Shaky banks, Ponzi and Panama hats

How the mighty have fallen into disgrace with the recent news about a Belgian judge charging Swiss bank UBS with money laundering and serious and organised tax fraud. As can be expected, the famous UBS bank declared that it would continue to defend itself against any unfounded allegations.

So scandals about secret Panama accounts are not exclusive to the Maltese islands, even though the independent papers seem to imply that a conspiracy is in full throttle aimed to tarnish our financial services industry. In 2014 French authorities placed UBS under formal examination and the investigating judges ordered the  ubiquitous institution  to provide bail of €1.1 billion.

Back home last year we read about the shocking revelations about a well known listed company, GlobalCapital, against whose ex-chairman, Dawood Rawat (a Mauritian tycoon), an international arrest warrant was allegedly issued on suspicions of money laundering, fraud, and embezzlement of funds, for diverting the investments of his clients by illegally transferring the funds to other countries.

He resigned as GlobalCapital plc chairman after ITS shareholder BAI Co. Ltd had to go under the stewardship of a conservator, ordered by the financial services commission of Mauritius. In its defence ,GlobalCapital said its business and operation in Malta were totally separate and distinct from those of any of its shareholders, including BAI, and that the appointment of conservators for BAI did not relate to the business, operations or assets of GlobalCapital Plc. The plot thickens as Kristy Debono, shadow minister of finance, in parliament reported claims of lending malpractices at BoV – according to her informants.

These allegations  were rebutted by Bank of Valletta after they compiled an internal audit and submitted a confidential report to banking supervisors which found no traces of malpractices. The external auditors, PriceWaterhouse did not comment on the allegations. Last month in the midst of the Panama Papers controversy, Kristy Debono added more pressure on the BoV after she insisted (and published a full article in TOM) that she stands by her allegations of bad loans.

The qualified economist insisted that the internal investigation “left much to be desired”, as it had not probed individual files yet she refused to provide information on the matter – stating she would not compromise her sources. The unsavoury story reeks of loans given to people who were not credit worthy and to companies with connections to people in power.

As yet, no official probe has been undertaken by the MFSA or the banking supervisors or PWC, the external auditors. BoV has in the past been subject to several infringement notices by the MFSA in its dealing with a subsidiary fund company which administered a failed La Valette fund. The Gonzi administration was voted to power by a whisker in 2008 and many agreed that this episode was a thorn in its side. In fact it was in June 2012, that the MFSA (after a number of unit holders took the matter to court)  imposed an administrative penalty of €203,150 on BoV, which together with its subsidiary was found negligent in relation to the selling of units in the La Valette Multi-Manager Property Fund to investors.

This fund lost about €50 million. More excitement hit the headlines in April after the discovery of a Panama account opened by a local minister – this was confirmed in Panama Papers (previously disclosed by an Opposition party blogger). All this overshadowed the news that a local online bank went into administration. Nemea was registered locally a few months after the PN won the election  in March 2008. MaltaToday, revealed in a rare scoop that Nemea had appointed ex prime minister Lawrence Gonzi a director in September, 2008. He was in charge of finance, although records in the last officially published Nemea accounts did not reveal him as a director.

Niemelä and Mika Lehto are the founders and chairmen of the bank. The last available published accounts of 2012 show as a sole local director Joseph F.X. Zahra. Under the Gonzi administration he was appointed to top positions of power, including the chairmanship of the delicate task involving the changeover from the domestic currency to euro. As a managing director of Misco, itself a leading recruiter and producer of many confidential reports commissioned by the government, he was well regarded by the Gonzi administration and appointed as chairman of the Middlesea insurance company, placed as a director on BoV.

Misco co-directors have all been highly regarded as political appointees by the Gonzi administration and enjoyed patronage as directors of major government-run institutions. So it is no surprise that ex-prime minister Lawrence Gonzi joined him on the board of directors of Nemea bank in 2008. He was in good company, given that the Finnish bank is audited by Deloitte, one of the “Big Four” global audit firms.
Surfing the website one finds that Nemea offers term deposit accounts fully protected by the EU Depositor Compensation Scheme. This fact is used to calm any fears and in the words of Martin Chetcuti, Head of Sales and Deposits, that Nemea is an online bank with a lean, innovative structure and business model, which takes  pride in offering rates that compete exceptionally across all markets within the EU/EEA area, across borders, jurisdictions and currencies. The bank encourages savers to take advantage of this opportunity to earn “very attractive guaranteed returns.”

The overriding principle in the new term deposit rates is to reward medium term savings plans by maintaining highly competitive rates for maturities of over two years, including retaining its exceptional 4.00% rate for five-year term deposit accounts.
As an afterthought, one may be tempted to compare the local Cedoli 2016 which invites  tranches of €10,000  from party faithful to loan the Opposition party coffers in an unsecured and no guarantees given fund  (having no fixed term of repayment) paying the princely rate of 4% per annum, but the cherry on the cake is – maximum secrecy of the donors/ investors. Back on Nemea warnings were issued during the last 12 months by the ECB (now fully responsible for local banks) on  the “serious regulatory shortcomings”.

This begs the question – why have such warnings on Nemea not gravitated to the MFSA. Is it a matter of too many cooks spoil the broth or was it lethargy on the local regulator, who waited for the dust to settle. Last month the media reported that an urgent meeting was convened by senior officials from the finance ministry, the Central Bank, and the MFSA. They agreed in unison to place Nemea Bank under administration.

Have we acted in the classical way and serendipitously closed the barn door after the horse has bolted? But again, who in his senses would risk placing his/ her savings in a bank paying a high rate of 4% per annum. Were we deaf to the risks carried by Belgian and Dutch depositors being targeted by the online bank with some of Europe’s highest interest rates. Sadly, depositors can now only withdraw €250 each. No one knows the solvency position, as no official declaration has been issued so far by Joe Bannister, chairman of the MFSA, to hapless depositors following the compilation by PWC of a statement of affairs which he nominated as administrators.

Pressure has been mounting on Bannister to resign, based on a conflict of interest over his declared Cayman directorships. Last month, he ignored a request for comment by MaltaToday after having reportedly declared holding a Nemea Bank account to other members on the regulator’s board. No wrongdoing is being suggested, but Bannister did not answer questions on warnings from the European Central Bank on Nemea bank over the past 12 months, which may not have been treated with urgency.

In conclusion, there is no joy to read about shaky banks, Ponzi schemes and other financial shenanigans so perhaps the newly appointed financial arbiter can probe into the matter and painstakingly start to entertain complaints from Nemea depositors.

George Mangion is a senior partner of PKF, an audit and consultancy firm, and has over 25 years’ experience in accounting, taxation, financial and consultancy services. His efforts have seen that PKF Malta has been instrumental in establishing many companies in Malta and placed PKF in the forefront as professional financial service providers on the Island. He can be contacted at [email protected] or on +356 21493041.