United States was investigating Pilatus Bank for money laundering while MFSA was licensing the bank

It transpires that the American authorities were investigating Pilatus Bank chairman Ali Sadr Hashemi Nejad for money laundering and a raft of other charges that could see him sent down for up to 125 years in prison, at the same time that the Malta Financial Services Authority was carrying out its due diligence on the bank and issuing it with a licence to operate in Malta.

Last April, the MFSA has confirmed that it had granted a licence to Pilatus Bank to act as a credit institution in terms of the Banking Act on 3 January 2014.

But in a statement on Sadr’s arrest on Tuesday, Manhattan District Attorney Cyrus Vance Jr. said that, “This indictment is the result of an investigation launched by my Office in 2013 into this defendant and his illicit scheme to funnel millions from Venezuela to Iranian-controlled entities.”

The scheme is believed to have been worth more than US$115 million in funds transferred to Iran, in contravention of US sanctions.

Moreover, according to the indictment in the US courts on Tuesday, the American authorities have accused Sadr of having operated the illicit scheme “up to and including at least May 2014” overlapping at least four months into the bank’s operations in Malta.

The fact that several US authorities had been investigating Sadr while the Maltese authorities were in the midst of evaluating the bank’s licence application calls the MFSA’s due diligence procedure applied to the bank into question.

Back in April 2017, when Pilatus was at the epicentre of controversy after revelations by journalist Daphne Caruana Galizia, Russian whistleblower Maria Efimova and leaked Financial Intelligence Analysis Unit reports published in the media, the MFSA had defended its decision to grant the bank a licence.

The MFSA had insisted at the time that, “The application for the licence was processed and assessed in full compliance with applicable legal requirements and in accordance with the Authority’s authorisation procedures for the granting of a credit institution licence.”

The bank was given an additional MFSA Category 2 licence in August 2015 to provide the Investment Services.

The MFSA came down hard on the bank yesterday, banning Sadr from his roles at the bank, as well as banning Pilatus Bank from conducting banking transactions, including withdrawals or deposits held with the bank by the shareholder, members of the Board of Directors and Senior Management officials of the Bank, or any connected persons or related persons thereto, whether direct or indirect.

The Bank was also ordered to obtain the MFSA’s prior approval before effecting any movement of the Bank’s assets.

Sadr, who is 38 years of age, has been charged with one count of conspiracy to defraud the United States, one count of conspiracy to violate the International Emergency Economic Powers Act, one count of bank fraud, one count of conspiracy to commit bank fraud, one count of money laundering, and one count of conspiracy to commit money laundering.

The maximum accumulative prison time Sad is facing is 125 years, although sentencing will be determined by a judge.

Manhattan US Attorney Geoffrey S. Berman said: “As alleged, Ali Sadr Hashemi Nejad created a network of front companies and foreign bank accounts to mask Iranian business dealings in Venezuela and evade US sanctions. For years, Sadr allegedly funnelled more than $115 million of a nearly half-billion-dollar Venezuelan construction contract through the US banking system, using entities in Switzerland, Turkey, and the British Virgin Islands to conceal Iran’s identity. The arrest of Sadr shows that US economic sanctions against Iran are for real, and violators will be exposed and prosecuted.”

Manhattan District Attorney Cyrus Vance Jr. said: “This indictment is the result of an investigation launched by my Office in 2013 into this defendant and his illicit scheme to funnel millions from Venezuela to Iranian-controlled entities. The defendant’s conduct strikes at the very heart of what US economic sanctions are designed to prohibit. The most important values in the international community – respect for human rights, peaceful coexistence, and a world free from terrorism – depend on the effective enforcement of these sanctions. We are proud to join with our federal partners to protect the security of our nation and the integrity of our financial system.”

Assistant Director-in-Charge William F. Sweeney Jr. said: “Sadr’s arrest and the FBI’s investigation into his actions are further evidence of Iran’s never-ending attempts to circumvent US sanctions. It also illustrates the FBI New York’s relentless pursuit of actors representing the Iranian government, and our success at thwarting the use of the US banking systems for Iran’s nefarious goals.”

The indictment

In August 2004, the Governments of Iran and Venezuela entered into an agreement (the “Agreement”), whereby they agreed to cooperate in certain areas of common interest. The following year, both governments supplemented the Agreement by entering into a Memorandum of Understanding regarding an infrastructure project in Venezuela (the “Project”), which was to involve the construction of thousands of housing units in Venezuela.

The Project was led by Stratus Group, an Iranian conglomerate controlled by Sadr and his family with international business operations in the construction, banking, and oil industries. In December 2006, Stratus Group incorporated a company in Tehran, which was then known as the Iranian International Housing Corporation (“IIHC”). IIHC was responsible for construction for the Project. Thereafter, IIHC entered into a contract with a subsidiary of a Venezuelan state-owned energy company (the “VE Company”), which called for IIHC to build approximately 7,000 housing units in Venezuela in exchange for approximately $475,734,000. Stratus Group created the Venezuela Project Executive Committee to oversee the execution of the Project. Sadr was a member of the committee and was responsible for managing the Project’s finances.

In connection with his role on the Project, Sadr took steps to evade US economic sanctions and to defraud US banks by concealing the role of Iran and Iranian parties in US dollar payments sent through the US banking system. For example, in 2010, Sadr and a co-conspirator used St. Kitts and Nevis passports and a United Arab Emirates address to incorporate two entities outside Iran that would receive US dollar payments related to the Project on behalf of IIHC. The first entity, Clarity Trade and Finance (“Clarity”), was incorporated in Switzerland, and the second, Stratus International Contracting, J.S., a/k/a “Stratus Turkey,” a/k/a “Straturk,” was incorporated in Turkey. Stratus Turkey and Clarity were both owned and controlled by Sadr and his family members in Iran. Sadr then opened US dollar bank accounts for Clarity and Stratus Turkey at a financial institution located in Switzerland.

Thereafter, Sadr and others conducted a series of international financial transactions using Clarity and Stratus Turkey for the benefit of Iranian parties in a manner that concealed the Iranian nexus to the payments, in violation of US economic sanctions.

Specifically, between April 2011 and November 2013, the VE Company, at the direction of Sadr and others, made approximately 15 payments to IIHC through Stratus Turkey or Clarity, totalling approximately $115,000,000.

Sadr and others directed that payments be routed through banks in the United States to Stratus Turkey’s or Clarity’s bank accounts at the financial institution in Switzerland.

The majority of the funds were then transferred to another offshore entity located in the British Virgin Islands, which had been incorporated by Sadr and others in 2009. In addition, on February 1, 2012, Clarity wired more than $2,000,000 of proceeds from the Project directly into the United States.