Finance Minister Edward Scicluna says there is no more corruption now than there was before and defends the regulatory institutions in the wake of the arrest of the Pilatus Bank chairman in the US. Interview by Anthony Manduca

The Malta Country Report 2018 certainly presents a robust picture of the Maltese economy. What do you consider to be the main challenges for economic performance to be sustained, and how are you addressing them?

The economy’s components are its main economic sectors such as financial services, iGaming and tourism, and we have to ask if they are sustainable. I believe they are. In iGaming, for example, we are part of a cluster of the most advanced countries in the world, which collaborate and see the challenges ahead. That is why they are successful, because they always pre-empt the market and consider problems as challenges.

The same can be said for financial services, which are well established and where we have developed professionals in the field of international standard, whether legal, auditing, accounting or IT. The same goes for tourism: we can hold an international conference of any size and can easily cope. In other words we have reached international standard and therefore have a better future. There will be challenges, but I believe our economic growth is not a momentary thing.

The report includes surveys which show corruption is perceived to be problematic for conducting business in Malta. Are you worried that corruption, real or perceived, can end up ruining our economy?

It would be foolish of me to say there is no real corruption in Malta, but I don’t believe there is more corruption now than before. People used to turn a blind eye, nowadays we are more aware. It’s like sexual harassment or domestic violence: people don’t accept these things anymore. Can one say domestic violence is on the increase just because there are more reports? When we say perception it doesn’t mean it is not real, we mean people are more aware, they won’t accept it as much as before. The real undercurrent activity I believe is not higher or lower than before.

Nowadays more questions are asked and there are more chances of being caught.

The European Banking Authority has opened an inquiry into the MFSA’s supervision of Pilatus Bank and its due diligence checks on the initial €8 million in capital used by the bank’s chairman, Seyed Ali Sadr Hasheminejad, who is now under arrest in the US, to set up the bank. Doesn’t this reflect badly on the MFSA? 

The EBA is conducting a review of our supervisory institutions, the MFSA and the FIAU, because they were asked to do so by the Commission, and the Commission was asked by MEP David Casa and his colleagues on the Pana Committee. The Pana Committee raised its awareness about Malta because it was pushed on political grounds.

The EBA didn’t wake up one morning and say, “I don’t like what is happening in Malta.” It was at the end of a chain of events. And I am very pleased that somebody from outside, independent and more objective than some other sources in the institutions, will look into it and hopefully be able to report, and we will get to know that our professionals and institutions are really first rate.

Would you agree, though, that his arrest on money-laundering and sanction-busting charges shows a serious failure of banking supervision in Malta?

Not at all, it was about an activity carried out correctly in the US, because it was at war with Iran and therefore has sanctions. These are not even UN sanctions, they are US sanctions, and the law is very severe. This person, who is Iranian, [Mr Hasheminejad] built, or his family built, 7,000 houses in Venezuela and he broke the sanctions because he used the US financial system. 

Now, he is going to be brought to justice, and there are a number of things which can be learnt from this indictment. It took five years, even though you had the richest country in the world, with the best intelligence resources in the world, for a single person to be indicted. Nobody tried to rush them, saying they are too slow and citing leaked documents.

One can surmise that there might be links of money in the bank which might be of interest to the US authorities because of connections and other things. That is why the MFSA was very prudent in its decision first to remove all the voting rights from the chairman and also in prohibiting the directors or their relatives from moving assets from the bank, because you need to protect those monies.

There is a new chairman appointed by the MFSA to continue managing the bank.

Because there is a story and there are allegations, the only link is the same person. On the one hand we have a clear indictment with proof, with incidents, with banks in New York and Switzerland. All these are detailed. On the other we still have a half-baked, how should I say, ‘investigation’.

Which one are you taking about?

We are looking at the sanctions, the United States one, and you are tying it to the allegations from newspapers and bloggers about the same bank.

This is my point, it’s not like this came out of the blue. Pilatus has been mentioned many times, and there have been FIAU reports. A 2016 FIAU inspection found “glaring, possibly deliberate disregard” for money-laundering controls at Pilatus Bank.

This is from a leaked document.

Yes, from a leaked document. This was followed by a subsequent FIAU visit, which found that the issues it had identified “no longer subsist”.

Also, another FIAU report, passed on to the police in 2016, made reference to intelligence it had about a criminal investigation into Mr Hasheminejad in a “foreign jurisdiction”. So the word was out that he was being investigated. And there have been other reports as well…

You are saying that when he applied in 2012 and 2013…

No, I am not saying that. At that time there were none of these reports. I am saying that subsequently, there were reports, so it’s not like it [his arrest in the US] came out of the blue.

Nothing was done in those years.

