Panama Papers scandal
During the year just ended the Labour government continued to dig itself deeper into a culture of institutionalised corruption with persons occupying high government positions and those close to them partaking of the fruits of a corrupt system.
A perfect example was the scandal revealed last year by leaked secret files where then health and energy minister Konrad Mizzi and Keith Schembri, the Prime Minister’s chief of staff, were found to have a secret offshore shell company registered in Panama under a tax evasion scheme by Panamanian law firm Mossack Fonseca & Company.
In December 2014, Vice Magazine reported that this law firm works with oligarchs, money launderers and dictators.
Hearnville Inc. was set up for Mizzi while Tillgate Inc. was set up for Schembri at the request of Nexia BT, a local financial consulting company managed by Brian Tonna. The first move for such purpose was made just three days after Muscat took office as Prime Minister.
A third secret offshore shell company was set up in the same way for an unidentified beneficial owner under the name Egrant Inc. The ultimate details of the individual concerned were not sent in writing according to normal practice but through a Skype voice message to protect his identity.
Tonna and his partner Karl Cini were given power of attorney to control all three companies held in custody by ATC Administrators Inc., a nominee company of Mossack Fonseca. Thus, while in reality Mizzi and Schembri were the beneficial owners and ultimate shareholders, outwardly these companies appeared to be owned and controlled by ATC Administrators Inc.
The Panama companies laid dormant until July 22, 2015 when at the request of Nexia BT they were incorporated in undeclared New Zealand foreign trusts by Bentleys Accounting Firm, an intermediary of Mossack Fonseca. This was at a time when Panama had been blacklisted by the European Union. Mizzi’s company was hidden in the Rotorua Trust while that of Schembri was hidden in the Haast Trust. The Egrant Inc. was hidden in a similar trust.
Two bank reference letters were requested to set up these trusts, but a way to get around this request was sought by Nexia BT since Mizzi and Schembri wanted to avoid informing their banks in Malta about the trusts.
The trust documents state that both companies were set to provide “management consultancy and brokerage services”. A leaked e-mail sent by Nexia BT states that Mizzi’s Panama company planned to receive $240,000 a year in its bank account from these services.
Both Mizzi and Schembri declined to accept the preparation and auditing of the trust accounts by Bentleys Accounting Firm.
To a request made by the trustees for a clearer explanation of the business that Hearnville and Tillgate would be engaging in, Mossack Fonseca replied that they would be used as holding companies for operations in the recycling and remote gaming sectors. Future business plans included the collection, shredding and reselling of used tyres to tarmac plants, and waste trading with buyers lined up in India and China.
In reality, these trusts provide Mizzi and Schembri with a workaround to hide their wealth and avoid taxes by hiding themselves behind New Zealand’s secrecy laws that protect trusts from disclosure to foreign governments.
With the help of Mossack Fonseca, Nexia BT sought clearance from foreign banks to open an account for Tillgate and Hearnville. At least nine banks were approached including banks known for their susceptibility to illegal activity by customers.
A $1 million opening deposit or an application for immigration visas to Panama was demanded to open a bank account while detailed information was requested from Mizzi and Schembri about their Panamanian companies’ assets, earnings, major clients and suppliers, and how the account would be used. When the banks learned that the ultimate beneficial owners of the companies were politically exposed persons they showed their unwillingness to open accounts for them.
There are some oddities to reconcile surrounding this case. Tonna, the managing partner of Nexia BT, happens to be the sole shareholder of a franchise firm that Mossack Fonseca opened under the company BT International owned by Nexia BT.
The office of this franchise firm is situated in Capital Business Centre in San Ġwann on the same floor as the office of Nexia BT and was opened in May 2013, only two months after Labour’s electoral victory. In the month following Labour’s election to government Tonna was given a desk at the Office of the Prime Minister, where Mizzi and Schembri have their offices.
It is clear that Mizzi and Schembri would not have revealed their Panama companies had their secret plot not been publicly exposed through the leakage of the Mossack Fonseca documents.
However, the greatest harm to Malta’s reputation was not actually done by the fact itself that these two close allies of the Prime Minister owned these secret companies with offshore trusts in New Zealand, but rather by Muscat’s insistence that there was nothing wrong in the manoeuvres of his close allies and his persistent refusal to remove them from office.
A number of high-profile personalities of the Labour Party have viewed this issue differently from Muscat. They suggested that Mizzi should resign and declared they would have themselves resigned if they were in his shoes. However, Muscat refused to give Labour MPs a free vote on two parliamentary motions of no confidence in Mizzi and another parliamentary motion calling him to request the resignation of Schembri as the person politically responsible for his appointment. As a result, all three motions were defeated by Labour’s parliamentary majority.
Muscat’s overt stubbornness led to a huge humiliation for Malta and its government by the rejection of two nominees of the Maltese government to the European Court of Auditors in the space of six months. Former Labour deputy leader Toni Abela was rejected by the European Parliament’s budgetary committee, while Leo Brincat who stepped down from Muscat’s Cabinet to be eligible for nomination met heavy outvoting by the European Parliament with 381 votes against and 229 in favour.
A factor that has substantially contributed to Brincat’s rejection is believed to have been his failure to back the parliamentary motions of no confidence in Mizzi in connection with the Panama Papers before he gave up his parliamentary seat. Brincat tried to justify his position by claiming that he was not allowed a free vote by Muscat. His rejection was later overturned without discussion into an approval by the Council of Ministers.
Mizzi is the only incumbent EU minister identified in the Panama Papers of clients of tax evasion. Another minister of an EU member state featuring in the leaks was Spain’s industry, energy and tourism minister who resigned within four days that his name was linked to the Panama Papers.
It is indeed a pity that Malta should be put in such an embarrassing situation, particularly at a time when the country holds the EU Council presidency.
The European Parliament’s Committee of Inquiry into Money Laundering, Tax Avoidance and Tax Evasion will be coming to Malta next month on a fact-finding mission, where it would focus on the country’s compliance with EU legislation on money laundering and taxation.
Malta is widely considered to be a tax haven for foreign companies that use loopholes to avoid tax and shift their profits outside the EU. The country’s financial services systems allows the involvement of intermediary companies in the setting up of offshore companies in secrecy jurisdictions that include EU blacklisted countries.
At the same time, the Maltese government continues to resist the European Community’s proposal for member states to share tax-related information on multinational corporations operating in the EU.
With mounting pressure from EU bodies, in March last year Muscat announced that there would be an audit by an independent foreign company of Mizzi’s trust set-up in New Zealand which would be concluded within a short time. Ten months have passed and we have not heard anything about the state of progress of this audit.
Apart from tax evasion, the Panama Papers have exposed the oligarchic methods practised by Muscat that permit the privileged few at his office in Castille to get away with plunder. This supports the conclusion drawn by a senior minister in Muscat’s own cabinet that Malta practices the Roman law that distinguishes between gods and the animals.
Denis Tanti is a former assistant director (industrial and employment relations) in the Ministry for Health.