Malta’s embattled prime minister, Joseph Muscat, is facing a growing rebellion in Brussels, where MEPs are openly calling for his departure amid a growing corruption scandal involving his wife, a Panamanian shell company and alleged payments from the president of Azerbaijan’s daughter.
The Mediterranean island state’s presidency of the EU, which began in January, has been rocked by allegations of money laundering and kickbacks. Malta’s spell at the helm of the union has done nothing to airbrush its reputation as a haven for dark money, and with the entire European project now at stake, it is becoming a source of anxiety and embarrassment in Brussels.
The scandal began last year with the publication of the Panama Papers, a leak of 11.5m documents from the offshore law firm Mossack Fonseca. In a series of twists that could have been lifted from the pages of a spy thriller, matters came to a head last month.
The owner of a Maltese private bank – who is alleged to have held accounts for shell companies belonging to Muscat’s wife, two of his closest Labour party allies and the Azeri president’s daughter Leyla Aliyeva – was filmed leaving his offices at night, with bags reporters claim contained documents.
A whistleblower from the bank in question, Pilatus, has alleged that police tried to intimidate her and she is being prosecuted following a complaint from her former employer. She was arrested last year, her passports were confiscated, and she says she was refused permission to leave Malta to attend her mother’s funeral.
Now the leader of the opposition claims he has proof that Muscat’s chief of staff, Keith Schembri, accepted bribes from the sale of Maltese passports to wealthy Russians, with money again routed offshore.
The allegations against Muscat, which he denies, are the subject of a judicial inquiry opened last month at the prime minister’s own request.
The claims against Schembri will now be investigated separately. He said: “There is no evidence whatsoever to substantiate the allegation of ‘kickbacks’ for passports, and nor would I have the motive.”
Pilatus denies ever having held any of the alleged accounts, or carrying out transactions relating to them.
On Monday 1 May Muscat called a snap election, nine months before the end of his term.
“The latest developments and allegations place at stake the credibility of the EU,” said Molly Scott Cato, a Green MEP and member of the European parliament’s Panama Papers inquiry into money laundering and tax evasion.
Last week, in a move calculated to increase the pressure on Muscat, the European parliament inquiry invited him to give evidence on 18 May, when he will be in in Strasbourg on official business. It has no power to compel him to attend. The leader responded immediately, saying now was not the right time.
“The prime minister is happy to appear in front of the European parliamentary committee,” his office told the Guardian. “In order to present as complete a picture as possible, the prime minister will do so once the independent magisterial inquiry – which he requested himself – is concluded.”
The files of Mossack Fonseca revealed last year that Schembri, with the then energy minister, Konrad Mizzi, had set up Panama-registered companies four months after entering office in 2013. A third shell company, Egrant, was created at the same time by the same Maltese accountant. The name of its ultimate owner was so sensitive, leaked emails show, that it was only disclosed on a Skype call and not in writing. His or her identity remained a mystery.
Muscat brushed off calls to dismiss Mizzi and Schembri, and his administration appeared to have weathered the storm.
However, on 20 April this year, the investigative journalist Daphne Caruana Galizia reignited the scandal. On her blog, she claimed to have evidence that Egrant ultimately belonged to the prime minister’s wife, Michelle Muscat.
She alleged that a series of payments, in the form of loans, had been routed to Egrant. The largest, for $1.017m, was allegedly made in March last year. They are claimed to have come from an account at Pilatus bank belonging to Al Sahra FZCO. And the owner of Al Sahra was allegedly the daughter of Azerbaijan’s leader, Ilham Aliyev.
The connection has raised eyebrows because the two countries have significant dealings in the energy sector. Azerbaijan’s state oil company is a shareholder in Malta’s new power station.
Muscat and his wife deny receiving payments or having any connection to Egrant and say they will sue for libel. They point out that no document proving the allegations has been published or handed to the magistrate.
On the evening of 20 April, reporters were tipped off that the lights were on in the offices of Pilatus Bank, which overlook the Msida yacht marina.
An individual was filmed emerging from a side door and was later identified as Iranian national Seyed Ali Sadr Hasheminejad, the owner and chairman of Pilatus. Hasheminejad says he was at his offices preparing for a board meeting and the bags were just personal luggage from a business trip.
Last week, a Russian national who had worked as his assistant at the bank, came forward as Caruana’s source in an anonymous newspaper interview. She talked of having found and scanned paperwork naming Michelle Muscat in a safe. She claims the safe was kept in the kitchen at Pilatus Bank, because there was no CCTV in that room. The bank denies the existence of such a safe.
She claims she was sacked in March 2016. The bank has since accused her of fraud and misappropriation, which she denies. She was arrested inAugust.
“I was taken to police headquarters,” she told the Malta Independent. “When I tried to phone my lawyer to tell him what was happening, one of the police officers pushed me roughly against a wall and snatched my phone out of my hands.” She is on bail and cannot leave the country. The police insist they have behaved correctly and did not mistreat her.
Muscat’s office is dismissing the entire affair as a “politically motivated attack”, and has asked the leader of the opposition to step down if his allegations are found to have been a fabrication.
Malta’s voters go to the polls on 3 June. Last December, the Labour party had spoken openly of securing a landslide – a prediction that now looks far from certain. The offshore leak that led to the resignation of Iceland’s prime minister a year ago is threatening to end the career of another head of state.