But the reports are not related to the sanctions. The allegation [in the US] is that money was laundered in violation of sanctions, there is money laundering for drug dealing, for armaments, for tax evasion. In this case the money laundering was related to breaking the sanctions.

I understand that, but my point is that there have been documents released, leaked FIAU reports, which have brought into question, not regarding sanctions, but other activities...

You are talking about the bank now, not the person.

Yes, Pilatus Bank, and there have been reports linking it to Keith Schembri and money laundering, so it’s not like people should be surprised that this person is in jail. And nothing was done.

It’s a fact that it’s the same person in these two stories. But consider that the US, the richest country in the world, which has the best intelligence services, perhaps Israel would be a close second, and it still took five years. Can you imagine if after a year somebody from the US leaks documents and people demand that the regulator withdraws the licence of a bank? An investigation has to be carried out to its end. 

What we are having now, and it’s not just for Pilatus but BOV and other banks, is a leak takes place and that leak is used against the regulatory institution. They haven’t finished their job. We want the rule of law and at the same time we want to know what the documents are, we want details on those taxpayers, we want details about the regulator. The reason documents are confidential is obvious, you need to carry out an investigation, otherwise it will be contaminated.

The counter-argument is that considering the number of documents that were leaked, nothing was done. Perhaps if they had not been leaked nobody would have known anything about them and no action would have been taken.

I disagree completely. Every time something is leaked, if it wasn’t for that leak nobody would have known anything. Why do we set up regulatory authorities? The law gives them confidentiality for a reason. If the tax reports which a company or people submit were not confidential, people would not be truthful. If you examine the correspondence between the MFSA or other authorities and the economic operators they supervise, these are not nice letters and there are always questions asked.

At the same time we are demoralising these institutions and their professions. The amount of stress brought upon them is tremendous. I know because people tell me. Can you imagine somebody from the FIAU? It was even claimed in Parliament that a certain person at the FIAU must have been bribed. It’s outrageous. I might not be 100 per cent correct but I have full faith in the institutions and I want to strengthen them, to make them look transparent and improve their coordination.

Another FIAU report said there was a “high level of familiarity” between Keith Schembri and the owner of Pilatus Bank. It also said that “Mr Schembri took a personal interest in the licensing of Pilatus Bank under the Banking Act”. Was there a political hand in granting Pilatus a licence in the first place?

I have full faith in the institutions and want to strengthen them, make them look transparent

Tell that to KPMG and Camilleri Preziosi. They will tell you how political it was, they must have been in it. I am sure they did the due diligence correctly. The licence was given by the MFSA, and who was at the MFSA at that time? The same people who were there before 2013, and they remained there for three years. Nothing changed, and did I interfere? Ask them. There is the implication that this government gave a licence to Pilatus Bank for whatever reason one can think of. All I know is that the MFSA gave the bank its licence when the board was the same one appointed by the previous administration. I have full trust in them and I think they did a good job given the circumstances. The licence was granted 11 months after an application was submitted.

Having said all this, don’t you think lessons need to be learnt in the specific case of Pilatus?

All the time, but not from Pilatus.

Wouldn’t you like to find out what happened, who was responsible for it and to make sure it won’t happen again?

Not with Pilatus, I am talking about our whole financial institutions. The first priority is financial stability. If you lose that you lose everything. Today with tax evasion we are learning that there is money laundering. In other words money which you get from illegal means and wash it in a way that it becomes clean. In the institutions I’ve served in, the MFSA, the Central Bank, we always worked towards strengthening our system and we were proud of our work. Today we are tested more and more.

This is why I stand by the various missions we have, whether it’s the rating agencies, the IMF, the European Commission’s Country Report, Moneyval – which does a thorough review of money laundering in Malta. We started with Moneyval in 1998, when they told us to strengthen our legislation. Now that we have the whole framework the comment is “Where’s the beef? You don’t have enough offences reported and criminal proceedings.” So you have to ask yourself why.

This makes us strengthen not destroy those institutions. You’ve got the MFSA, the FIAU. Rather than breaking their morale and throwing them to the dogs, you strengthen them by getting professional help. We got professional help from a renowned international organisation to do a risk assessment. Some sectors are high risk, others medium and others low. Nobody would refute that iGaming is medium to high risk, which is why we have an authority devoted to it.

We will soon be facing blockchain and fintech, with higher risk still, so we need a programme, a strategy and a plan, which will be announced after Easter.

Considering all we know about Pilatus…

I don’t know what you know…

The allegations, the FIAU reports…

As a minister I have to rely on the people at the institutions. I know who is on the board, I trust them, they are professional and experienced, to the extent that they have led and chaired European institutions. If I don’t trust them do I take the post myself?

