Political bribery: Fenech seeks to reclaim public funds, Muscat demands resignation

Additional reporting by Miriam Dalli and Matthew Vella

Labour leader Joseph Muscat has called on finance minister Tonio Fenech to shoulder responsiblity over the conclusions into the investigations of fraud inside the VAT department, and the admission of his former private secretary to bribery by political donors.

“It is a damning report on one of the most important departments. And if the VAT department is in such a state, I can’t imagine in which situation the other departments are,” Muscat said about the VAT report, which shed light on the lack of accountability inside the department and an 11% VAT gap yet to be collected by the department.

“If government says some €500 million are to be collected from VAT, the 11% missing amounts to €50 million. In any other Western country, such a report would immediately result in resignations before ink dries on paper. But in Malta, a report which was concluded by February 2010, was only published on insistence of the Opposition.”

Muscat added it was even more worrying that the Director General of the department claims he used to communicate with both Prime Minister Lawrence Gonzi and Finance Minister Tonio Fenech. The latter has defended himself by saying “the minister doesn’t see every report” from the department.

“A full condemnation of a government’s department and no one shoulders political responsibility. This is incredible: no responsibility was taken and there is no hint of resignations – whether it's administrative or political," Muscat said. "All this shows how low the standards of Lawrence Gonzi's government are and which leaves no credentials to Fenech to even attempt speak about political ethics.”

Finance Minister Tonio Fenech’s political future has been severely compromised by an ever-increasing number of scandals. The B’Kara based politician, who only two weeks ago declared that "the Virgin Mary was upset because of the possible introduction of divorce", continues to stand his ground and refuses calls to resign. 

But there is mounting pressure over revelations of politically sensitive scandals that have compromised him as a senior cabinet minister.

Tonio Fenech has ordered the Permanent Secretary within the Ministry of Finance to look into the implications of last Thursday’s court judgement on Noel Borg Hedley, and to establish whether there is basis to reclaim public funds. Borg Hedley, 67 of Gzira, who served as finance minister Tonio Fenech’s private secretary for a number of years, pleaded guilty to pocketing bribes from developers JPM Brothers in a bid to ‘fix’ fines on property valuations within departments that fall under the minister’s remit.

Borg Hedley – who resigned his post as a government appointed director on the board of Gozo Channel Limited the same day he was arrested followed his revelations to MaltaToday on Nevember 8, 2010 –  had admitted that he had accepted the bribes.

He was charged on Thursday, admitted the charges, and received a general interdiction, and a three year conditional discharge. Fenech told MaltaToday that he was “satisfied” that the police investigations established that his former secretary was taking bribes which were not in his name.

However, when questioned about Borg Hedley’s original admission of collecting donations for the minister’s political activities, Fenech said “this was not the case... I have many activists who collect money for political activities but not directly for political campaigning.”

Fenech said Borg Hedley has not formed part of his secretariat since 2007.

Asked whether he would investigate which were the favours Borg Hedley benefitted for the donors, and retract the effects of such intervention for JPM Brothers, a ministry spokesman replied to MaltaToday: “Upon the Court’s judgement whereby it results that Mr Borg Hedley pleaded guilty to receiving bribes, Minister Fenech asked the Permanent Secretary within the Ministry to examine the judgement and its implications, including whether there is a basis to re-claim public funds. The review has already started.”

The spokesman stressed that the minister was not involved in any way in this case, however the ministry failed to clarify with this paper the amounts of money donated by JPM Brothers for the minister’s campaign. The reply was that “the Minister submits his declaration after every election.”

Police dig deeper

As the ministry did neither reply to the question on whether Fenech is expecting that action is taken on JPM Brothers and any other companies or individuals who paid these bribes to his  former aide, senior police officials have confirmed with MaltaToday that JPM Brothers have been placed under investigation and are expected to be charged in court with bribing a government officer.

The former private secretary to Fenech admitted to having received kickbacks from developers JPM Brothers with MaltaToday back in November 2010, for intervening with governmental departments to have fines waivered or reduced on under-declared property sales.

