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FIAU report speaks of suspicions of money laundering

Brian Tonna. Photo: Chris Sant Fournier

Brian Tonna. Photo: Chris Sant Fournier

Ivan Camilleri looks at the report which details the main findings of the FIAU’s investigation into top officials of the Labour government.

How did it start?

The FIAU carried out a preliminary report on the Panama Papers leaks which was transmitted to then Police Commissioner Michael Cassar on April 7, 2016. As soon as he received the report, Mr Cassar left the police HQ never to return. He was later given a consultancy contract with Malta Security Services.

After receiving further information, the FIAU conducted more detailed analysis in relation to two specific suspicious transactions of €50,000 each.

The report says: “These transactions consisted of bank transfers carried out through the domestic bank accounts pertaining to Willerby Trade Inc, a company registered in the British Virgin Islands, in favour of a domestic bank account held in the name of Keith Allen Schembri, a person who falls within the definition of ‘politically exposed person’ under the Prevention of Money Laundering and Funding of Terrorism Regulation in view of his appointment as Chief of Staff to Prime Minster Joseph Muscat as from May 11, 2013.”

Why were the transactions suspicious?

The FIAU confirmed that “three transactions were carried out through which the total amount of €166,831 was transferred to a bank account held in the name of Willebry Trade Inc with Pilatus Bank.

“The three separate remittances were made by three individuals of Russian nationality. All three payments referred to an invoice number or settlement for services provided in relation to an application for the registration under the Individual Investor Programme (sale of passports).”

How were the transactions carried out?

“From a review of the transaction history of the bank account pertaining to Willerby Trade Inc, it transpires that shortly after the receipt of the funds in this account, two separate payments – both of €50,000 – were made from the said account held in the name of Willerby in favour of a bank account held in the name of Keith Allen Schembri which is also held with Pilatus bank.

“The bank statements of the two accounts reveal that there was little or no activity in both the account held in the name of Willerby and in the account of Keith Schembri prior to these transactions.

“Furthermore, it is evident that a portion of the same funds received in the account of Willerby as payments made for services provided for registration under the IIP were subsequently transferred to the personal account of Mr Keith Schembri. Mr Schembri’s account in fact was not used for any transactions other than the credits of Willerby and a payment of €10,000 to his prepaid card which is also held with Puilatus Bank.”

The FIAU states that “it is pertinent to note that the Office of the Prime Minister has been extensively involved in the actual establishment of the IIP and in the promotion of the scheme in different countries. The transfer of funds originating from applicants under this scheme to a personal account of an official holding a position of trust in the same office is seen to be a suspicious transacting warranting further investigation by the police”.

Did Pilatus Bank know of these suspicious transactions?

Yes, Pilatus Bank did suspect these transactions but told Mr Tonna and Mr Schembri to explain and not to use these accounts any longer for such activity.

The FIAU states: “It should be noted that notwithstanding the highly suspicious nature of these transactions and the numerous requests made by the FIAU on these bank accounts and activities involving both Mr Tonna and Mr Schembri…Pilatus Bank has to date chosen not to file a suspicious transaction report to the FIAU.”

Did Pilatus ask for further details?

Yes. The FIAU established that bank officials asked for explanations but rested on the information provided and did not investigate further.

“The justification provided to the bank officials was that the transaction consisted of a repayment of a €100,000 loan Mr Tonna had with Mr Schembri in 2012.

“A loan agreement was presented to the bank in support of these transactions.”

The FIAU said: “It is known that Mr Tonna did in fact enter a deed of separation with his wife dated August 14, 2014 (two years after the loan).”

“A review of the deed of separation together with an examination of public registry searches on Mr Tonna reveals that he appears to be sufficiently wealthy to handle the costs of personal separation proceedings without need of third party funding.

Three separate remittances were made by three individuals of Russian nationality

“Moreover, it should be noted that even though certain circumstances might lead to temporary liquidity problems, the figure of €100,000 seems to be much higher than what would normally be needed for a person to undertake personal proceedings in Malta.

“Even more importantly, the arrangement entered into raised certain basic questions that can only be answered by the persons concerned.”

The FIAU states: “The first of these questions is why the repayment of a loan seemingly granted by one individual to another, unsecured, interest free and for personal reasons, required such an elaborate and costly set up involving the use of a company incorporated in the BVI as well as another agreement which reassigned the personal debt of Mr Tonna to Willerby.”

Is there any trace of the original loan transaction?

No. The FIAU could not trace any such transaction.

“Notwithstanding an in-depth review of several bank accounts held with different credit institutions both in the name of Mr Schembri and Mr Tonna and in the name of several companies with which they are connected, it was not possible to identify a transaction or a series of transactions through which the original loan was granted to Mr Tonna, even though it cannot be excluded that the funds might have been transferred through alternative channels or in cash.

“Although efforts were made to examine all potential avenues, these facts can only be determined conclusively through an investigation by a body having law-enforcement powers”.

Why Pilatus Bank?

Both Mr Tonna and Mr Schembri had long-standing relationships with both established institutions, BOV and HSBC, for many years.

“The fact that the bank account of Willerby Trade Inc held at Pilatus Bank was closed and the relationship terminated during the same period when the name of this company started to surface in the local media reports following the Panama Papers revelations should also be noted and the potential reasons for such action examined.

“This should also be seen in the context of the fact that the account was to channel funds originating from applications of a Government investment scheme to a Government official involved in the promoting the scheme internationally.”

Was the loan true?

Since no transitions were found of this ‘loan’ this could have been a bogus loan.

“In view of the circumstances surrounding this loan agreement, it cannot be excluded that the (loan) agreement might have been drawn up more recently and backdated in order to justify the transfers to Mr Schembri.

“Although the FIAU is not in a position to determine these matters itself, Police investigation could reveal the date when this document was actually drawn up especially in the event that computer servers of Nexia BT are examined.

“If it is determined  that the date of the drawing up of the loan agreement is close to the date of its presentation to the bank as a justification of payment, than it would be much more likely that the loan is a fictitious one.”

 

 

What did the FIAU conclude?

The FIAU established that the transactions did take place and that the way they were made strongly suggest a high suspicion of money laundering.

It states: “The documentary evidence provided to the bank to justify the payments made to Mr Schembri cannot be taken at face value and require further investigation as it could potentially be a bogus loan, which is a well-known method used to camouflage kickbacks when PEPs are involved.

 “Finally, and most importantly, an explanation will need to be provided for the fact that funds originating from the personal accounts of applicants under the IIP scheme ended up in the personal account of a very senior Government official within the Office of the Prime Minister after having first been transfered to the bank account of an offshore company held with a private bank.

“In view of the above circumstances, the information available to the FIAU is deemed to be sufficient to conclude that a reasonable suspicion of money laundering and/or the existence of proceeds from crime subsists.”

Action was asked to be taken by the police.

The Financial Intelligence Analysis Unit, an independent authority that acts as Malta’s watchdog against money laundering and proceeds from crime and terrorism, launched an investigation in 2016 after receiving information about the potential involvement of top government officials in criminal activity. The law allows FIAU officials to gather information from many sources, mostly confidential, to carry out a proper investigation. If the FIAU concludes there is enough evidence of crime, it sends its report to the police for action and prosecution.

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