Parents who gambled away charity donations: why was it money laundering?

A couple from Mosta handed a hefty €50,000 fine for gambling away charity donations meant for their son’s cancer treatment, were accused of money laundering in court.

Now on probation and also obliged to return the €35,000 in charity they received, the Debattista couple were charged in a case described in court as an act of “self-laundering” – meaning, the laundering of one’s proceeds without hiding the criminal origin of the cash.

A financial crime expert told MaltaToday that the mere possession and use of funds or assets obtained though an offence – in this case, a charity donation that was not used for its intended purpose – can result in money laundering, so long as the person knows or suspects that those funds or assets were generated through the commission of a criminal offence.

In this case, once the charity donations received by the couple were diverted towards gambling, at that point a crime had taken place, because they money was effectively ‘stolen’ from its intended purpose.

The money now had become a criminal gain, and by putting it into circulation to be gambled, any net gains from say a legal betting transaction, would have ‘cleaned’ the cash, making it ‘good’.

In the case of the Debattista couple, the fraudulent gains made through their first gambling wins and then subsequently lost, meant there had been no net gain from the money laundering.

But the crime of laundering the cash – stealing the charity received to use in gambling – was upheld.

In Malta, money laundering is any act or attempt to conceal or disguise the proceeds of a predicate offence. It also includes ownership, control, disposition or movement of such proceeds with the intent to evade the legal consequences of the predicate offence, or to assist any person involved in the offence, to evade those legal consequences.

Predicate offences include a wide range of criminal activities: drug trafficking, fraud, corruption, extortion, racketeering, tax evasion, and many others.

“A formalistic approach could result in anyone committing a criminal offence also facing money laundering charges – the criminal is usually the one who comes into immediate possession of any funds or assets generated from an illegal activity, and he is likely to be the main person to make use of them,” the expert said.

However, in other cases, beyond the mere possession of illicit gains or cash, money laundering in other cases includes putting those gains into circulation – for example, exchanging the cash from the proceeds of drug trafficking, for a property or a luxury vehicle – to ‘clean’ the money and conceal its unlawful origin.

High-level laundering cases

In recent years, the Maltese police have instituted legal proceedings in cases of high-level money laundering, including against former OPM chief of staff Keith Schembri and Pilatus Bank.

Keith Schembri, the once-powerful chief of staff to former prime minister Joseph Muscat, was charged with corruption and money laundering back in 2021. The charges stem from allegations made by former PN leader Simon Busuttil, based on information in the hands of the late journalist Daphne Caruana Galizia, that Schembri had transferred €650,000 through various offshore companies that were paid out to third parties in the form of financial instruments.

Here, the predicate offence was the corruption of Allied Newspapers and Progress Press, where profits were made to the detriment of Progress Press. Through his companies, Schembri is alleged to have channelled parts of those profits to former Allied employees Adrian Hillman and Vincent Buhagiar, in the form of a gift or personal gain. Hillman and Buhagiar were themselves accused of defrauding the same company they held directorships in.

The criminal origin of the profits was hidden by moving the money through a series of transactions – ‘layering’. As a police inspector testified in court, “what should have been a relatively simple transaction became a convoluted series of transactions intended to hide commissions... coordinated by the same people who were involved in the deal”.

Months later, Pilatus Bank was charged with money laundering. The private bank was shuttered in November 2018 when the European Central Bank revoked its license. The bank had been thrown into the spotlight during the 2017 general election when Caruana Galizia alleged that the former prime minister’s wife Michelle Muscat owned the Panama company Egrant, which had an account at Pilatus. But a magisterial inquiry into the allegations found no such account attested to Egrant or Michelle Muscat, and dismissed the claims.

Yet the bank was eventually hit with a €5 million penalty from the FIAU, after the money laundering watchdog found serious and systemic failures in the bank’s due diligence. And Pilatus owner Ali Sadr Hasheminejad was arrested in the United States on charges of sanctions-busting, later dropped in a rare expungement by the US District Attorney. The arrest however prompted the ECB to withdraw the bank’s licence.

But in Malta, the police suspect the bank was being used for money laundering, and that Pilatus failed to flag politically-exposed persons and document their source of wealth and funds.

What about ‘pettier’ crimes?

In lesser caes of money laundering, a Sliema grocer was charged with money laundering in 2017 for using his store to cash people’s cheques, which is illegal. Almost moonlighting as a banker, the grocer cashed cheques from third parties, charging a minor commission which went in to his day’s takings, and would then cash the cheques himself.

Since this is a service offered only by banks, the man was accused of offering banking services and providing services relating to finance without the necessary licenses. And by concealing the origin of the illegal gains, this would be a case of money laundering.

Another couple who ran a butcher’s shop, were also charged with money laundering because they allowed customers to pay with social benefit cheques. They too were charged of operating an unlicensed financial institution and money laundering. And similarly, a couple who ran a confectionery were also charged with the same crimes for cashing clients’ cheques.