People have left the FIAU, there have been allegations by Jonathan Ferris…

I know the explanation. It’s the pressure from both sides. I don’t just mean name calling but the political pressure, some just can’t stand it. Maybe I can, but some people weren’t meant to face political pressure of that kind. Some people are contemplating moving out because of the pressure, including pressure from the media.

So you’re saying that your conscience is clear about the fact that over the years Pilatus Bank was left to operate, and now this has happened in the US? I am not saying there is a direct link between the sanctions busting and the bank in Malta, but many consider this to be the last straw.

And what are you doing to restore Malta’s reputation in the financial sector?

Why is it that we are picking on Pilatus Bank but we are not placing the same emphasis on another bank, which has had – and there is proof of it, by the European supervisor and also the local supervisor – bad governance, to the extent that they had to appoint an administrator and pull the plug? Nobody is talking about it. Nemea Bank. There is complete silence. What happened there? What sort of bad governance was it? The directors, who were very high-profile people, resigned quietly, and that’s the end of the story. So for me it’s double standards to place so much emphasis on one bank, because for me bad governance is bad governance.

Money laundering is bad, but also losing one’s pension is bad. We had a Swedish Fund, registered in Malta, the director was Maltese, but the CEO wasn’t and he made a mess and lost money. That is criminal, as much as money laundering. I don’t know anything about Pilatus unless the authorities involved press charges on proof, not on a document which was leaked and given to the Opposition. A real whistleblower, if he can’t trust the police, if he can’t trust his institutions, if he can’t trust anybody, but if he trusts the courts, would go to court.

If he goes to the Leader of the Opposition two weeks before the election, I would say wait a minute, I’m not so sure.

Simon Busuttil went to court because he felt he had no alternative.

Whoever gave Simon Busuttil the documents should have sent them to court, but he trusted the Leader of the Opposition. Isn’t that political?

Vitals deal: ‘No project is smooth sailing’

Taxpayers still don’t know how the millions forked out by the government on the Vitals hospital project were spent. Can you enlighten them?

This project was handled by Projects Malta, where the contract, which was a concession, was given to Vitals. Because it was a concession it wasn’t handled by Contracts, but by Projects Malta, from beginning to end. The contract was approved by Cabinet, and the Finance Ministry has to abide by the Cabinet’s decision and pay – of course we had presentations as well, to show how it is going to work, and during the first three years when it is still being constructed, there was a formula, while after that date when the hospitals are fully running, there is another formula where the government buys and pays for the beds. That’s practically the contract. There were issues with payments or delivery, and the Cabinet gave breathing space because it was given information that a deal was imminent and things would be sorted. I have a budget and I abide by the budget.

You are responsible for the public purse. Do you think the taxpayer got value for money for that spending?

I stand to be corrected, but roughly 85 per cent if not 90 per cent of those monies went into wages, in other words the employees of the Gozo, St Luke’s and Karin Grech hospitals, who were paid through Vitals. However, I am informed that Steward Health Care, who are taking over, are taking over with not only the assets but also the liabilities. So if they still owe the government, because what they owe is for the construction of the hospitals, it should be delivered by whoever bought these shares into it.

When you talk about a project you don’t talk about the first three years. I have been on various company boards, there is what is called a break-even, when you are in the third year and you start making a profit. This project is for the benefit of Malta, where you have a private sector injection, something which is new for Malta, and one has to evaluate it over the medium term.

Do you think the Vitals deal could have been handled better? Could it have been more transparent? Nobody really knows who is behind the company, which has no experience at all in healthcare.

Is this the way our public hospitals should be treated? Who are these people?

If it were me, I would have liked it to be more transparent

When I was involved in the major bridge loan for Electrogas, which was justified and market oriented, and the Commission was to be informed, I gave a press conference. However, when you are not involved in a project yourself, in the negotiations, you don’t know who the other side is and to what extent the negotiations are of a commercial nature, I can’t judge. If it were me, I would have liked it to be more transparent. I wasn’t there myself to judge whether it was wrong.

No project is smooth sailing. If you ask, “Could it have been handled better?” it’s very easy to say “Yes.”

So you do believe that the project could have been more transparent?

Yes, with hindsight everybody is wiser. 

At what stage are the nego-tiations with Steward Health Care?

I am not involved. It’s under the Health Ministry. That’s why we have a big Cabinet. I understand discussions are going on. Obviously we are consulted, and my permanent secretary works closely with the permanent secretary at the Health Ministry. It’s only when I need to be flagged for a particular reason that I am involved. If you ask me if it would have been better to start dealing with Steward instead of Vitals, it’s very obvious. But these are observations with hindsight. When you are trying your best, things do not come in a straight line.