€1 MILLION TRANSFERED IN PEP ACCOUNT - FIAU Report

● Source reveals how Pilatus Bank avoided SWIFT transactions contrary to PM’s claim

Evidence which has reached The Malta Independent from a source who, until a few months ago, worked closely with Pilatus Bank, suggests that an FIAU investigation into Pilatus Bank relating to dubious accounts held for politically exposed persons (PEPs) in Malta and Azerbaijan resulted in a damning report which has been kept secret by the authorities privy to such reports.

The source, who backed up the claims with documents from the bank, said: “In one particular bank account, the equivalent of approximately €1,000,000 was transferred into an account classified as high-risk from the bank account of a third party. No documentary evidence was recorded on file on the origin of the funds. Furthermore, this third party made a number of other significant deposits to different bank accounts pertaining to companies owned by the same ultimate beneficial owners (UBOs) – PEPs in a high-risk jurisdiction – within a short period of time. No names of PEPs were mentioned in the document seen by this newsroom.

In another transaction, the equivalent of approximately €505,000 was deposited into the same client’s bank account from the bank account of a third party.”

According to our informant, “during the investigation it was noted that no information on the source of the funds was recorded. The MLRO claimed that a check has been carried out on the third party through an internet search and through the SWIFT program itself, which runs all details against sanctions lists. However, no supporting evidence was found on file.”

This information debunks what has been said by Prime Minister Joseph Muscat, who has defended himself and his spouse from allegations that Egrant Inc is owned by Michelle Muscat by saying that such transactions can be traced through SWIFT. According to the Financial Intelligence Analysis Unit (FIAU), such records where not registered by the bank.

The Malta Independent can reveal that the FIAU carried out an on-site examination in relation to Pilatus Bank between 15 March 2016 and 22 March 2016 in order to assess the extent of the bank’s compliance with the provisions of the Prevention of Money Laundering and Funding of Terrorism Regulations (PMLFTR).

The Malta Independent is informed that the on-site examination focussed primarily on the measures in place within the bank to deal with politically exposed clients and corporate clients in which PEPs are involved as a director, shareholder, ultimate beneficial owner, signatory or holder of a power of attorney.

The source who reached out with information said that the Financial Intelligence Analysis Unit carried out an inspection of all the files involving PEPs at the time of the examination in terms of Article 27(1) of the Prevention of Money Laundering Act.

Maltese PEPs investigated

An assessment was made of the information obtained by the bank in relation to two principal clients of the bank that are PEPs in Malta and Azerbaijan. A generic description of the source of wealth maintained on file listed three

businesses owned by the same high-net-worth individuals owning a large number of companies. Our source claims that “it was confirmed that this generic information obtained on the source of the persons’ wealth is not backed up by documentary evidence.” Upon further inspection of the full client list which was provided to the FIAU by the bank following the compliance examination, it transpired that there were a number companies which should have been classified as having PEP involvements but were not.

The source who came forward to reveal such information showed us documents claiming to be compiled by the FIAU in which it is stated: “Indeed, it is concerning to note that insufficient information is being obtained on the manner in which the wealth of the clients was accumulated, the extent of their involement in business activities and the profitability of the companies generating the wealth that forms the basis of the investments taking place through the banks accounts.”

Pilatus Bank exposed to high risks of Money Laundering and Funding of Terrorism

Further on in the documents, it is stated that the lack of transparency within the bank “clearly reveals that the bank is being exposed to very high risks of Money Laundering and Funding of Terrorism (ML/FT) without basic mitigating measures being applied.”

According to our source, the FIAU reported that “failure by the Bank to identify these involvements to be a major shortcoming, particularly since this would suggest that the mandatory Enhanced Due Diligence measures were not applied in these instances.”

The source speaking to this newsroom said that a sample was provided to FIAU inspectors; however, it could not be verified whether this procedure was carried out in all cases relating to PEPs. It seems that the practice at Pilatus Bank was for its Head of Private Banking to obtain information during meetings with the ultimate beneficial owners of the companies concerned, our source declared.

While the chairman of Pilatus Bank repeatedly said in media interviews that the bank cooperated with Inquiring Magistrate Aaron Bugeja, our source showed us an extract of an FIAU document in which it is stated that “nonetheless, the documentation that was found to have been retained on file, while being relevant, clearly did not suffice for the Bank to meet its legal obligations.”

Glaring, possibly deliberate disregard of the applicable legislative provisions

A statement seen by this newsroom in one of the FIAU documents states: “Overall, it appears that there has been a glaring, possibly deliberate disregard of the applicable legislative provisions. There is no doubt that the Bank has to obtain further documentary evidence as proof of the legitimacy of the wealth before taking the decision to establish these business relationships. Moreover, a much higher level of ongoing scrutiny is necessary in cases where there are transactions relating to PEPs from highrisk jurisdictions.”

In an effort to corraborate the evidence showed to us by the source, this newsroom has investigated further and can confirm that Pilatus Bank did in fact classify Azerbaijan – being the country of nationality of most of the bank’s PEP clients – as a high-risk jurisdiction.

According to the documents shown to us by the source, FIAU believes that “these clients are not only considered to constitiute a higher risk to the bank because they are nationals of a jusrisdiction which is considered to pose a higher risk, but at law are also PEPs, family members of PEPs or close associates of PEPs occupying prominent public functions.”

Inter-company transfers

The source told this newsroom that “FIAU officials noted that many transactions in the bank statements consisted of intercompany transfers. It was explained that the client generally deposits funds that are idle in one company’s bank account into another company’s bank account in order to fund a particular project. However, for various reasons which are undocumented, the final purchase of property is not always made.” Asked if Pilatus Bank had given loan facilities to these same clients, the source said that this was the case in most cases relating to PEPs, meaning that the bank was taking higher risks without having the proper safeguards in place.

The source added that “in respect of ongoing monitoring, which should be of an enhanced level in view of the type of clients concerned, the negative media information available on the clients and the jurisdictions concerned, FIAU concluded that not enough questions are being asked and insufficient monitoring is being carried out. The concerns are amplified when one takes into consideration the fact that the documentation kept on file is sparse.”