Making a Malta You Can’t Refuse: Iran Sanctions and Money Laundering Investigation Reaches Pilatus Bank in Malta


Malta

The U.S. criminal charges against Ali Sadr Hasheminejad, described in Part One of this blog, exposed an alleged international sanctions evasion and money laundering scheme created by one of the wealthiest families in Iran, using passports for sale from St. Kitts & Nevis, Swiss and Turkish shell companies, Swiss bank accounts, and U.S. real estate.  The arrest of Mr. Hasheminejad has set off a chain of events in Malta, where he was chairman of Pilatus Bank.  Mr. Hasheminejad’s role at Pilatus Bank raises questions about whether the alleged sanctions evasion and money laundering conspiracy extended to Malta, and whether any upcoming investigations will compromise Malta’s drive to become a magnet for cryptocurrency and blockchain businesses.

Pilatus Bank and Corruption in Malta

Pilatus Bank is a recently founded financial institution that had ambitious Europe-wide plans and significant political connections in Malta.  Licensed by the Malta Financial Services Authority (MFSA) in January 2014, with Ali Sadr Hasheminejad as chairman at the age of 34, the bank had its headquarters in Malta and a branch in London opened in April 2017, passported into the U.K. under its banking license issued by an EU member state.  The bank announced plans to become a Europe-wide FinTech player providing online banking services to the “mass affluent.”  Its chairman apparently established extensive connections to Malta’s current political leaders.  Maltese media has reported that Prime Minister Joseph Muscat attended Mr. Hasheminejad’s wedding in Venice in 2015, along with his chief of staff Keith Schembri and financial sector and media figures.

Allegations of Pilatus Bank involvement in money laundering have existed since 2017, connected to corruption controversies in Malta.  In April 2017, Maltese investigative journalist Daphne Caruana Galizia, who had been reporting on corruption in Malta on her blog since 2008, published allegations by a Pilatus Bank employee turned whistleblower that a daughter of the president of Azerbaijan had used the bank to transfer funds to a Panama company owned by the wife of Malta’s Prime Minister.  This revelation occurred after Ms. Caruana Galizia had in 2016 uncovered the appearance of Keith Schembri and then-Minister for Energy (now Minister for Tourism) Konrad Mizzi in the Panama Papers.  Ms. Caruana Galizia was assassinated in October 2017, killed by a bomb in her car.  The whistleblower, Maria Efimova, a Russian who had previously worked in Cyprus, fled Malta after the assassination of Ms. Caruana Galizia and resurfaced in Greece.  A Greek court ruled on April 12 that she should not be extradited to either Malta or Cyprus, which each have issued a warrant for her arrest based on disputes with Pilatus Bank and a previous employer in Cyprus.

Pilatus Bank Under Scrutiny

After the arrest of Ali Sadr Hasheminejad, Maltese, EU and U.S. authorities have made initial steps toward addressing the problems involving Pilatus Bank.  The MFSA ordered the removal of Mr. Hasheminejad from his position as chairman and from any executive roles at the bank and directed the bank not to allow any transactions by him, directors, senior management, or any persons connected to or related to them.  The MFSA also directed the bank to obtain prior MFSA approval before any movement of the bank’s assets, which it later clarified applied to the assets of all clients.  Members of the European Parliament, which had held a hearing to question Prime Minister Muscat about corruption allegations in June 2017, have called for an investigation by EU authorities.  Moreover, according to Maltese press reports, the FBI was preparing to visit Malta to investigate Mr. Hasheminejad’s activities at Pilatus Bank.

Investigations of Pilatus Bank activities from 2014 to 2018 may expose a far more sophisticated and widespread money laundering operation than Mr. Hasheminejad’s alleged actions with family members from 2010 to 2013.  The allegations of money laundering from Azerbaijan through Pilatus Bank may have reported an isolated transaction, or they may be only the tip of the iceberg at a financial institution used by politically exposed persons in Malta and other countries for transfers of proceeds of corruption.  The Daphne Project, a group of journalists continuing the investigative work of Daphne Caruana Galizia, has reported that the families of leading Azerbaijani officials used Pilatus Bank to move their money to Europe.  Such a role for Pilatus Bank would make Mr. Hasheminejad’s alleged actions that were the basis for his U.S. arrest resemble those of Fredo Corleone in The Godfather: Part II, sent off on random tasks for the family while wishing that he could establish something of his own.  At Pilatus Bank he may have taken what he learned from 2010 to 2013 and applied it on a larger scale at an EU country registered financial institution of his own.  (The resemblance between the name of Pilatus Bank and that of Pontius Pilatus, aka Pontius Pilate, famous for washing his hands of responsibility, carries an implication of laundering, but it was unclear as of writing whether there is any connection between the names.)

Freedom, or Fredo?

The appearance of problems at Pilatus Bank that went unaddressed until after the arrest of Mr. Hasheminejad is especially troubling because of actions by the government of Malta intended to bring international investors and businesses, touted as promoting economic freedom, that may instead make Malta a jurisdiction that money launderers and other financial criminals cannot refuse. 

One is Malta’s citizenship-by-investment program, introduced in 2013 as the Individual Investor Program by the newly elected government of Prime Minister Muscat.  The Individual Investor Program was another issue that Daphne Caruana Galizia had crusaded against, since October 2013.  Malta being an EU country in the Schengen Area, its passports are especially desirable to wealthy individuals seeking unrestricted access to Europe and other benefits.  For example, ABLV Bank, the Latvian bank that became the subject of a USA PATRIOT Act Section 311 action in February 2018, has since July 2014 posted on its website an advisory recommending Malta’s citizenship by investment program for its “numerous advantages,” including dual citizenship, tax advantages, visa-free entry to over 160 countries, and permanent residence in all EU states.  Ali Sadr Hasheminejad formed Pilatus Bank in the same year as the creation of the Individual Investor Program, after his alleged use of St. Kitts & Nevis passports as key elements of his family’s sanctions evasion and money laundering scheme in 2010-13. 

Another is Malta’s initiatives to become a magnet for cryptocurrency and blockchain businesses.  Malta, which has already established itself as an offshore jurisdiction for internet-based businesses and derives as much as 12 percent of its GDP from the online gaming industry, has become a jurisdiction chosen by cryptocurrency exchanges fleeing regulation in other countries.  The government of Malta has further proposed a Virtual Currencies Act regulating initial coin offerings (ICOs) and other virtual currency activity in order to further attract cryptocurrency and blockchain businesses.  The lack of MFSA action with respect to Pilatus Bank until after the U.S. arrest of Mr. Hasheminejad raises questions about the ability of the MFSA and the government of Malta to supervise financial services, however, making an influx of cryptocurrency and blockchain businesses cause for concern.  Domestic and international scrutiny of this issue has not yet begun, but Pilatus Bank’s abortive plans to become a Europe-wide FinTech institution may draw EU attention toward it.

As of the beginning of May, what Maltese, EU, or U.S. authorities may do with respect to Pilatus Bank was not apparent, and there was no evidence of international responses to Malta’s Individual Investor Program and cryptocurrency and blockchain initiatives.  They are issues to watch for later in 2018 and in following years as the U.S. criminal case against Ali Sadr Hasheminejad proceeds and any EU or Maltese actions emerge. 

Editor's Note: This is part two of a two-part piece.  Part one, Isn’t It Iranic: Iran Sanctions Evasion in Washington – Who Would Have Thought It Figures, was published Monday, May 7.