A police officer guarding the Government Property Division offices at the Auberge de Baviere in Valletta, as the place was sealed for the preservation of evidence soon after the NAO report was made public last night. Photo: Chris Sant Fournier

Outgoing parliamentary secretary Michael Falzon and government officials “colluded” with the Gaffarena family over a controversial expropriation deal, the Auditor General has found.

A 130-page report on an investigation into the Valletta expropriation deal, tabled in Parliament yesterday, highlighted “serious irregularities” in the purchase of part of a house in Old Mint Street.

“The NAO is of the opinion that this expropriation was instigated by [Mark] Gaffarena, yet readily facilitated by… [Michael Falzon, the Director General of the Government Property Department and Director of Estate Management] and deems such collusive action as highly inappropriate, in clear breach of the fundamental principles of good governance, transparency and fairness,” the report said.

The Auditor General also found that the government officials had been “secretly cooperating to the detriment of the other property co-owners”.

The Sunday Times of Malta last year blew the lid on the expropriation deal, revealing how Mr Gaffarena had made a mint when the government bought the property from him for €1.65 million weeks after he had bought it for a fraction of the price.

The report says it was “unequivocally” established that Mr Gaffarena knew about the government’s plans to expropriate the property before any public announcement was made, giving him an unfair advantage over the other co-owners of the property.

The Director of Estate Management, Charles Camilleri, the report says, provided Mr Gaffarena with sensitive information that was “exploited” by the developer. This was evident from Mr Gaffarena’s “manoeuvres to quickly acquire the remaining shares from the other co-owners, who were not privy to such information”.

“The inappropriate assistance af-forded to Mr Gaffarena is attested in the haste with which the DEM arrived at the conclusion that an undivided share of 36, Old Mint Street would represent a sensible acquisition for the government,” the report says.

This conclusion, it adds, was reached without any form of analysis or consultation with other senior government officials and, “worse still”, any specific public purpose being identified.

The government acquired a property worth €944,500, while Mr Gaffarena received €3.4 million: €516,000 in cash and €2.9 million in property.

The NAO’s concern was heightened by the official’s failure to record key decisions taken and to keep minutes of meetings held during the negotiation process.

Such collusive action is in clear breach of the fundamental principles of good governance

The transfer of confidential information to Mr Gaffarena has a “direct relevance” to the Criminal Code, the report adds. Whether this constituted a breach of the law, however, was out of its remit to decide.

Prime Minister Joseph Muscat last night handed the report over to the Attorney General for review.

The report also draws upon advice given by the Attorney General which, it says, if applied should render the deeds invalid and reverse the purchase as well as the compensation awarded to Mr Gaffarena.

The report highlights “numerous inconsistencies” in testimony by Mr Camilleri, however it adds that the deal would ultimately not have been possible without the final authorisation provided by Dr Falzon, who yesterday tendered his resignation.

Dr Falzon’s responsibility, the report says, was to approve official minutes which would ultimately seal the deal. But he failed to question what public purpose it served and instead simply insisted requirements on legal parameters and values were met.

“Insistence on these two requirements does not exculpate [Dr Falzon] from failing to ask the most basic yet most essential question, that is, what public purpose was to be served?” the report says.

The “inflated valuation of the Old Mint Street property, the undervaluation of government land disposed of, as well as the substantial cash payments made, over and above the vague public purpose”, deem the deal to not constitute value for money for the public coffers, the report concludes.