Fenech denied having any commercial relationship with JPM Brothers when asked about the fact that the same donors were allegedly said to have carried out works on his house “as a favour” by a sub-contractor of theirs. This allegation was already denied by Fenech in 2009.

Borg Hedley had admitted to MaltaToday that he initially collected money from the Montebellos as donations to the minister’s political campaign, but then said that he also pocketed some cheques in return for his intervention with departments that fall under the finance ministry.

The former aide said he collected the cheques signed to his name and his wife’s, then cashed the cheques to pay for the minister’s electoral campaign. Shortly after his admission to MaltaToday, he reportedly called Tonio Fenech admitting to having pocketed payments from Montebello brothers Peter and Jeffrey in exchange for his intervention on fines related to the under-valuation of property sales.

The minister immediately referred the case to the Commissioner of Police, who initiated investigations. Fenech had categorically denied knowing of donations from the Montebello brothers for his campaign: “I never intervened to favour Montebello in any way,” he said.

The former official had originally alleged he was instructed by the minister to collect donations from several contributors. “Amongst them were JPM Brothers, and I would go to their office to collect the cheques made in my name. I paid for the electoral expenses myself,” Borg Hedley had said.

Fenech said he did not know of these donations. “In our political system, we depend on our helpers to raise money for our activities, but I never received any monies directly from the Montebello brothers,” Fenech said.

Fenech had also told MaltaToday that his political activities attracted a wide range of constituents, and admitted knowing the Montebellos from his Birkirkara constituency, but claimed that allegations about him having intervened in the Jerma sale were “false and untrue… I never ever intervened to favour Montebello in any way.”

JPM and Tonio Fenech

The same JPM Brothers had been engaged by the finance minister to carry out works on his Balzan residence in 2009. As mega-developers (they were formerly constructing the Mistra Heights development that went belly-up after a multi-million loan call-in) they engaged a sub-contractor to take over works at the Fenech residence.

But when the sub-contractor was not paid his full dues, he revealed to MaltaToday that Peter Montebello had told him the works were “a favour” for the minister’s intervention in the sale of the Jerma Hotel.

As it turned out, the Montebellos wanted to sell their hotel to magnates George Fenech and Joe Gasan, who had presented the Prime Minister their plans to transform the Jerma Palace Hotel into a potential ‘Portomaso of the South’, back in the summer of 2010.

Angling for an urgent sale of the property they had purchased a year before, JPM Brothers were hoping they could settle some outstanding loans with banks and creditors. According to Charles Magro, the director of the sub-contractor Rainbow Projects, it was this sale that Montebello needed to pay him for works on Fenech’s house.

The failure of the sale led to problems at casa Fenech: Rainbow demanded payment from Montebello, who was not forthcoming. So Fenech decided to take matters in hand and pay Rainbow directly. But disagreement ensued between Fenech and Rainbow’s director on the costs. After refusing to push his prices downward, Rainbow’s director Charles Magro blew the whistle, coming out in the open to say that Montebello’s works inside Fenech’s home had been “a favour.”

It was an unfavourable choice for the minister to use the services of JPM Brothers to carry out renovation on his villa: it was questionable given that the Montebellos were involved in large-scale projects such as the €250 million Mistra Heights, the A3 Towers in Paola, and the redevelopment of the Galaxy hotel in Sliema.

Rumours of their worsening financial state of affairs appeared to have been confirmed in March last year by MaltaToday, when this paper revealed how a court had ordered Gemxija Crown Ltd – whose shareholders include Jeffrey and Peter Montebello – to pay up €42.2 million on a defaulting loan taken out with Austrian-owned Bawag Bank. Gemxija is the developer of Mistra Heights, the as yet incomplete luxury tower blocks on the sites of the former Corinthia Mistra Village, in Xemxija.

Unprecedented in Maltese banking history for the value involved, Gemxija’s other shareholder Najeeb al Saleh – chairman of Kuwaiti real estate giant Al Massaleh – confirmed he was in discussions with the Montebellos and has since taken over their share in Mistra Heights.