Muscat keeping his head above the water

Prime Minister Joseph Muscat is fending off the most serious accusation yet made against his government but claims his administration is keeping its head above the water

Matthew Vella
13 March 2016, 8:09am
Joseph Muscat. Photo by Ray Attard
Joseph Muscat. Photo by Ray Attard
You’ve had three years of ‘economic success and social revolution’, but also a crisis of good governance. Is it not unacceptable that energy minister Konrad Mizzi and chief of staff Keith Schembri don’t resign for opening an offshore company?

My regret is that after the good things we have done, when it comes to the economy and social revolution, with the largest economic growth and new civil liberties, we’re talking about these issues – and with good reason. We have to get down to the root of it all, and that’s why an investigation and an audit are taking place. The Opposition leader says, in the House and not outside, that there are millions [held offshore]. An investigation is being held to ‘open up this box’ and if these millions are found, Mizzi will have to leave. If any cash was present and moved elsewhere, Mizzi will have to leave. If nothing of this is found, then the Opposition leader will have to answer for his statements.

Mizzi should resign because of the principle involved here: he opened up a Panamanian offshore company because he wanted to hide his ownership of the company [Hearnville Inc]…

That’s what you are saying… I know that Mizzi was preparing to declare it, the draft of which I saw. You don’t declare something you want to hide – it’s a non sequitur. I’m amazed that the PN did not wait some two weeks before breaking this story… the real story would have been Mizzi not declaring his company once everyone would have filed their declarations of assets in March. I suspect the Opposition leader knew this and that he would have lost the sensational effect of the story because Mizzi would have declared the company.

Was it the wisest kind of set-up? Was it a sensitive one? No, it is not. It is legal but politically naïve and insensitive.

It is problematic that Mizzi felt he only had to declare the company because he suspected a story would break on it, and indeed he first only declared he had a New Zealand trust – he did not first admit holding an offshore company in Panama… which is a more serious part of the entire set-up.

No, absolutely. I saw the draft declaration before the story broke… someone got wind of the fact he was going to declare it.

You said Nexia BT’s advice to Mizzi and Schembri was ‘politically naïve and insensitive’ – didn’t you think it was naïve and insensitive the moment you saw them in the draft declaration?

I honestly thought, as I saw it then, that the fact he would declare would deflate this effect. You don’t declare something you want to hide things in. Many enjoy speculating over this affair but we have to stick to the facts: this is not Austin Gatt who ‘forgot’ his Swiss bank account, but Konrad Mizzi who was ready to declare the company but someone broke the story to make it sensational. Has it damaged the government? Definitely. We’re talking about this and nothing else…

And you chose not to tell him to close it. You preferred taking the risk…

He would have still had to declare it even if he closed it. He wouldn’t have managed to close it within [such a short period of time]. What message would that have sent if he opened and closed it straight away – especially with the PN?

You have the Opposition leader saying you’re caught up in a ‘crisis of corruption’ – in the current circumstances, Konrad Mizzi has an offshore company which can issue an invoice for the rental of his London property, but have that cash go to an offshore account so that the money goes to his offshore trust.

Mizzi’s circumstances are unlike others…

The worst suspicion here is that this system can be used to invoice for ‘consultancies’ and have cash flow to another account or trust, without ever knowing who is paying or to whom the money is actually going…

At the end of the day the minister has declared everything. His circumstances are not typical ones. He’s not your average person in politics with a family settled in Malta. He and his wife live in two different continents with property in another country… I don’t fault anyone asking these questions. My point of principle is that there would be a problem if he didn’t declare it.

The worst aspect is having Keith Schembri with an offshore company: he had to deny suggestions that his financial set-up could be used to accept bribes, because indeed these are allegations that touch upon you. He is not accountable to parliament and we cannot know what he is declaring. So people out there think, is this set-up being used on the prime minister’s behalf?

Richard Cachia Caruana, with his titles of nobility, businesses and properties, was never questioned about his wealth. Schembri has his own business, which he created well before he ever imagined taking this political step; he suspended his directorships and his company does not tender for government contracts.

Again, if someone wants to build some story out of this… that’s why I say the advice was naïve and insensitive, because this advice was based on the benefit of the tax efficiency and did not factor in the political effect.

It’s bad that you have a structure that can be used for tax avoidance…

You could run over someone with a car or cut someone with a knife, but you use a car to get to a destination and a knife to eat food with. So it’s not what you can do with something, but what you do with something. If the audit finds something bad was going on, action will be taken and resignations will follow.

The impression is that this is something superficial. It is an international audit firm carrying out the [investigation].

Which is the firm carrying out the audit?

It will be announced in the coming days. It is not Maltese. It is one of the main firms of international repute. The terms of reference will examine all the transactions carried out by this company, make a forensic examination of any cash movements before and now, they will have all the information from the New Zealand trustees, and the Commissioner for Inland Revenue will have the right to all that information…

Malta has no tax information exchange agreement with Panama….

