Pilatus Bank and former legal official charged with money laundering

The police have drawn up arrest warrants for former top officials at Pilatus Bank and will arraign the institution and top executives in the coming hours.

Former senior officials are expected to be charged over serious money laundering shortcomings at the shuttered private bank owned by US-naturalised citizen Ali Sadr Hasheminejad. The bank was fined a record €5 million by the Financial Intelligence Analysis Unit (FIAU) earlier this week.

The bank was closed in 2018 after the arrest of Hasheminejad in the United States on charges of having facilitated the laundering of dollar payments from a Venezuelan housing project, to his family’s Iranian company, in what was a breach of US sanctions. But the case was dropped after the US District Attorney withheld evidence from the defence.

The Pilatus story

Pilatus Bank was implicated in the Egrant affair, when the late journalist Daphne Caruana Galizia claimed that the bank had processed a $1 million payment from the Aliyevs of Azerbaijan to the wife of former prime minister Joseph Muscat. The allegation was disproven by a Maltese magisterial inquiry along with other allegations she made about Pilatus Bank, but by then the banks’ other dealings for Azerbaijan had come under the lens of financial investigators.

After Hasheminejad’s arrest, the MFSA launched a “transaction-by-transaction” review at Pilatus Bank together with the Financial Intelligence Analysis Unit.

The bank’s operations became the subject of at least two magisterial inquiries, the Egrant inquiry; and a complaint filed by the former PN leader Simon Busuttil on money paid by Nexia BT partner Brian Tonna to the PM’s chief of staff Keith Schembri shortly after receiving payment from Russian clients who had acquired Maltese citizenship under the IIP.

In 2018, the MFSA’s director of enforcement Anton Bartolo had stated there was “no way” the regulator could have known of the US investigations on Hasheminejad when the licence for Pilatus Bank was being processed back in 2013. He also said the MFSA could not have acted on either “rumour” or information published in the press. “Even if MFSA officials had all the information in their hands, this might not have resulted in the drastic action some are calling for,” referring to calls from the Opposition to shutter the bank at the time claims of money laundering were being made. “Taking action too hastily could even have disrupted ongoing investigations in other jurisdictions,” he said.

A stark warning on Pilatus Bank and its business model of “secrecy” for politically exposed persons (PEPs) was spelt out clearly by the FIAU as early as May 2016. It came in a hard-hitting letter from former FIAU director Manfred Galdes. However, it appears that it was only in February 2018 when a money laundering probe at Pilatus was kicked off by the MFSA.

In late May 2016, an FIAU compliance visit revealed “serious shortcomings” that placed Pilatus “in breach of several provisions” of Malta’s money laundering rules, and which exposed the bank and “the jurisdiction as a whole to a high level of risk”. These were the serious observations pointed out by Galdes after the compliance visit that revealed “serious deficiencies” due to Pilatus’s dependence on a small clientele of mainly Azerbaijani PEPs. But the red flag raised by the FIAU was not deemed serious enough for immediate intervention by the MFSA.

The FIAU has now identified 11 red flags they deemed should have raised the bank’s suspicion on its customers’ activity, when it had previously issued a clean bill of health to the bank after its site visit.

In 15 of the files reviewed by the FIAU, the source of wealth was indicated as being in part or in full being generated fro the operations of the same business operation, meaning that 15 customers were being funded by the same business activity. “However, it was observed that were one to combine the expected annual turnover of the 15 customers abovementioned, this would amount to a total of circa €390 million… the financial statements in question referred to comprehensive income of €23.5 million – the shortfall between the two amounts had to be considered as too significant to ignore.”

In issuing its fine this week – the maximum amount the agency can impose – the FIAU found that the bank had exposed itself and the Maltese jurisdiction to “egregious” money-laundering risks that were not mitigated in any manner. This included onboarding politically appointed customers, high net worth customers and companies dealing in high-risk jurisdictions and which were projecting to transact millions of euros annually.

MaltaToday previously revealed, how Maltese companies set up by an Australian national identified as being close to the Azerbaijani oligarchy, were in the main set-up through the services of the private bank Pilatus. Back in April 2017, Heydarov was named as one the bank’s main clients by Caruana Galizia, while MaltaToday revealed the company interests of Heydarov associate Manuchehr Khangah – with companies opened by Nexia BT.