EXPLAINER | What is ‘Panamagate’?

What is Panamagate?

Panamagate is a political scandal that has engulfed the Labour government just three years into its administration, following a public declaration by energy and health minister Konrad Mizzi that he held an offshore trust in New Zealand. It turns out that he also held an offshore company in Panama, as well as the Prime Minister’s chief of staff Keith Schembri, after reports posted in the blog of Malta Independent columnist Daphne Caruana Galizia.

How did it break?

Caruana Galizia, whose poison-pen blogposts against all things Labour have become a reference point for the Nationalist opposition, posted two suggestive images in the days building up to Mizzi’s election as deputy leader for party affairs, in which he was the only candidate. The images were those of a Panama hat, and a New Zealand lamb. After Mizzi made a public admission and declared the existence of his trust, Caruana Galizia also revealed that Nexia BT, an audit firm which is also an agent for Panamanian tax consultants Mossack Fonseca, had assisted both Mizzi and Schembri in opening up their offshore companies in Panama.

Konrad Mizzi. Photo: Ray Attard

What is wrong about the offshore companies?

As a government minister, Mizzi has placed himself under suspicion that he is using an offshore company to squirrel away money into a low-tax jurisdiction; his assets in the New Zealand trust, whose beneficiaries are his family, will not be taxed either. So at the very least, his financial set-up suggests tax avoidance; at worst, a possible strategy of hiding money from undisclosed sources, or for him to use a bank account that cannot be traced to his offshore company. As a politically exposed person, Mizzi exercised bad judgement and rested on the wrong kind of advice.

READ MORE • Konrad Mizzi interviewed on his Panama offshore company

Is there any proof of tax avoidance or money laundering?

Nothing except for the bare bones of the financial structure itself, which alone has generated speculation over how much money it was expected to hold, and whether this has any connection with Labour’s opacity when it comes to government contracts, and its decisions to privatise state assets or land without any public call for tenders. All these big question marks are now being placed at the heart of this controversy.

Mizzi says his trustees will manage any future investments on his behalf, so that the money can go to his family trust. He says he has a London property that could be either rented or sold. He also says his Panama company, registered by Mossack Fonseca agents for him, has never traded and that his New Zealand trust is not yet “populated with assets”.

Keith Schembri (centre) with Muscat during the 2013 electoral campaign. Photo: Ray Attard

Less is known of Keith Schembri’s set-up, since Muscat’s right-hand man has said his Kasco business group has overseas interests. He has refused suggestions that he could be a “bag man” using his offshore vehicle for the prime minister’s benefit.

Mizzi has however said he will close down the Panama company and put it to the audit of the Commissioner for Inland Revenue. Oh, and he failed to declare it in the first place, which means he will be fined.

What is the government saying?

Under pressure: Muscat is facing calls for Mizzi's resignation

Joseph Muscat is certainly facing his biggest crisis ever after promising an inclusive government that would be founded on the values of meritocracy and transparency. Its weak point is good governance, even in one of the most positive economic climates ever for the islands.

Muscat has so far stood by his minister because he says Mizzi declared the existence of the trust in a draft declaration of assets prepared for the PM ahead of their tabling in parliament. He compares this assumed straight-dealing with the revelations that a former PN minister, Austin Gatt, had never declared a Swiss bank account in his parliamentary declarations.

But Muscat faces an angry public which does not buy Mizzi’s version that he was about to declare what is essentially an anonymous business set-up, in his parliamentary declaration of assets. He has vowed to take heed of these concerns.

After having already fended off two damning NAO audits on his Café Premier decision, and the Gaffarena expropriation, as well as the resignation of two ministers, Muscat is now facing calls from the Opposition as well as civil society activists to sack Mizzi and Schembri. It is a difficult call, especially when it comes to his right-hand man, who managed his electoral campaign in 2013.

What is the Opposition saying?

PN leader Simon Busuttil addressing the crowd during the PN's protest against corruption • Photo: Ivan Consiglio

Simon Busuttil is demanding the heads of both Mizzi and Schembri, but is also saying that major government contracts should now be investigated by police and money laundering authorities: the sale of Enemalta’s 33% stake to Chinese company Shanghai Electric; the choice of ElectroGas, by international expression of interest, to build Malta’s LNG plant and supply the gas through its partner SOCAR; the privatisations of two under-utilised state hospitals, again by international expression of interest; and Mizzi’s direction to Enemalta to hedge for fuel with SOCAR.

Busuttil led a protest on Sunday 6 March that attracted thousands in a demonstration ‘against corruption’.

Malta's greens, Alternattiva Demokratika, have reiterated similar calls for resignations. But they had presciently called for a ban on fiduciary services back in 2015, an industry which uses name-lenders to assist beneficial owners to hide their company ownerships.