But both Malta and New Zealand are signatories of OECD tax exchange agreements, and since the New Zealand trustees are the owners of the Panama company they have to give information on that company.

The investigation hinges on Mizzi being honest to declare any bank account he might have in the world, otherwise we won’t know anything else he might have in Panama or elsewhere…

Mizzi has already given his permission to the Commissioner of Inland Revenue to carry out his checks on him. When you give this consent to the CIR, there are no concerns on tax information exchange. You need a tax information treaty when you don’t know when person ‘XYZ’ has opened his accounts; once that person has given you the permission for a worldwide audit, any outstanding issues on tax information become secondary.

Nexia BT gave naïve and insensitive advice. Shouldn’t they be denied direct orders and government tenders?

You’d be right had Nexia BT been giving the government political advice. They are there to offer analysis…

They’re being paid from taxpayers’ money…

Yes, but they were not giving the government any political advice…

They gave Mizzi and Schembri the wrong advice…

But I cannot prevent a registered company… the only companies we’ve blacklisted are those who use precarious employment practices. If they are legitimately offering the more competitive of services – like the Big Four do, like Ann Fenech’s company does… as she herself boasted – I won’t say that ‘as PN executive president, Fenech’s firm should not take any contracts’. If she happens to have a particular niche as her strength, it’s to her that the contract should go.

What do your Cabinet colleagues say? Evarist Bartolo spoke of a political storm on his Facebook wall…

And one has to weather that storm until it ends. I agree wholeheartedly with Evarist. My Cabinet colleagues are disappointed because this has obscured all the good work we have done, our unprecedented economic growth, that we moved on from a jobs crisis to the greatest number of people ever employed. We have to weather that storm and move on to deliver even further.

But ‘Panamagate’ is this government’s third big scandal, when considering Café Premier and the Gaffarena expropriation. 2016 is a crucial year for good governance, especially after it became the Opposition’s rallying cry but now also well within the public’s consciousness. It has now become a personal challenge for you.

I have no problem with good governance. It is a crucial issue. I made the error of letting the Opposition bandy the word ‘corruption’ around on practically everything. We made a mistake to just let them say whatever they wanted, especially when we did not challenge the Opposition on what it says. We did not hold them accountable. We haven’t even spoken enough on good governance when it comes to the Whistleblower’s Act, party financing and the removal of proscription on the crime of political corruption.

What will we do now? We’ll enact the law on political standards in parliament, which we pledged in our manifesto, we’ll start screening and carrying out hearings of chairmen of regulatory authorities. We want to do more.

When you have a situation where the people of a country are experiencing a good economy and a social revolution, their exigencies start morphing and their aspirations grow. If the people were jobless and companies sacking workers, we would be talking about bringing investment to the country. Without these problems, people speak about governance. Not because it is secondary but because aspirations are growing. We will be working to improve the economy and reduce poverty, but governance is a core issue for us.

You have a minister [Mizzi] who has taken decisions on multi-million euro deals, in relations with Azerbaijan and SOCAR, who gave a ministerial direction to Enemalta to hedge for fuel with SOCAR, which naturally gives rise to suspicions of a lack of governance on such decisions when the Opposition is also talking about a ‘crisis of corruption’…

I am persuaded his ministerial direction to hedge fuel with SOCAR was to save the country money. Secondly I’d say that [on that reasoning] the whole of the EU is corrupt, because one of the big debates we’re having right now is how to have a relationship with Azerbaijan and to provide an infrastructure so that Europe will no longer be dependent on Russia [on gas]. So if Europe wants a relationship with SOCAR, which equals Azerbaijan, on that same reasoning Europe is corrupt.

You are going into an election with Konrad Mizzi as deputy leader, whose association with Panama is now sealed. Are you going to be using the government’s power of incumbency to curry favour with the electorate, when Labour has been such a critic of previous PN governments’ largesse? 

I will use the power of delivery, delivering what we promised. There’s much more to be done, more to show that Konrad and the rest of the team can deliver. I am positive that this was not the worst period of government. I remember the weeks of discussions I had three years ago, when I was told to raise energy prices because Enemalta will fail, that a company was ready to sack 300 people, that we had to go to an EU summit where they told us we had to raise tax revenue by €60 million to prevent an excessive deficit procedure… these were truly worrying events. The failure of Enemalta would have meant the failure of one bank, as well as pensioners’ savings… Today as a government we’ve been under constant attack, but the fact that I see us keeping our heads above the water, gives me courage for the next two years to not only deliver, but over-perform.

And three years down the line, your trust rating has been decimated by six points while Simon Busuttil’s has climbed seven points, four in the last two weeks alone with Panamagate. Haven’t you squandered the people’s trust?

I would have squandered it had it been reduced, but if I were Simon Busuttil I would worry that after these two weeks of attacks I would still not have surpassed Muscat…

Matthew Vella is executive editor at MaltaToday.