Pilatus: the headache that won’t go away

News of the arrest of Iranian Ali Sadr Hasheminejad – owner and chairman of Malta-based Pilatus bank – over violations of US sanctions against Iran, has proven that the pre-electoral controversy surrounding Pilatus is not going to die down anytime soon.

The Malta Financial Services Authority has since ordered the removal of Sadr from chairman, and frozen the assets of the bank’s directors, shareholders and top management. But questions are now being asked about the decision to grant Hasheminejad a licence to operate in Malta in the first place… and, more pertinently, why high-ranking government officials still appear on the bank’s client-list.

The timing was inauspicious for a number of reasons. Despite efforts by sections of civil society to keep the issue alive, Labour’s overwhelming electoral victory in June 2017 appeared for a while to have snuffed out the burning fuse. Anti-corruption activists have now rightly pounced on the news as confirmation of the private bank’s notoriety in how it administers the finances of its high net-worth clients: amongst them oligarchs from countries like Azerbaijan, but – more importantly, from the local perspective – people like the Prime Minister’s chief of staff, Keith Schembri.

Then as now, it is the latter’s connection with this disreputable bank that remains a thorny problem for the Prime Minister. Even if – prima facie – the reasons for Hasheminejad’s arrest are unconnected with the allegations concerning Schembri (and even more so, those identifying Muscat’s wife as the UBO of Egrant) Pilatus is still at the centre of a number of magisterial inquiries concerning alleged kickbacks into Schembri’s account.

News that Hasheminejad has been under investigation for money-laundering from long before the opening of Pilatus in 2016 can only deepen existing suspicions. From this perspective, the chorus of ‘No comment’ from government representatives appears both discordant and unconvincing. ‘No comment’ does nothing to allay popular suspicions that something is deeply rotten in this affair. On the contrary, many will interpret that statement as an admission of guilt.

All the same, it would be presumptuous to read too much into the connection.  The crimes for which Hasheminejad was arrested are serious – as are the penalties – but it must be remembered that they are ultimately political in nature. The US sanctions in question are grounded in an onslaught of American measures to outlaw practically all aspects of business with Iran. They enjoy broad global compliance thanks to the efforts of the United Nations and the European Union… but it does not follow that they necessarily enjoy international legitimacy. Indeed, they are extraterritorial measures that are often criticised internationally: the European Commission, for instance, has warned the USA not to impose further unilateral sanctions which may negatively impact EU business ties with the Middle-eastern country.

Malta, too, should be cautious when it comes to interpreting this development. For example, before 2013, Malta hosted the Islamic Republic of Iran Shipping Lines (Irisl) which used the island as a base for its large shipping fleet.

As leaked US embassy cables show, the American put pressure on the Maltese to close down all lines of business with Irisl, even dissuading financial and legal practitioners from engaging with them. At the time, Irisl was also engaged in a game of cat-and-mouse: it registered its fleet with a new company, HDS (Hafiz Darya Shipping) and changed its Persian-sounding ship names to innocuous sounding English names like ‘White Marble’. When their game was rumbled, all the ships and Maltese companies that hid the fleet were placed on the US Treasury’s blacklist.

It is now apparent that Pilatus’s chairman Ali Sadr Hasheminejad was also employing a similar modus operandi to attempt to remove references to ‘Iran’ in company dealings so that payments in US dollars from Venezuela for a housing project could reach its Iranian beneficiaries: none other than his own family business.

Sanctions may be a policy tool informed by American dogmatism; nonetheless, the artifice created by Hasheminejad to skirt the sanctions laid him wide open to arrest – even though he was a US resident who frequently returned to the country from Malta.

At this point, one must question the type of due diligence carried out by the MFSA when Pilatus’s owners were setting up the bank in Malta between 2012 and 2014. Naturally one cannot expect the MFSA, at the time, to be privy to investigations that have only just been made public. But it is within the regulator’s remit to assess risk the set-up of this bank entailed. The legal and monetary liability, and on-going political risks incurred in doing business with Iran vastly outweigh whatever financial gain there may be for the country.

But it is far easier to ask why Pilatus Bank was never investigated by the police in April 2016, when the FIAU director at the time flagged suspicious practices in a letter to Commissioner of Police Michael Cassar.

More importantly, the arrest has fuelled the narrative that Pilatus Bank is a den of iniquity set up to facilitate questionable money transfers for oligarchs from Azerbaijan. Meanwhile, Muscat’s chief of staff remains in the client-list of this bank… which also means the PM’s headache is here to stay.