A nightmare started in Panama

What went through the mind of Joseph Muscat, the young social democrat prime minister who once lorded over an unprecedented 36,000 vote majority, when the architect of his Malta Taghna Lkoll campaign, his chief of staff, his childhood friend, had been outed by the Panama Papers as having created a network of offshore companies for his personal gain while in government?

The popular wisdom is that the redoubtable Muscat would have thought that this crisis would blow over just like all the others, as poll after poll kept him in the lead over the flagging Simon Busuttil. Muscat defended Schembri and energy minister Konrad Mizzi, playing down the seriousness of the offshore allegations. But news of the Hearnville and Tillgate company set-ups in 2016 came with disconcerting information that the two men had attempted to open bank accounts at financial institutions. Schembri, a seasoned businessman and newsprint supplier, claimed his offshore interests were nothing new but an extension of his previous business enterprises; but Mizzi’s was a resigning matter.

Muscat did nothing to restore the dented trust in his administration. Trust ratings plummeted. An investigation by the police into – at the very least – suspicions of tax avoidance was not on the cards. Schembri was retained as chief of staff; Mizzi, elected deputy leader for party affairs just a day after he forcibly revealed his New Zealand trust in a reaction to suggestive posts by Malta Independent columnist Daphne Caruana Galizia, was retained as minister under Muscat’s purview. Both men, Muscat would later say, “were too important” for his administration.

But out there, the view was different. The Panama Papers propelled protests led by the Nationalist Party demanding that the two men, and the prime minister, resign. The Financial Intelligence Analysis Unit (FIAU) set out to investigate, but in the summer of 2016, the Commissioner of Police, Michael Cassar resigned soon after receiving the first preliminary report. Soon after, the FIAU executive director, Manfred Galdes resigned.

Although the speculation was that the FIAU was not being allowed to investigate, it turned out – as soon as the 2017 election kicked off – that it had carried out site visits at Pilatus Bank, a private bank where Schembri held a bank account. It also carried out its own investigation into allegations of offshore companies in Dubai, an offshore company set up for one of Shanghai Electric Power’s men in Malta, and into payments paid by Nexia BT managing partner Brian Tonna to Schembri, ostensibly as kickbacks for the sale of Maltese passports.

Throughout 2016, Panama became a taut affair which brought into question the entire Labour administration’s future. Muscat saw his trust ratings dip, and he seemed to weather the incessant questioning with ease. But towards the end of the year, the fissure that Panama had created inside Labour looked like just an unsightly corner of a shabby home.

And then in 2017, came the first rumblings of something new.

Daphne Caruana Galizia posted a photo of Schembri, Mizzi and Muscat (and also John Dalli… why, nobody knows yet) with the title ‘17 Black, A Company In Dubai’. That was back in February 2017.

She was referring to a new company that the FIAU had stumbled upon in their investigations, the alleged 120-page report of which was only made known through excerpts leaked to The Malta Independent during the general election now. It stands to reason that Caruana Galizia was aware of the Dubai connection way back, and was only starting to lay out a trail of breadcrumbs to torment her prey.

The central allegation that could have been formulated by the FIAU, as suggested by what was only selectively published, is that two Dubai companies 17 Black and Mackbridge, had Schembri’s and Mizzi’s two Panama companies as their “target clients”. But more seriously, those Dubai companies would have been the recipients of transactions from Orion Engineering Services, the Maltese company whose Malta address hosts Armada Floating Gas Services Ltd, the owners of the LNG tanker subcontracted by the ElectroGas consortium, who built Malta’s 200MW gas plant.

This last allegation was perhaps the least laboured allegation during the election, and yet it is the only one that seems to connect the Panama companies that Malta learnt about in 2016, with Labour’s key policy plank, the LNG plant.

Which would suggest that when Mizzi and Schembri started forming the companies in 2013 (at least Nexia BT started the paperwork on the companies then…), and looking for an international bank account, the intention could have been to deposit monies from these types of transactions, with Dubai as the possible centre of finance, Panama hiding the true ownership, and the New Zealand trust collecting the monies.

