A Malta magistrate is investigating explosive claims of money laundering and corruption that have put New Zealand in the middle of a global cash trail from the family of Azerbaijan president Ilham Aliyev.
President Aliyev’s daughter, Leyla Aliyeva, is alleged to have channelled more than $1.5 million to senior figures of the Malta government, including Prime Minister Joseph Muscat’s wife.
These include alleged payments to Panama companies owned by New Zealand trusts set up by the Malta Energy Minister Karl Mizzi and Mr Muscat’s chief of staff, Keith Schembri.
New Zealand changed its laws on offshore trusts last year, after revelations by The Australian Financial Review based on the Panama Papers about Maltese government figures using New Zealand trusts.
But the latest revelations, which relate to the same trusts, raise doubts over the effectiveness of the New Zealand government’s attempts to stop money laundering through its offshore trusts.
The Malta inquiry centres on Pilatus Bank Ltd, set up in Malta in December 2013 by Seyed Ali Sadr Hasheminejad, an Iranian with a St Kitts & Nevis passport.
Pilatus, which won a Category 2 offshore banking licence in August 2015, draws much of its business from figures linked to the brutal regime in Azerbaijan.
Pilatus Bank’s three largest clients are reported to be Azerbaijan Cabinet Minister Kamaladdin Heydarov, the president’s daughter, Leyla Aliyeva, and her brother Heydar Aliyev.
Other clients are reported to include the son of the dictator of Angola, Jose Eduardo Paulino dos Santos.
Mr Hasheminejad has denied any improper dealings but said he was unable to confirm or deny the identity of any clients.
Last Thursday, April 20, Maltese blogger Daphne Caruana-Galizia reported that she held copies of documents originally stored in a kitchen at Pilatus Bank, which showed that Egrant Inc, a mystery Panama Papers company identified by the Financial Review last year, was secretly owned by the Maltese Prime Minister’s wife, Michelle Muscat.
In March 2016 a Dubai company controlled by Leyla Aliyeva had transferred $US1.017 million ($1.35 million) marked as a loan into Egrant’s account at Pilatus Bank, Ms Caruana-Galizia reported.
Mr Muscat denied the claims, calling it the “biggest political lie in Malta’s history”.
Ms Caruana-Galizia reported that other payments were made from Leyla Aliyeva’s company to Pilatus accounts held by Egrant as well as Tillgate Inc and Hearnville Inc, two Panama companies that she and the Financial Review reported last year are owned by Mr Schembri and Mr Mizzi, through New Zealand trusts.
Mr Schembri and Mr Mizzi vehemently deny Ms Caruana-Galizia’s reports. Mr Mizzi has produced audited accounts for his New Zealand trust which shows it as dormant with no assets or income.
Mr Muscat announced on April 20 that magistrate Aaron Buge would conduct an inquiry into the allegations.
In a controversial energy deal the Maltese government in 2013 contracted with a consortium led by the State Oil Company of Azerbaijan Republic (SOCAR), which has financed a string of luxury yachts and homes across the world for the Aliyev family, to build a power station and gasification plant in Malta, with SOCAR taking an 18-year contract to supply LPG to Malta.
In 2015 Malta’s auditor general questioned €14 million lost on fuel hedging contracts that the government-owned EneMalta took with SOCAR “at ministerial direction” from Mr Mizzi.
The latest revelations if substantiated are an embarrassment for the New Zealand government, which announced an inquiry into its offshore trust laws on April 11 last year, the day after the Financial Review revealed details of how Panama law firm Mossack Fonseca’s Malta agent, BT Nexia, began setting up Tillson, Hearnville and Egrant five days after Mr Muscat’s election victory in 2013.
Mossack Fonseca’s files were obtained by the International Consortium of Investigative Journalists and German newspaper Süddeutsche Zeitung.
New Zealand subsequently amended its offshore trusts regime, requiring foreign trusts to file annual accounts with the New Zealand tax office, but with no further restrictions.
At that time it appeared the Malta trusts had never been used, after Mr Mizzi and Mr Schembri’s Panama companies were turned down by eight banks who refused to open accounts for them because they were Politically Exposed Persons (PEPs).
The Panama Papers, however, show repeated cases of overseas investors filing false or implausible sets of accounts with New Zealand lawyers, who have limited means to verify the figures.
The latest wave of allegations in Malta underline how easily the New Zealand disclosure laws can be avoided, which the new laws do not change.
If the reports are substantiated they raise a far more serious picture of money-laundering, from one of the most corrupt countries in the world, in which New Zealand’s foreign trusts played a significant role.
The saga began in February 2016 when a Ms Caruana-Galizia revealed that Mr Schembri and Mr Mizzi had set up two Panama companies, Tillgate Inc and Hearnville Inc, owned by the Haast Trust and Rotorua Trust in New Zealand.
In April 2016 the Financial Review published new details of Mr Schembri and Mr Mizzi’s New Zealand trusts and their attempts to open a bank account in Dubai.
Mossack Fonseca’s Malta files read like a whodunit.
The Financial Review revealed that on March 14, 2013, just five days after the huge election win that swept Mr Muscat’s Labour Party to power, Mossack Fonseca’s Malta agent, Nexia BT, had begun the process of setting up a Panama company and a trust.
The beneficial owner of the Panama company would be an individual whose name would only be passed in an (encrypted) Skype call, a Nexia partner emailed Mossack Fonseca.
On August 8, 2013, Mossack Fonseca set up not only the two Panama companies for Mr Schembri and Mr Mizzi (Tillgate and Hearnville), but also a third Panama company, Egrant Inc.
Frenzy of coverage
The Financial Review revelations set off a year of speculation in Malta on the identity of the owner of Egrant. Nexia chief executive Brian Tonna said that Egrant (which does not have a New Zealand trust) was merely a shelf company he bought for himself.
Ms Caruana-Galizia’s blog post on April 20 last week that linked Michelle Muscat to Egrant set off a frenzy of media coverage, which intensified after Pilatus’s chairman Mr Hasheminejad flew into Malta that evening and was filmed by local media carrying two suitcases out of the bank’s back door at 9pm.
At 11.30 that night Mr Muscat announced that magistrate Aaron Buge would conduct an inquiry into the allegations. The choice of magistrate is controversial because Mr Buge was Mr Muscat’s first judicial appointment after coming to power in 2013.
After huge public protests on the weekend, Malta’s Opposition Leader Simon Busuttil on Tuesday announced he had documents that showed Nexia’s Brian Tonna paid Mr Schembri’s account at Pilatus €100,000 ($145,000), after receiving €166,831 from three Russian nationals who had applied for Maltese citizenship.
“Today I can confirm that the Prime Minister’s chief-of-staff Keith Schembri has an account at Pilatus Bank,” Mr Busuttil said. “I can also confirm that in this account there are deposits stemming from bribery in the sale of Maltese citizenship.”
Mr Schembri said the claim of kickbacks was a “blatant lie” and the transfer was the repayment of a loan.