The wealthy clients of Pilatus Bank

Pilatus Bank, a small private bank opened in Malta in 2013, was perhaps most notorious for its personal, ‘secret’ business model, largely catering for politically exposed persons (PEPs) under strict rules of due diligence.

Having started operations in January 2014, the bank, owned by Ali Sadr Hasheminejad, a US-naturalised Iranian scion from a wealthy family, entered the spotlight in 2017 after Daphne Caruana Galizia claimed the bank had processed a $1 million payment from the Aliyevs of Azerbaijan, to the wife of former prime minister Joseph Muscat.

While this allegation was disproved by a Maltese magisterial inquiry requested by Muscat himself, by then the banks’ other dealings came under scrutiny from financial investigations. In 2018, after Hasheminejad was arrested in the United States over sanctions-busting, an  extensive compliance review from the FIAU and the MFSA was initiated with the bank’s licence being suspended by the European Banking Authority.

The FIAU probe has since been concluded, with the bank now facing a €5 million fine for breaching Malta’s anti-money laundering regulations. The report gives key insights into the sheer wealth that was being passed through the bank, as well as to the types of clients that made use of the bank’s dubious services.

Clients were regularly moving millions from one account to another: one client, involved in the textiles industry, transferred over €6 million and £2 million to another company owned by the same beneficial owner. They said the funds were intended as corporate financing for the shareholder, but the FIAU said the bank failed to query why a trading company would transfer most of its funds to another company, rather than keeping the same to fund its own operations.

A separate client saw a substantial increase in their account turnover, going from €750,000 to €150 million. This would raise some eyebrows in most local banks, but Pilatus Bank wrote it off as a mere business diversification exercise, with no explanation provided on how this diversification had contributed to such an exponential increase in account turnover.

Other clients grossly underestimated the amount of money expected to be placed in their accounts.

One customer initially anticipated €80 million, but ended up receiving over four times this amount, likely around €320 million.

Another customer received the equivalent of €7 million through a first transaction, despite indicating that account activity was expected to be €3 million.

Another way the bank breached its legal obligations was an instance where 15 clients indicated that their source of wealth would be generated from the operations of the same business operation. While their expected turnover should have amounted to €390 million, the financial statements for the specific business operation referred to a comprehensive income of only €23.5 million.

One client is revealed in the report to be a well-known entrepreneur in Azerbaijan and the United Arab Emirates, being involved in various industries including agriculture, food and beverage, retail, and construction. The account turnover for this customer was set to be €5 million, but the bank held no details on the customer’s own assets nor evidence of the business earnings obtained.

A common practice among clients was to transfer money by way of loans, at times repaid within an exceptional short period of time, according to the FIAU.

One client was able to transfer over $3 million in the form of a loan to an external company, while another customer received over €1.9 million from an “ulterior bank customer” in accordance to a loan agreement, for the vague purpose of supporting the company with all costs, liabilities and advances.

Having received 239 million Emirati dirhams from one of its beneficial owners, this customer then transferred €68.5 million to another customer at Pilatus Bank, with the declared purpose being that the transfer was a loan repayment to the beneficial owners of this other customer.

Weirdly, one customer was provided with a $6.5 million loan from Pilatus Bank itself, as secured by its own funds. The bank did not even question the reason for requesting such a loan, as opposed to just using one’s own funds. The economic rationale becomes more doubtful when one considers that the customer was to incur interest on the funds borrowed, and could not make use of its own funds.

If that wasn’t enough to cast doubt on Pilatus Bank’s internal transaction scrutiny, another customer received $1 million from another entity. Pilatus Bank tried to obtain information from the customer, but allowed the transfer to take place despite its requests going unanswered. “More worryingly, the bank misled another local credit institution as it made it believe that it had all the necessary supporting documentation at hand when this was not the case,” the FIAU said.

Another customer received over €11.9 million and $5.45 million from its beneficial owners, then remitted approximately €6.6 million back to the same owners. The transfers weren’t substantiated with any form of documentary evidence, the report says, not even an explanation as to the rationale behind these transfers.

While not mentioned in the report, both former chief of staff Keith Schembri and Nexia BT managing partner Brian Tonna held accounts at Pilatus Bank, making use of a similar loan arrangement to transfer money.

Schembri received two payments totalling €100,000 in his account held at Pilatus Bank, with the funds originating from Tonna’s BVI company Willerby Trade Inc. This was first alleged by former Opposition leader Simon Busuttil back in 2017, who claimed that the €100,000 payment was a kickback transferred between the two from the sale of Maltese passports to Russian nationals.

At the time, Schembri insisted that this €100,000 was a payment to settle a loan. However, when Schembri and Tonna testified in a separate inquiry, they said that they didn’t remember how and when the money was passed, but they passed on three documents detailing the loan agreement and assignment.

During the Nexia BT court sittings in March, the prosecuting inspector cast doubts on whether the loan was needed in the first place. Schembri and Tonna’s version of events was that the loan was secured because Tonna was worried about finances, but the inspector pointed out that Tonna had deposits, cheques, and cash running into the thousands.