Pilatus Bank: Court hears how suspicious activity was not reported to authorities

A magisterial inquiry into Pilatus Bank’s operations identified several instances where suspicious activity was not reported to authorities, the court heard on Friday.

The compilation of evidence against Pilatus Bank and its former MLRO Claude-Anne Sant Fournier kicked off on Friday, with several members of the police force testifying.

Keith Vella, a former police officer, was first to testify on the investigation. He recalled how police had received confidential information about Pilatus Bank, specifying that it could have been used for money laundering.

Following this, a magisterial inquiry into the bank was launched in November 2019.

Police officers asked the bank staff to leave the premises, and €52,000 and £20,000 were taken from the bank as evidence.

A firm was eventually appointed to scan and index the information stored on the bank’s servers, and every physical document in the bank was scanned and added to the record of the inquiry.

When the magisterial inquiry was concluded in December 2020, the magistrate directed the police to take criminal action against the bank, Sant Fournier, “and other persons”.

The police officer added that there were several instances where suspicious activity was not reported to the authorities, according to the inquiry.  The bank failed to flag PEPs and document their source of wealth and funds or monitor them, and accounts were opened without all the paperwork being in order.

In April 2021 a search warrant was issued on Sant Fournier. She was arrested and interrogated, but opted not to answer any questions because she wanted disclosure.

Stefano Filletti, Sant Fournier’s defence lawyer, tried asking the police official who the source of the report was, but the official said he could not do so, citing confidentiality.

A former inspector, Matthew Vella, corroborated most of what Keith Vella said. Police had received confidential information about practices adopted by the bank, including possible assistance to money laundering.

Court-appointed experts took scans of every document under the bank’s posession, including hard disks and bank servers.

He added that the source of the initial report against the bank were the FIAU and MFSA.

A witness from the MFSA testified on Sant Fournier, explaining that she was a lawyer by profession and had attended several AML courses.

However, when lawyer Kathleen Calleja Grima asks whether Sant Fournier had prior experience as an MLRO, she stated that she hadn’t.

KPMG and MFSA had discussed the lack of a bank in the shareholder structure at Pilatus. At the time, banks needed a bank of repute in the shareholding structure, but this policy had changed for macroeconomic reasons.

To safeguard the fact that there was no "bank behind the bank", the MFSA had asked for limitation of liability on deposit compensator scheme.

The bank's UBO, Sadr, had required enhanced due diligence, as he was born in Iran and was a citizen of St Kitts and Nevis, so the MFSA appointed an internationally recognised third party to carry out enhanced due diligence.

10:59 That's it for today. Thank you for following today's sitting with us. Come back shortly for a comprehensive write-up on the case. Nicole Meilak

10:55 The next sitting is thus scheduled for Wednesday 29 September at 1pm. Nicole Meilak

10:52 Calleja Grima points out that the current investigating inspectors have not testified, only those who had retired from the force before the conclusion of the investigation. "We need this evidence to contest prima facie" she says. Nicole Meilak

10:50 That's all the witnesses for today. The bank is not contesting prima facie. Calleja Grima says the defence will be contesting prima facie only with regards to Sant Fournier in her personal capacity to the charges against her. This without prejudice to the merits of the case, notes the court. Nicole Meilak

10:47 The prosecution has no further questions as they precede his appointment. Nicole Meilak

10:46 He is the first ever person in this post, having started in 2020. His previous role was in the enforcement team, which consisted of 10 persons. Nicole Meilak

10:44 Anthony Eddington, who leads the financial crime compliance department at the MFSA, takes stand now. Nicole Meilak

10:40 In 2015, due diligence was not carried out on Sant Fournier or the UBO as they had already been approved. Internal checks and general internet searches were carried out. Nicole Meilak

10:37 A new witness, Ian Meli, from the MFSA takes the stand. He testifies about the licence for investment services issued to the bank. Nicole Meilak

10:35 The bank's UBO, Sadr, had required enhanced due diligence, as he was born in Iran and was a citizen of St Kitts and Nevis, so the MFSA appointed an internationally recognised third party to carry out enhanced due diligence. Nicole Meilak

10:34 To safeguard the fact that there was no "bank behind the bank", the MFSA had asked for limitation of liability on deposit compensator scheme. Nicole Meilak

10:31 KPMG and MFSA had discussed the lack of a bank in the shareholder structure at Pilatus. At the time, banks needed a bank of repute in the shareholding structure, but this policy had changed for macroeconomic reasons. Nicole Meilak

10:27 Sant Fournier was a lawyer by profession and had attended several AML courses. She had no background problems, said the witness. Lawyer Kathleen Calleja Grima asks whether Sant Fournier had prior experience as an MLRO. She hadn't, and had required approval from the MFSA. Nicole Meilak

10:25 Sant Fournier was a lawyer by profession and had attended several AML courses. She had no background problems, said the witness. Nicole Meilak

10:23 The MFSA had exhibited boxes of evidence to the inquiry, including the original documents. MLROs are regulated by procedures of the FIAU, said Galea. The MFSA investigates the integrity and competence of the person. Internet searches are carried out and past employers and universities are contacted. Nicole Meilak

