ali Sadr, approved by magistrate Farrugia in February 2021.What about Egrant?
Mystery Panama company Egrant has become synonymous with Pilatus Bank. A separate inquiry triggered by former prime minister Joseph Muscat failed to unearth evidence of claims by Caruana Galizia that the bank facilitated kickbacks via Egrant destined for Muscat.
The inquiry concluded that signatures on documents linking Egrant to Muscat’s wife Michelle had been forged.
Forensic experts who worked on the Pilatus inquiry identified further investigative steps that could be taken by the police to get to the bottom of the Egrant claims.
Pilatus became synonymous with claims that Egrant was owned by Joseph Muscat's wife, Michelle.The experts noted that certain claims about Egrant could not readily be explained.
Former Pilatus employee Maria Efimova had claimed a $1.01 million transaction was wired to Egrant during her time at the bank.
Maria Efimova fled Malta after the Egrant claims.The inquiry recommended that further steps be taken with the US authorities to verify if the transaction took place.
The experts also recommended that Efimova be interviewed by investigators about her claims on the alleged Egrant account and transactions, as well as about an alleged parallel accounting system.
Although the probe did not find evidence of such a parallel system or of any transaction records being hidden or deleted, the experts nonetheless left the door open for further investigations, with their recommendation to interview Efimova and liaise with US authorities about the claimed $1.01m transaction.
Efimova was charged with perjury as a result of the Egrant inquiry. She fled the country soon after Caruana Galizia published her claims, and her credibility has since been called into question.
Have account holders faced justice?
Another glaring hole in the Pilatus prosecution is the failure to go after the tens of account holders whose money bank officials were allegedly laundering.
The FIAU concluded in a public report that the bank was responsible for “serious and systemic failure” to follow anti-money laundering laws.
The “lax approach” by Pilatus to carrying out basic checks on its clients was highlighted as being of particular concern by the FIAU.
The FIAU said the bank’s dependence on a “series of connections to the Caucasus region,” a veiled reference to Pilatus’s high number of Azeri clients, made it impossible for the bank to ever take concrete actions in respect of any transactions, activity or relationship deemed to be suspicious.
Two of the bank’s main clients included the daughters of Azerbaijan’s president Ilham Aliyev, Leyla (left) and Arzu.In April 2018, as part of the cross-border investigation Daphne Project, Times of Malta had helped reveal how a network of over 50 companies and trusts secretly owned by Azerbaijan’s ruling elite used accounts at Pilatus Bank to move millions around Europe.
According to the FIAU, throughout its operations, the bank had exposed itself and the Maltese jurisdiction to “egregious” money-laundering risks that were not mitigated in any manner.
“The bank’s total disregard towards necessary anti-money laundering and terrorism financing safeguards, led to it allow millions to pass through the Maltese economy without any considerations of possible money-laundering taking place,” the unit said.
Pilatus Bank’s licence was stripped by the European Central Bank in November 2018, following the arrest of its founder and chairman Ali Sadr in the US.
Sadr has since been released after the US money-laundering charges were dropped due to procedural failures by prosecutors.