Updated at 12.30pm

MFSA officials on Thursday confirmed that the due diligence on Pilatus Bank was not carried out by KPMG but refused to tell MEPs which firm had carried it out saying they were bound by a confidentiality clause.

They insisted it was not KPMG nor a Maltese firm but a reputable institution which was commissioned to carry out such jobs by other EU member states, including the UK banking watchdog.

Moreover, they insisted that at the time they were not aware that the Pilatus Bank owner was already under investigation by the US authorities.

Money laundering allegations surrounding the Ta’ Xbiex-based Pilatus Bank whose owner, Ali Sadr Hasheminejad has been indicted in the US over evasion of international sanctions, were raised during a European Parliament committee meeting held in Brussels. The TAX3 Special Committee meeting as it is called, focused on combating money laundering in the EU banking system.

Malta Financial Services Authority director general for enforcement, Anton Bartolo and Marianne Scicluna respectively fielded the questions, together with the head of government's anti-money laundering agency (FIAU), Kenneth Farrugia.

Faced by criticism on the manner in which the MFSA handled the case as well as the decision itself to issue a bank licence to Pilatus, Ms Scicluna noted that no “adverse information” had been flagged by the firm commissioned to carry out the due diligence.

Faced by repeated requests to divulge the name of this firm, the two officials insisted they were not authorised to give such information as they had to seek the consent of the firm itself first. 

No “adverse information” had been flagged by the firm commissioned to carry out the due diligence

Asked about the arrest of Mr Sadr, Dr Bartolo noted that the Maltese authorities had not been made aware that the former was being investigated in the US when they were processing the bank’s application.

“There was no way we could have known that Mr Sadr was under investigation in the US. This is something which can be improved not only at European level but globally,” he remarked.

The MFSA officials added that action cannot be simply taken on the strength of rumours or newspaper reports. Nonetheless, he said that even if the information was in hand, this would not have necessarily led to drastic action.

"Had we gone to Mr Sadr on the strength of the US investigation, what would have that done to the US probe?" he questioned.

Acting prematurely might even disrupt ongoing investigations in other countries, he added.

During the hearing it also transpired that at some time following last summer, the MFSA had stepped up supervisory checks on Pilatus Bank in liaison with the FIAU.

This decision was justified on the grounds that the financial watchdog was getting increasingly suspicious on the bank’s operations.

"Onsite work started in February and consists in very deep and comprehensive of the bank’s operations, accounts opened and closed, transactions and flows of monies, complete and total copying of all bank’s data and records, documents, email exchanges and audio recordings. These are being analysed in order to discover if there is money laundering evidenced," Dr Bartolo said.

During the debate fierce criticism was levelled against the Maltese police and their complete inaction following the alarm bells sounded through the FIAU reports.

Asked if the FIAU had sought an explanation for this, Mr Farrugia insisted he could not speak on behalf of the police, or comment on specific cases. Pressed further on the matter he said that police needed time to “transmit intelligence into evidence”.

On his part, Dr Bartolo pointed out that the reports alone were not enough for the MFSA to suspend the bank or revoke its licence. He noted that in one report suspicions were raised on two €50,000 transactions while in another one, the amount mentioned was €9,500.

“Yes we have taken note, and raised a red flag, but no regulator in the world would close a bank on that information alone,” he remarked.

Maltese MEP Roberta Metsola, on behalf of the EPP-Group posed a number of questions about the source of funds within Pilatus Bank, the role that Azeri and Maltese PEPs have in this bank, and also specific questions on 17 Black - the company which has been recently revealed by the Daphne Project - to have received millions of dollars from an Azeri individual and funds related to the new power station.

“It is clear to everyone that Pilatus Bank is a vehicle for the laundering of ill-gotten gains, it has been clear for some time, either there is decisive action taken or the whole system will be forced to pay the price. It is a stain on our legitimate financial services sector,” she said.

“The actions of the criminal, the corrupt and the complicit at the highest levels of the Maltese government are not representative of the people of Malta and Gozo,” she added.

She also insisted that “Malta is not a tax haven, and while it is competitive, it is also fair. We have withstood pressure because our enforcement systems are robust and any loopholes were closed, now we have a situation were people think that they can act with impunity in full protection from any sort of enforcement.”

Other questions about Pilatus Bank were asked by Socialist MEP Ana Gomes, Liberal MEP Nils Torvalds, Green MEP Molly Scot Cato and Left MEP Stelious Kouloulgou.