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06.02.2020 12 OPINION George Mangion Gently dancing to Pilatus's tune George Mangion is a senior partner of an audit and consultancy firm, and has over 25 years experience in accounting, taxation, financial and consultancy services. His efforts have seen PKF being instrumental in establishing many companies in Malta and ensured PKF become one of the foremost professional financial service providers on the Island I t was July 2018 when the Financial Intelligence Analysis Unit (FIAU) was accused by the European Banking Au- thority (EBA) of breaching the require- ments of a directive on the prevention of money laundering and terrorist financing concerning its dealings with Pilatus bank. e EBA then concluded that the FIAU had failed to conduct effective supervi- sion of Pilatus Bank due to a number of failures, including procedural deficiencies and lack of supervisory actions by the FIAU after its decision to close the case without imposing any sanctions on the bank. 19 months passed and there is no official reason given to justify such a lax attitude. A public inquiry into Daphne Caruana Galizia's murder started late last year. It has interviewed a number of persons re- sponsible for its administration although a number of testimonies are being held in private. e testimony given by the chief su- pervisory officer of the Malta Financial Services Authority, Marianne Scicluna, revealed how the journalist's Running Commentary was looked upon as an open source by the authority, which act- ed on allegations flagged by Ms Caruana Galizia. Ms Scicluna said that the first vis- it was held in 2016 (more than one year since the bank commenced trading). It was then that MFSA discovered that cli- ents in Pilatus included a high concentra- tion of Politically Exposed Persons. On a separate initiative, there were two visits triggered by FIAU: one in March 2016 followed by another one five months later. Serious shortcomings were flagged. When explaining how Pilatus had been granted a full bank license, Ms Scicluna recounted how MFSA conducted stand- ard pre-application meetings with bank chairman Ali Sadr and his advisors from KPMG. e applicant was subjected to 'enhanced due diligence' in view of the fact that chairman Ali Sadr came from a 'high-risk jurisdiction' . On a separate note, Ms Scicluna ex- plained how MFSA inspectors were uneasy about visiting the bank because of concerns that they would land in the media spotlight. A banking inspector had even resigned about the matter. With hindsight, one may question why MFSA was so shy of enforcing its rights and obligations in fear of press com- ments. Apparently, in a smart move, Pi- latus engaged its auditors and another top law firm to check deeply its Augean stables and they issued a clean report at- testing that all documents were in place. Naturally, based on this report FIAU in August 2016, concluded that all concerns had been addressed. is attitude comes as a poignant sur- prise when FIAU has updated its directive on AML and FS to reach a number of sub- ject persons – including lawyers, notaries, gaming companies, auditors and banks. In fact, licensees are to bear in mind that AML/FS legislation is intended to address and attack serious crime which usually ei- ther involves substantial amounts and to install safeguards in place to deter the use of the financial system for criminal pur- poses. FIAU further mandates that subject per- sons are required to appoint an MLRO whose main responsibility is to consider any internal reports of unusual or suspi- cious transactions. e saga continues when a few months before Caruana Gal- izia was killed in October 2017, the jour- nalist had been sued by the bank's chair- man for defamation after alleging the bank had processed a $1 million transfer from a Dubai company to Egrant – al- legedly owned by the wife of the Maltese prime minister Joseph Muscat. Joseph Muscat immediately launched a magisterial inquiry over Ms Caruana Galizia's allegation, with th einquiring concluding that there was no proof that Egrant was owned by Muscat's wife. So far nobody knows who owns Egrant al- though - at one time – Nexia BT's Brian Tonna claimed it was his (later rebutted). Back to Pilatus, it was also noted that despite it being a high-risk institution, the FIAU did not plan or carry out any on- site inspections at Pilatus Bank until after it was instructed to do so by the MFSA, almost two years after the bank started its activities. As background, Pilatus bank is owned by an Iranian national and was guided since its inception in 2012/3 by KPMG (its auditors) and later assisted by a prom- inent law firm. e bank has been at the centre of political controversy ever since a series of leaked financial intelligence reports flagged evidence of money laun- dering and serious compliance shortcom- ings. It has also been alleged that the bank was used as a conduit for Azerbaijani mil- lions making their way into Europe, with shocking allegations that Prime Minister Joseph Muscat's wife secretly received graft payments (of which no evidence was found in a magisterial inquiry). Inter alia, Daphne Caruana Galizia had re- ported that family members of Azerbai- jan's President Ilham Alivey used Pilatus Bank, along with Azerbaijan's Minister for Emergency Situations, Kamaladdin Heydarov. A man described by leaked US diplo- matic correspondence as being a "front man" for Mr Heydarov set up a number of companies in Malta via audit firm Nexia BT a month after Dr Muscat, Mr Schembri and Tourism Minister Konrad Mizzi visited Azerbaijan to sign an un- published contract with Socar (an Azeri owned company) to invest in building a massive LNG plant in Malta. e plot thickens when investigators re- veal close proximity of Ali Sadr Hashem- inajad to the Castille clique. A senior KPMG partner (specialising in AML law) together with the prime minister and the chief of staff were among the invited guests at a private champagne reception for Ali Sadr's wedding in Venice. Certainly, the proximity of the auditor to its client may ring a sour note contra- ry to strict ethical rules of auditor inde- pendence, but thus far no feathers ave been ruffled by the Accountancy board. e story takes an interesting twist when in November 2018, Pilatus chairman Ali Sadr Hasheminajad was arrested for al- leged sanctions-busting in the US. Readers would be justified to ask why no surprise visits were ever carried out by FIAU at Pilatus Bank following a first inspection by the MFSA in 2015. is visit was prompted by a growth in busi- ness and deposits in about a year after the bank's inception. When asked about the register of busi- ness introducers kept by MFSA, Ms Scicluna explained that she could not disclose certain information in public in view of separate legal proceedings cur- rently being faced by the authority. e plot thickens, when one considers that millions of depositors monies held at Pilatus are frozen at the Central Bank and no acts and dealings have been pub- lished by a US expert and his team as a "competent person" engaged at a high fee by MFSA to administer the Pilatus bank affairs after its license was terminated. More excitement is sure to follow as more people testify at the public inquiry. MFSA inspectors were uneasy about visiting the bank because of concerns that they would land in the media spotlight. A banking inspector had even resigned about the matter

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