We zero foreign tax and buy gas from the Caspian Corleones: does Malta play a part in foreign corruption?

The flipside to popular concerns on the scale of nepotism and corruption in Maltese public life, is the role the island plays in facilitating international graft: a fact that is delightfully ignored by many.

Whether it is the government’s foreign policy choices, or the financial services industry helping multinationals avoid high tax in the country they make their profits in, Malta helps play a part in a global pattern of corruption.

Europe tends to be home to the world’s least corrupt countries according to the Corruption Perceptions Index released by Transparency International, but these clean records don’t mean they are not linked to corruption elsewhere.

Sweden for instance enjoys the third ‘least corrupt’ ranking according to Transparency International, but its government owns 37% of telecoms firm TeliaSonera, which is alleged to have paid millions of dollars in bribes to secure business in Uzbekistan, which comes in at 153rd in the index.

A company close to Azerbaijani President Ilham Aliyev and his family (pictured are daughters Arzu and Leyla) and likely walked off with more than US$ 1 billion in a takeover of his country’s stake in Azercell Telecom, the largest mobile operator in the country. The process was aided by a subsidiary of TeliaSonera, the Swedish-Finnish telecom giant.

Malta’s sovereign links to such acts are far less tangible, but there is no mistaking the fact that its financial services industry has offered a safe haven to kleptocrats abroad to park their riches.

Nothing is more glaring in this case than that of Africa’s richest woman, billionaire Isabel dos Santos, whose father José Eduardo dos Santos is the corrupt and autocratic President of Angola, the country he has ruled for 35 years. As kids starve – Unicef figures show this oil-rich nation is ranked No. 1 in the world for children dying before the age of five – billions of dollars are stashed away by the Santos elite.

Africa's top billionaire Isabel dos Santos (centre) uses Malta shell companies to hold major interests in state-owned diamonds, banking, and telecoms

The proof? Malta’s beneficial tax regime for foreign companies means multi-millionaires use the island’s financial services to house their holding companies.

Why would Angola’s state-owned diamond company, Sodiam, set up a subsidiary company in Malta, 5,000 kilometres away from Luanda? And why does this subsidiary Victoria Holding, have as its other owner Melbourne Investment BV, a company owned by Sindika Dokolo, the husband of Isabel dos Santos?

Forbes magazine says that Dos Santos, 43 and valued at $3 billion, has built her wealth by “taking a chunk of a company that wants to do business in the country or from a stroke of the President’s pen that cuts her into the action.”

Critics like the human rights activist and journalist Rafael Marques de Morais says the proven partnership between Dos Santos, Dokolo and Sodiam “amounts to a flagrant case of conflict of interest” and that it is illegal under Angolan law.

“Her father, the President of the Republic, appoints the board of Sodiam and, as head of the executive, is entitled to give them instructions. As such, the law forbids him from using his position for the enrichment of his family. This is the reason why such a partnership is not recognized in Angola, and does not appear in the books of Sodiam, but in Malta only,” he had told MaltaToday.

Rafael Marques de Morais

“In the near future, the President might be prosecuted for this case, for corruption and diversion of state resources, such as diamonds, for the illicit enrichment of his family. The family can no longer hide the ill-gotten riches through shell companies based in Malta.”

Even more recently, Dos Santos acquired a 65% stake in Portugal’s energy company Efacec Power Solutions – a deal worth over €194 million – through another of her Maltese companies, Winterfell Industries.

The deal was made possible because her father signed a state order in August 2015, approving that the Angolan state energy company ENDE acquires 40% of his daughter’s company Winterfell Industries – which has a share capital of €80 million.

The other 60% owner of Winterfell Industies is Isabel dos Santos’s own company, Niara Holding. 

The other directors of Winterfell Industries include Noel Buttigieg Scicluna, the former Nationalist MP who is also a director on several other Dos Santos firms, such as Victoria Holding. 

The other directors of Winterfell Industries include Noel Buttigieg Scicluna, the former Nationalist MP who is also a director on several other Dos Santos firms, such as Victoria Holding.

Buttigieg Scicluna, senior consultant at EMD Advocates, has told MaltaToday in the past that Winterfell’s structures are transparent and all relevant information is publicly available. “This is the hallmark of Malta as a jurisdiction. The companies pay the taxes they are obliged to pay and file their financial statements that are also professionally audited, all as required by law.”

Of course, Dos Santos is no different from inventor Sir James Dyson, who in 2010 transferred his shares to a Maltese company but is now relocating it to the UK after paying over €100 million in taxes. Or chicken restaurant Nando’s, which uses its Malta company to legally lower its UK corporation tax bill, and energy provider Npower, whose Malta subsidiary is Scaris International. 

“All this is in line with the vision that the country’s strategic leaders had when launching Malta as an international financial services centre,” Buttigieg Scicluna had said when asked about the Dos Santos firms in Malta. “So querying precisely why international operators respond to this strategy and set up in Malta seems counterintuitive and, quite frankly, does not appear to be in the country’s best interests.”

Azerbaijani interests

Malta also hosts Azerbaijan’s state oil company (SOCAR) since 2007 thanks to its favourable tax regime. In Malta, Socar Trading Holding Ltd (STHL) acts as the parent company to SOCAR Trading SA in Geneva, from an office in Ta’ Xbiex. 

In Geneva, SOCAR sells oil from its own trading companies. In 2013, its €38 billion sales left a gross profit of $135 million, which was whittled down to €29 million after salaries, administrative expenses and banking costs.

In Malta, SOCAR also owns Socar Oil & Gas International Holding. Under Maltese tax rules, the benefits are evident: dividends paid out to foreign shareholders are taxed at 35% income tax, but then get an 85% refund on that tax.

More crucially, Malta has bound itself to an 18-year supply of gas that will be facilitated by SOCAR itself, a partner in the Electrogas consortium constructing a new 200MW natural gas power plant at Delimara. While Malta will benefit from the smooth trade of gas from Azerbaijan, the government that owns SOCAR suppresses democratic secular opposition, the independent media and civil society at home.

Should Malta say ‘no’ to Azerbaijan?

Labour MEP Miriam Dalli says Baku’s regime should not be isolated

MEP Miriam Dalli (SnD)

"I believe that repression of fundamental human rights and freedom of expression particularly through punishment, detention and more so through torture is unacceptable wherever it happens. This is a principle I believe in. 

"The European Parliament has been putting pressure on Azerbaijan to respect its commitments and obligations under international human rights law for quite some time, particularly through a resolution voted upon in Parliament on 10 September 2015, and which I voted in favour of.

"This pressure led also to the release from detention of Leyla Yunus (a political prisoner) and her husband Arif who are now on probation. This is definitely a welcome step even though much more needs to be done. I believe that the international community, the EU and the leaders of the EU member states should keep up the pressure on all countries, including Azerbaijan to address the human rights situations in their respective countries.

"In this regard I am sure that Prime Minister Joseph Muscat has never shied from discussing human rights related issues with the Heads of Government he meets. 

"Isolating countries will only result in further deterioration of human rights. Maintaining a healthy relationship and an open line of communication will provide more possibilities for change. The EU itself has strong economic and trade partnerships with Azerbaijan particularly when it comes to the energy sector where Azerbaijan is a strategic energy partner for the EU.

"On 9 December the EU even said that it is “ready to further deepen and broaden our relation with Azerbaijan”. Having economic projects and high trade levels with Azerbaijan does not stop the EU from mounting pressure on the country to address its human rights situation and this should apply to any other EU country, including Malta."