The Maltese bank and the shadowy world of Iran sanctions busting

The day after a car bomb claimed the life of Maltese investigative reporter Daphne Caruana Galizia, in October last year, one of the 47 libel suits against her was quietly dropped at a county court in the US.

Maltese private bank Pilatus Bank and its owner, Iran-born Seyed Ali Sadr Hasheminejad, known as Ali Sadr, had filed proceedings against Caruana Galizia earlier last year. The suit came after a series of stories published on her website that claimed Pilatus had laundered funds from allegedly corrupt schemes on behalf of offshore companies and individuals, including Keith Schembri, chief of staff to the Maltese prime minister, Joseph Muscat.

Based in part on the release of files in the Panama Papers, the stories culminated in the claim that Michelle Muscat, the prime minister’s wife, had received $1 million from the daughter of President Ilham Aliyev of Azerbaijan, with the money moving through a Panamanian shell company in transactions facilitated by Pilatus.

Mr Muscat was quick to react, calling the accusations “the greatest lie in Malta’s political history”. Pilatus also responded emphatically. “Pilatus Bank was not set up to criminally launder money … Pilatus Bank has not committed any criminal acts. Mr Sadr has not committed any criminal acts”, the now withdrawn lawsuit filed in May last year says.

The story did not end there. In March, Mr Sadr was arrested in the US and charged on six counts of evading Washington’s sanctions against Iran. Prosecutors claim he organised a scheme, lasting from 2006 to 2014, to illicitly funnel more than $115 million from a Venezuelan housing project to Iranian-controlled companies via western banks.

Prosecutors allege Mr Sadr used “deceptive means” to hide the role of Iranian parties in the US dollar payments. They say that with the help of seven co-conspirators Mr Sadr set up Swiss, Turkish and offshore entities and arranged for funds to be transferred through Swiss and US banks. Mr Sadr had also used a St Kitts and Nevis passport and an address in Dubai, which prosecutors say were intended to mask his Iranian connections.
Denied bail

Following his arrest, Mr Sadr was removed from his role at Pilatus and his voting rights suspended. The Maltese Financial Services Authority hired an experienced former US regulator to take control of the bank’s assets and stopped all transactions, including withdrawals or deposits. Protesters placed a washing machine and pegged fake euro notes on a washing line outside the bank’s headquarters.

Mr Sadr last week pleaded not guilty and was denied bail. “Mr Sadr intends to vigorously defend himself and looks forward to doing so in court,” Baruch Weiss, his lawyer in the sanctions matter, told the Financial Times.

Mr Sadr’s indictment casts rare light on alleged elaborate schemes that have been created by Iranian entities to evade sanctions. It follows the conviction in January of a Turkish banker in a US sanctions case involving fraudulent billion-dollar gold-for-food transactions.

But it also raises uncomfortable questions for Europe. Amid a procession of scandals that have involved banks in Latvia and Cyprus, the arrest of Mr Sadr is the latest in a series of cases in which the ability of European regulators, law enforcement agencies and financial institutions to police money laundering has been called into doubt.

Pilatus is not mentioned in the indictment, which was unsealed on March 20th, and there is no allegation that the bank was involved in the illicit scheme that led to his arrest. However, the indictment revealed that during the time Mr Sadr began the process of applying for and obtaining Pilatus’s banking licence in Malta, he was still involved in the alleged sanctions evasion scheme and was already under investigation by US authorities.

The Financial Times has discovered that in addition to Mr Sadr, another non-executive director of Pilatus Bank, Mustafa Cetinel, was also investigated in the same probe, although he has not been charged.

In recent months, EU lawmakers, prompted by damning intelligence reports from Malta’s anti-money laundering unit, which were leaked to the media, have repeatedly called for an inquiry into Pilatus Bank. The reports found “major” shortcomings in the bank’s anti-money laundering processes and one, from 2016, referred to intelligence that Mr Sadr was being investigated in a foreign jurisdiction for money laundering.
Money laundering

Some of the MEPs have echoed questions raised by Caruana Galizia: how could a then 32-year-old with no public record in banking manage to set up a private Malta bank geared to high net worth individuals and politically connected clients? The bank holds more than €300 million in assets, according to its latest annual report.

And how was that bank able to open a branch office in London at a time when its owner and chairman and a least one other board member were being investigated by US authorities for their alleged involvement in evading US sanctions and money laundering?

For Maltese MEP David Casa, who has campaigned for Pilatus to be investigated, the problem goes beyond Mr Sadr’s alleged subterfuge. It exposes, he says, the inherent weakness of the EU’s “passporting” system, which allows financial companies and banks licensed in one country to transfer their permissions to operate in another EU country.

“The proper functioning of the passporting system is necessarily dependent on the robustness of the procedures carried out by the regulatory authority of the member state in which the entity is licensed,” Mr Casa wrote in a letter to the UK’s Prudential Regulation Authority last month, claiming that regulatory oversight had been compromised in the case of Pilatus.

Danièle Nouy, chairwoman of the European Central Bank supervisory board, told an EU parliamentary committee last month that it was “very embarrassing to depend on the US to do the job”. The ECB does not have a mandate to supervise financial institutions and banks on their compliance with anti-money laundering laws because that role is carried out by local regulators.

Source » irishtimes

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