10:18 Kathrine Galea from the MFSA is summoned to the stand. She is exempted from professional secrecy. She testifies about the registration of the bank and Sant Fournier as a director. Nicole Meilak

10:15 A JobsPlus representative testifies next. He presents Sant Fournier's employment history. Nicole Meilak

10:14 Legal procurator Quentin Tanti takes the stand. He represents the Malta Business Registry (MBR). He presents documentation held about the bank and Sant Fournier. Nicole Meilak

10:08 Filletti asks whether criminal action had ever been instituted against a bank for administrative shortcomings. "I don't believe so," replies Vella. Nicole Meilak

10:07 The MFSA and FIAU had appointed a firm of experts to assist them. The magistrate had to appoint another firm of similar capabilities. The witness says lawyer Martin Bajada had helped identify a firm, as the original experts were ex-parte (appointed by one of the parties). Nicole Meilak

10:03 Filletti asks about the source of the initial report against the bank. There were two, said the witness - FIAU and MFSA. Nicole Meilak

10:02 The inspector left the force in 2019 and never saw the conclusions. He was not involved in statements of searches, he said. Nicole Meilak

10:01 The magistrate had appointed foreign experts in forensic accountancy and related fields. The experts had taken a scan of every document in the bank as well as the hard disks and servers of the bank. Nicole Meilak

09:58 He had discussed the issue with his superiors and the Attorney General (AG), and a magisterial inquiry was requested. Nicole Meilak

09:57 Former inspector Matthew Vella takes the stand now. He said the police had received confidential information about practises adopted by the bank, including possible assistance to money laundering. Nicole Meilak

09:55 Filletti suspends his testimony, to think about the question on the confidential source. Nicole Meilak

09:54 The defence asks whether police investigated Sant Fournier personally. “By the time I left the force an investigation had started, but I wasn't involved directly." Nicole Meilak

09:51 He confirmed however that she later stated that she was going to be arraigned anyway and wanted to testify in court. Nicole Meilak

09:50 After the inquiry was closed and the conclusions of the magistrate were made, Sant Fournier was spoken to by the police. “Why did she opt for silence?” the lawyer asks.

"She wanted disclosure." Nicole Meilak

09:47 "She was spoken to after the inquiry," the witness says. Nicole Meilak

09:46 “Do we agree that the expert had usurped his position and reached a conclusion?” asks Filletti. “Did the police feel the need to speak to Sant Fournier?” Nicole Meilak

09:45 Reminder: Lawrence Connell is an American banking veteran who was appointed controller of Pilatus Bank in 2019. The bank protested his appointment, claiming that it cost USD600,000 (€523,000) per annum in remuneration fees alone. Nicole Meilak

09:42 Filletti points out that Lawrence Connell had been placed as competent person by the state. He was also questioned. Nicole Meilak

09:40 The witness refuses to answer. Filetti asks why Sant Fournier had not been spoken to when the bank was being investigated. "She was a suspect and we didn't want to infringe her rights" replies the former officer. Nicole Meilak

09:39 Filletti suggests that the FIAU had passed on the information.

"The law covers the source. Chapter 373."

Filletti continues. "Is it the same FIAU that fined the same bank €5 million by any chance?" Nicole Meilak

09:37 Filletti asks why it is confidential. "I cannot reveal this source," the former police officer continues. Nicole Meilak

09:36 Stefano Filletti, Sant Fournier’s defence lawyer, cross-examines the witness. The lawyer asks who filed the report that started the investigation.

"Confidential," the witness replies. Nicole Meilak

09:34 In April 2021 a search warrant was issued on Sant Fournier. She was arrested and interrogated, but she opted not to answer any questions. She was eventually released on police bail. Nicole Meilak

09:34 Sant Fournier was the bank’s MLRO (money laundering reporting officer). There were several instances where suspicious activity was not reported to the authorities, said the inquiry. The bank failed to flag PEPs and document their source of wealth and funds or monitor them, and accounts were opened without all the paperwork being in order. These were among other conclusions of the experts appointed by the magisterial inquiry. Nicole Meilak

09:31 The scanning and indexing took place under the supervision of a court-appointed expert. In December 2020, the magisterial inquiry was concluded and the magistrate directed the police to take criminal action against the bank, Sant Fournier "and other persons" he said. Nicole Meilak

09:29 A competent person was appointed by the MFSA, and a firm was appointed to scan and index the information stored on the bank's servers. Every physical document in the bank was scanned and added to the record of the inquiry. Nicole Meilak

09:28 The police had received confidential information about Pilatus Bank, specifying that it could have been used for money laundering. On 2 Nov 2018, a magisterial inquiry into the bank was launched. Police officers asked the bank staff to leave the premises, while €52,000 and £20,000 were taken from the bank premises as evidence. Nicole Meilak

09:27 So far, court has ironed out some procedural issues. The former police officer Keith Vella is first to testify. He had been a police officer from 2010 to 2021, and in the last four years worked as an inspector in the Anti Money Laundering squad. Nicole Meilak

09:25 Good morning. Follow us live as we report the compilation of evidence against Pilatus Bank and its former MLRO. Nicole Meilak