This theory is perhaps reinforced by another FIAU report in which Schembri, a long-time supplier of newsprint to Allied Newspapers, was found depositing considerable sums of cash – commissions, consultancy fees, whatever… – to an investment account in the name of Allied Group’s Adrian Hillman. Opposition leader Simon Busuttil, who took this FIAU report to a magistrate, claimed Schembri was paying money into investment accounts to launder what was effectively a series of bribes.

It was already known in 2016 through the Panama Papers, that Schembri, Hillman and another contractor who worked on Allied Group’s new Progress Press headquarters, had created three Cypriot companies connected to a British Virgin Islands offshore company. Those revelations led to the resignation of Hillman from managing director of the Allied Group, and then an internal inquiry by the company, whose findings were never published. Hillman said both sides reached an out-of-court settlement.

But it is clear that passing money through a Byzantine network of offshore companies, had been a modus operandi of the protagonists of this sordid story.

Added to that were the other allegations that Brian Tonna would have passed on a €100,000 payment into Schembri’s Pilatus Bank account from his own BVI company Willerby Trade: a company which he was actually using to receive fees from successful applicants for the Individual Investor Programme, so that the money flows out of the country. Why did Tonna’s Willerby Trade pay Schembri €100,000 soon after having collected fees from three successful Russian applicants? Schembri says he was being paid back for a 2012 loan he made to Tonna, at the time undergoing separation proceedings. A loan agreement was supplied, but the FIAU seemed convinced this could have been a bogus loan. In any case, it asked the police to investigate.

The FIAU reports became instrumental in understanding why Schembri was using offshore companies and a private bank, allowing him to conduct business in a way that could keep him below the radar of other domestic banks. Schembri has always denied any accusation of wrongdoing, opening multiple libel suits against his accusers, and declaring himself ready to cooperate with the magisterial inquiries that the FIAU reports had precipitated.

But ultimately, the narrative had already been built. The FIAU, itself bound by secrecy with its operations not even made known to its trustees, the Attorney General himself, had actually carried out its job and supplied its report to the police. After Michael Cassar’s resignation in June 2016, ostensibly a week after the first FIAU report landed on his lap, did police carry out an investigation? Acting Commissioner of Police Lawrence Cutajar, widely derided as a Labour stooge, has steadfastly refused to confirm what action the police has taken.

Within this institutional stroke however, it turned out that Malta’s judiciary would take centre-stage, ironically by the hand of the most unverified and clamorous of allegations and on request of the accused himself, the Prime Minister.

It came with the allegation by Labour bête noire Daphne Caruana Galizia that a third, mysterious offshore company, Egrant, belonged to Joseph Muscat’s wife Michelle. She also claimed that the daughter of Azerbaijani ruler Ilham Aliyev had wired $1 million to some Dubai account for the Muscats, through Pilatus Bank. The bank denied that the Muscats were clients. The PM filed a complaint to the Commissioner of Police so that a magisterial inquiry takes place. The inquiry is still ongoing, but up until going to print, an alleged declaration of trust that was supposed to show Michelle Muscat was the beneficial owner of Egrant, has never been published.

The Egrant allegation led to Busuttil calling his party to protest in the streets against corruption. Muscat then tied his political fate to the outcome of the inquiry, but Busuttil refused to commit himself to resign if the alleged ‘calumny’ turned out to have been just that. As soon as Muscat called the snap election, Busuttil took ownership of new, damning revelations in the FIAU reports that targeted Pilatus Bank, the €100,000 passport kickback, and the payments Schembri paid to Hillman’s MFSP investment accounts.   

The Malta Independent fired the last shot with excerpts of what is supposed to be an unconcluded FIAU investigation that would link Mizzi’s and Schembri’s Panama companies to a transaction carried out by Orion Engineering, whose owner is also company secretary of Armada Gas Floating Services. But Mario Pullicino, the owner, has denied the allegation.