Issue link: https://maltatoday.uberflip.com/i/1283588
6 maltatoday | SUNDAY • 30 AUGUST 2020 MATTHEW VELLA SHAM litigation and out-of- court settlements, not an un- common sight in the Maltese courts, have been identified by the Financial Intelligence Anal- ysis Unit as a way of laundering criminal gains. The FIAU said that although litigation cases do not fall with- in anti-money laundering rules, lawyers and their clients can conspire to create fabricated disputes as a pretext to transfer the proceeds of crime. "There is a possibility that clients set up, or are knowing- ly involved in, fabricated civil claims in courts of law," the FI- AU said in a warning to lawyers to steer clear of such claims. "In most instances these would be disputes between parties acting in collusion, and they would tend to be settled between these parties so that the settlement would itself be fabricated. The parties would then agree to settle the claims amicably, with funds being transferred to the claimant as part of the settlement. "The recipient of the funds would then attempt to use the civil suit, including a record of the court proceedings, as ev- idence of the purpose of the transaction, when requested to do so by a financial institution or other subject person to justi- fy the source of funds." The FIAU said lawyers should be aware that civil cases may be misused and that clients end up using them to facilitate the laundering of proceeds of crime. Similarly, criminals and their lawyers can concoct a consti- tution of debt, which provides the creditor with an enforcea- ble legal instrument in the case of a default in payment by the debtor, among other legal con- sequences. The FIAU warned lawyers could facilitate the transfer of illegitimate funds by represent- ing clients on fictitious debts without asking the right ques- tions or documents to substan- tiate the alleged debt. "This risk may be compound- ed by the fact that the lawyer representing the client, or the notary publishing the constitu- tion of debt… are not typically present at the point of the cre- ation of the alleged pre-exist- ing debt, and are therefore not always in a position to verify whether the debt is real." A case in point was a litiga- tion case filed by suspected fuel smuggler Gordon Debono – who faces criminal charg- es in Italy – to have his Belize company Oil & Ship Consul- tancy (OSC) of Belize pay back a €1.5 million loan from Dubai company International Proper- ties and Investment Ltd (IPIL), whose 'board of directors' is represented by Debono's wife Yvette. In July 2018, the two compa- nies went to a Cypriot court, which recognised the consti- tution of debt between OSC and IPIL to reach a 'court set- tlement' for €1.5 million. The loan agreement was created just a month before Gordon Debono's arrest in Sicily in late October 2017. Yvette Debono was only transferred the Du- bai company's shares in March 2018 from a corporate service provider. A Maltese court in 2019 then recognised the Cypriot court's decision, as per EU law. Malta's financial regulator had later lost a bid to stop the shuttered Satabank from re- leasing the funds requested by Debono, over money launder- ing concerns. An Appeals Court declared there were no grounds to stop the withdrawal, but said the money would still have to be scrutinised for money launder- ing purposes. However the three-judge Court of Appeal presided by the Chief Justice, specifically said the first court had been wrong in stopping the execution of the debt repayment. "Satabank cannot issue the sequestered funds to OSC directly, but it has to deposit this money to the court that issued the executive title, and one understands that the withdrawal will only be au- thorised if and when there is no reason to stop such a withdraw- al – particularly if this process of verification on Oil & Ship Consultancy does not reveal any irregularities." A second, similar case is now ongoing in the Maltese courts, to enforce another Cypri- ot court decision, brought by Yvette Debono's IPIL against a BVI company, Marine Offshore Investments Ltd (MOIL), over a €1.3 million loan agreement also created on 4 September, 2017. The debt was recognised by a Limassol court in June 2018. Watch out for fabricated civil claims on debts and start asking questions, FIAU warns lawyers Lawyers can launder criminal monies through sham litigation FIAU director Kenneth Farrugia: the agency has been issuing interpretative notes for professionals and various industries that handle money on the risks of money laundering and terrorism financing Suspected fuel smuggler Gordon Debono filed for court action to have one offshore company move money to another offshore company whose director was his wife, over a constitution of debt NEWS "In most instances these would be disputes between parties acting in collusion, and they would tend to be settled between these parties so that the settlement would itself be fabricated. The parties would then agree to settle the claims amicably, with funds being transferred to the claimant as part of the settlement"